Legislature(2011 - 2012)HOUSE FINANCE 519
02/10/2011 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Transferable Tax Credit Presentation--lennie Dees, Master Tax Auditor, Department of Revenue | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 10, 2011
1:41 p.m.
1:41:03 PM
CALL TO ORDER
Co-Chair Thomas called the House Finance Committee meeting
to order at 1:41 p.m.
MEMBERS PRESENT
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Co-Chair
Representative Anna Fairclough, Vice-Chair
Representative Mia Costello
Representative Mike Doogan
Representative Bryce Edgmon
Representative Les Gara
Representative David Guttenberg
Representative Mark Neuman
Representative Tammie Wilson
MEMBERS ABSENT
Representative Reggie Joule
ALSO PRESENT
Representative Kyle Johansen, Bruce Tangeman, Deputy
Commissioner, Department of Revenue; Lennie Dees, Master
Tax Auditor, Department of Revenue.
SUMMARY
^Transferable tax credit presentation--Lennie Dees, Master
Tax Auditor, Department of Revenue
1:41:09 PM
Co-Chair Thomas introduced the legislators and
presentation.
Representative Gara introduced a constituent from his
district.
BRUCE TANGEMAN, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE
introduced himself. He explained that the inception of tax
credits offered in the state was 2006. The tax credit
system is complex and dynamic.
LENNIE DEES, MASTER TAX AUDITOR, DEPARTMENT OF REVENUE,
introduced the PowerPoint presentation "Production Tax
Credits (copy on file)."
1:44:18 PM
Mr. Dees discussed Slide 3: "Types of Production Tax
Credits,"
Credits which may be taken against oil and gas
production taxes include:
„Capital Expenditure Credits
„Alternative Tax Credits for Oil and Gas
Exploration
„Net Operating Loss ("NOL") Carry Forward
Credits
„Transitional Investment Expenditure ("TIE")
Credit
„Additional Nontransferable Tax Credits
„Well Lease Expenditures Credit
„Cook Inlet Jack-up Rig Credit
Representative Guttenberg asked about industry standards
for the mentioned credits. He asked if the credits were
conjured in Alaska. Mr. Dees responded that the capital
expenditure credits utilize the same standards required by
the internal revenue code.
Representative Gara asked about credits that apply to the
North Slope. He asked how credits might be combined for a
field such as Prudhoe Bay.
Mr. Dees replied that for Prudhoe Bay, a currently
developing oil field, the most applicable credits are the
capital expenditure credit, net operating loss credit, and
the additional nontransferable credit. The alternative
credits for oil and gas exploration are available for a new
discovery outside of an existing unit.
1:48:33 PM
Representative Gara pointed out that some of the credits
are observed as percentages and others as dollars. Mr. Dees
agreed. He noted that the capital expenditure credit is a
20 percent credit. The alternative tax credit for oil and
gas exploration is either a 30 or 40 percent credit
depending on the project. The net operating loss credit is
a 25 percent credit. The transitional investment
expenditure credit is a credit based on a percentage of
capital expense occurring prior to the Petroleum Production
Tax (PPT). The additional non-transferable tax credit is
strictly based on dollars. The small producer credit is a
$12 million credit for companies producing less than 50
thousand barrels of oil per day. He noted that the well
lease expenditure credit is based on 40 percent of certain
types of well lease expenditures and is applicable in areas
south of 68 degrees north latitude, which is considered the
North Slope. He added that the Cook Inlet jack-up rig
credit is based on a percentage of the first $25 million of
expenditures for the first three taxpayers using a jack up
rig in the Cook Inlet area.
Representative Gara discussed the various combinations of
credits that might provide even greater advantages for the
oil companies.
1:52:27 PM
Mr. Dees discussed Slide 4: "Timelines for Production Tax
Credits." He explained that the credits came into existence
with PPT. He detailed the various credits: The net
operating loss credit is offered when a company suffers a
loss and their lease expenditures exceed revenues. The
credits underwent changes with ACES. The statute was
changed so only 50 percent of the tax liability could be
taken in the year earned. The well lease expenditure credit
became effective July 1, 2010 for intangible drilling costs
and seismic activity within an existing unit in areas south
of the North Slope.
1:55:03 PM
Mr. Dees continued that the Transitional Investment
Expenditure Credits (TIE) credits were effective January 1,
2008 and available to those companies or producers without
prior production. He mentioned the new area development
credit for $6 million came into existence at the inception
of the Alaskan Clear and Equitable Share (ACES). The small
producer credit of $12 million came into existence at the
inception of PPT. He finished with the Cook Inlet jack-up
rig credit enacted last year and effective July 1, 2010.
1:57:17 PM
Vice-chair Fairclough asked if the new area development
credit began with ACES or PPT. Mr. Dees replied PPT.
Mr. Dees addressed Slide 5: "Types of Production Tax
Credits,"
Capital Expenditure Credits - (AS 43.55.023(a) (1))
†20% of qualified capital expenditures (QCE)
†QCE include drilling, construction of
facilities, new equipment, etc.
†Same expenditures may also qualify for NOL
Carry Forward Credit
†Same expenditures do not qualify for
exploration credit
†Must be spread over 2 years (except for
expenditures incurred south of 68 degrees
North latitude - effective July 1, 2010)
†Credits may be cashed or transferred
Capital Expenditure Credits- (AS 43.55.023(a) (1))
· 20 percent of qualified capital expenditures
· QCE include drilling, construction of facilities,
new equipment, etc.
· Same expenditures do not qualify for exploration
credit
· Must be spread over two years (except for
expenditures incurred south of 68 degrees North
latitude- effective July 1, 2010)
· Credits may be cashed or transferred
2:00:57 PM
Mr. Dees discussed Slide 6 "Types of Production Tax
Credits,"
Exploration Credits
†Two Main Types
„Capital Credit for Exploration Activity
43.55.023(a) (2) (20%)
„Alternative Tax Credits for Oil and Gas
Exploration 43.55.025 (30%-40%)
2:01:58 PM
Mr. Dees discussed Slide 7: "Types of Production tax
Credits,"
Capital Credit for Exploration Activity 43.55.023(a)
(2)
†20% of qualifying expenditures
†Qualifying expenditures related to geologic
and geophysical exploration, or in
connection with an exploration well
†Must be spread across 2 years (except for
expenditures incurred south of 68 degrees
North latitude - effective July 1, 2010)
†Same expenditures may also qualify for NOL
Carry Forward Credits
†Credits may be cashed or transferred
Mr. Dees discussed Slide 8: "Types of Production tax
Credits,"
Exploration Credits
†Two Main Types
„Capital Credit for Exploration Activity
under 43.55.023(a) (2) (20%)
„Alternative Tax Credits for Oil and Gas
Exploration under 43.55.025
(30%-40%)
Mr. Dees discussed Slide 9: "Types of Production tax
Credits,"
Alternative Tax Credits for Oil and Gas Exploration -
43.55.025
†30% - 40% of qualified expenditures
depending on well location and proximity to
existing wells and unit boundaries
†Qualified expenditures include certain
expenses associated with seismic and
geophysical exploration work, and
exploration well drilling
†Same expenditures may also qualify for NOL
Carry Forward Credit
†Same expenditures do not qualify for Capital
Expenditure Credit
†To receive credit, taxpayer must provide
certain well data to DNR
†Expires 2016
†Credits may be cashed or transferred
2:04:53 PM
Representative Gara asked about the various credits and the
existing wells. He asked if the alternative tax credit for
oil and gas exploration was applied for often. Mr. Dees
replied yes.
Representative Gara asked to know the location of the
credit's use. Mr. Dees replied that many areas in the North
Slope utilized the alternative tax credit. Representative
Gara asked if it was used in an area where development has
occurred. Mr. Tangeman offered to provide information to
the committee at a later date.
Representative Doogan asked why the credits were stackable.
Mr. Dees responded that the Alaska statutes allow the
stacking of the credits. He stated that exclusion by
statute is necessary to prevent the stacking of the
credits. He provided the example of the Cook Inlet jack-up
rig credit where those credits obtained in the section
cannot be used in AS 43.55.023.
Mr. Tangeman added that the goal of the stackable credits
was to provide further incentive to the oil companies.
Representative Guttenberg asked about coordination and
communication between DOR and the Department of Natural
Resources (DNR). Mr. Dees replied that the alternative tax
credit requires that an audit is performed prior to issuing
the credit. An application received requires the sharing of
information with DNR as part of the process.
Vice-chair Fairclough asked if it was typical for credits
to be stacked on national and international levels. Mr.
Dees replied that only Alaska offers this type of
production tax statute.
Vice-chair Fairclough asked if the purpose of the statute
was to provide incentive to the oil companies. Mr. Dees
stated that he was not able to comment.
Vice-chair Fairclough pointed out that the particular
incentive was to inspire exploration and must be used for
development past the 2008 cycle.
2:11:08 PM
Mr. Dees responded yes, the 30 to 40 percent credit
requires activity beyond July 1, 2008. An application for a
period prior to July 1, 2008 falls under the old PPT
statute granting 20 to 40 percent.
Vice-chair Fairclough concluded that the legislature
intended that the tax credits incentivize a pipeline that
was in decline.
Representative Costello asked if any tax credits apply
specifically to fields that are not unitized. Mr. Dees
responded that the credits apply to leases and properties
within the state. Some cases deal with leases and others
with units. These particular credits imply that they
include only activity that is outside of the unit.
Representative Costello asked how often companies transfer
tax credits. Mr. Dees replied occasionally. He claimed that
activity waned in recent years. He opined that the change
may have inspired last year's law eliminating the 24 month
reinvestment requirement. Representative Costello asked the
reason for the waning. Mr. Dees believed that reinvestment
might be the reason for the waning.
Mr. Dees commented that under both PPT and the original
ACES a person with a transferable tax credit certificate
who wished to sell to the state must show that they spent
an additional percentage of qualified capital expenditures
in order for the state to cash the credit out. The 24 month
reinvestment requirement became a problem for some
companies.
2:15:54 PM
Representative Neuman wondered if specific well data was
sealed from other companies. Mr. Dees replied that the well
data is available after a period of time.
Co-Chair Thomas presented a scenario to explain the
disclosure of well data.
2:17:25 PM
Representative Gara recalled that in 2007, legislators were
told that the remaining oil on the North Slope was more
difficult and expensive to locate and that the stacking of
credits combined with deductions were necessary to provide
generous investment incentives to spur development. He
commented that oil production has declined since 1990.
Mr. Tangeman offered to speak to the number of credits
applied for, but he believed that the producers must speak
to the effectiveness of the process.
2:19:09 PM
Mr. Dees discussed Slide 10: "Types of Production tax
Credits,"
Alternative Tax Credits for Oil and Gas Exploration -
43.55.025
†30% - 40% of qualified expenditures
depending on well location and proximity to
existing wells and unit boundaries
†Qualified expenditures include certain
expenses associated with seismic and
geophysical exploration work, and
exploration well drilling
†Same expenditures may also qualify for NOL
Carry Forward Credit
†Same expenditures do not qualify for Capital
Expenditure Credit
†To receive credit, taxpayer must provide
certain well data to DNR
†Expires 2016
†Credits may be cashed or transferred
Mr. Dees addressed Slide 11: "Types of Production tax
Credits,"
Transitional Investment Expenditure (TIE) Credits
43.55.023(i)
†Credit equals 20% of qualifying capital
expenditures:
„ incurred between March 31, 2001 and
April 1, 2006, and
„ not exceeding 10% of the capital
expenditures incurred between March 31,
2006 and January 1, 2008.
†Revised under Aces to cover only producer or
explorer not having production prior to
January 1, 2008
†Credits are not transferable and may not be
carried forward beyond 2013
†Same capital expenditures may not qualify
for exploration credit under 43.55.025
2:21:34 PM
Representative Guttenberg asked about the point "not
exceeding 10 percent of the capital expenditures incurred
between March 31, 2006 and January 1, 2008." He wondered if
the state completed the 2006 North Slope production audits.
Mr. Dees replied that the department is "substantially
complete" with the 2006 audit.
Representative Guttenberg clarified that the state does not
have all of the necessary information to aid in future
policy. Mr. Dees concurred.
Mr. Dees discussed Slide 12: "Types of Production tax
Credits,"
Additional Nontransferable Tax Credit- 43.55.024(a)
†Referred to as "New Area Development" credit
†Up to $6 million
†Available for companies producing from
leases or properties outside of Cook Inlet
and North Slope
†Credit can only be applied against tax
liability
†Expires 2016 or 9 years after first
commercial oil or gas production if before
May 1, 2016
†Credits may not be cashed or transferred or
carried forward
2:24:07 PM
Mr. Dees discussed Slide 13: "Types of Production tax
Credits,"
Small Producer Credit - 43.55.024(c)
†Up to $12 million, depending upon level of
production
†Available for companies producing less than
100,000 bbl/day of oil BTU-equivalent
†Production not restricted by region
†Credit can only be applied against tax
liability
†Expires 2016 or 9 years after first
commercial oil or gas production if before
May 1, 2016
†Credits may not be cashed or transferred or
carried forward
Representative Guttenberg asked why the small producer
credit is not transferred, carried forward, or cashed.
Mr. Dees replied that the credit is not based on a level of
capital expenditure. He noted that the credit is based on
production of less than 50 thousand barrels per day. He
added that AS 43.55.024(a) is based on production outside
of Cook Inlet or the North Slope.
Representative Gara asked if the credit applies to fields
already in production prior to the inception of the credit.
Mr. Dees replied yes, although expiration occurs after nine
years.
2:27:23 PM
Representative Gara pointed out that only two fields
produce more than 100 thousand barrels per day on the North
Slope. He noted that the credit applies to virtually every
field except for Kuparuk and Prudhoe Bay. He opposed
incentives that provide money for production already in
place. Mr. Dees concurred. He added that the credit has
little impact on the state budget because a company can
only apply for the amount of their tax liability.
2:29:16 PM
Mr. Dees noted Slide 14: "Types of Production tax Credits,"
Well Lease Expenditure Credit - 43.55.023(l)
†40% of well lease expenditures incurred in
the state south of 68 degrees north latitude
†Must be intangible drilling costs or
geological / geophysical exploration
†Credit may be applied against tax liability,
or certificated and cashed or transferred to
another taxpayer
2:31:27 PM
Representative Guttenberg asked if the well lease
expenditure credit had been used. Mr. Dees replied that the
credit went into effect July 1, 2010. He stated that the
department received a few applications for the credit. The
companies are required to provide their yearend true-up
filings with the department on March 31, 2011.
Representative Guttenberg stated that the purposes for the
credits and lease expenditures were to encourage the
industry to produce, but the credits were for required
activities.
2:33:56 PM
Mr. Dees continued with the presentation with slide 15:
"Types of Production Tax Credits,"
Cook Inlet Jack-Up Rig Credit - 43.55.025(l)
†Credit of 100%/90%/80% of up to $25 million
each of exploration expenditures for first 3
unaffiliated persons drilling wells using
the same jack up rig penetrating and
evaluating prospects in the pre-Tertiary
zone.
†Taxpayer obtaining credit may not claim .023
credit for same expenditures
†50% of credit to be repaid over 10 year
period if well yields sustained production
2:35:16 PM
Representative Neuman queried the effective date of March
31, 2010, and wondered if there was an application
deadline. Mr. Dees replied that he was not aware of a
deadline.
Representative Neuman asked about a specific deadline for
the drilling of the wells. Mr. Dees stated that he was not
aware of a specific deadline in the statute.
Representative Neuman wondered about protection for the
state when various wells are operating under one corporate
umbrella. Mr. Tangeman stated that the question was better
suited for the Department of Law (DOL). He stated that the
deadline applied only for the first well drilled.
Representative Neuman wondered if wells were considered
separate if they came off a lateral line from the main
well. Mr. Dees was unsure.
2:37:27 PM
Vice-chair Fairclough asked if repayment of 50 percent of
the credit over ten years calculated $25 million for the
first person on the scene. Mr. Dees replied that if the
well was successful and sustained commercial production,
then the repayment would be 50 percent of the $25 million
for the first well. The second well is eligible for $22.5
million.
2:38:35 PM
Mr. Dees discussed Slide 17: "Credits Applied Against
Production Tax Liability,"
Cook Inlet Jack-Up Rig Credit - 43.55.025(l)
†Credit of 100%/90%/80% of up to $25 million
each of exploration expenditures for first 3
unaffiliated persons drilling wells using
the same jack up rig penetrating and
evaluating prospects in the pre-Tertiary
zone.
†Taxpayer obtaining credit may not claim .023
credit for same expenditures
†50% of credit to be repaid over 10 year
period if well yields sustained production
2:39:37 PM
Mr. Dees displayed Slide 18: "Production Tax Credits
Applied Against Tax Liability (Fiscal Year)." He explained
that that when the taxpayer performs its monthly
installment or annual tax filing, they withhold the amount
of the credit taken. The deduction comes from the amount
paid to the state. The table illustrates the type of
credits seen on some tax filings.
2:42:04 PM
Mr. Dees discussed Slide 19: "Production Tax Credits
Applied Against Tax Liability."
Representative Gara pointed out Slide 18, and queried the
TIE credit. The credit was for the prior year's
investments. He remarked that by removing the TIE credits,
capital credits have raised every year since 2008. Mr. Dees
agreed with Representative Gara's assessment.
2:44:17 PM
Representative Guttenberg queried the exploration credits,
and the percentage of expenditures for the amount in the
years represented. He wished to assess the amount of
exploration. He remarked on seismic research in Alaska. He
requested further conversations with DNR regarding the
amount of exploration and the representative credits.
2:45:38 PM
Mr. Dees continued with Slide 21: "Timeline for processing
of Transferable Credit under AS 43.55.023 (a)." He
explained that the explorers who apply for those
certificates undertake the illustrated timeline. Under the
established regulations, taxpayers can apply for
certificates on a quarterly basis. The graph exhibits the
timeframe that DOR has to complete the process and deliver
the credits. The department has 120 days after March 31st
following the year that the expenditures were incurred to
either grant or deny the tax credit. The department
endeavors to hurry the process further than the statute
mandates. Once the taxpayer receives their transferable tax
certificate, they are able to apply for cash. Typically,
from the time that an expenditure is made to the time that
cash is applied for is 18 months.
2:48:47 PM
Representative Guttenberg wondered if the timeline is
shortened with the expertise and efficiency of the master
auditors. Mr. Dees responded that the processes have been
streamlined with additional auditors. He noted that a
department group was created to address tax credit
applications. He pointed out that audit work is currently
performed up-front, but the statutes allow audit rights at
any time. A due diligence review is performed following the
application process. Certain information of the
expenditures is requested. He noted that the formal audit
process comes later.
Representative Guttenberg asked again about the 2006
audits. He wondered if audits would be performed faster in
the future.
Mr. Dees responded that a tax credit application is
different than a filing. He noted that tax filings are for
producers that pay the tax liability and perform the true
up. The tax credit applications exist for those taxpayers
without a tax liability. He noted the right to audit after
the fact, but in most cases, the due diligence review is
sufficient.
2:52:20 PM
Representative Neuman asked if a time limit for the
mentioned look-back period was applicable. Mr. Dees replied
that the assessment period for a tax filing is six years.
He explained that the tax is calculated on the calendar
year and by March 31 of the following year will provide the
true-up calculation.
Representative Neuman asked if unpaid taxis require an
interest payment. Mr. Dees replied that the department uses
the federal short term monthly interest rates.
Representative Gara commented on the gross tax, which was
deemed more reliable and required less auditing. He
recalled that sufficient auditors were not available to
ensure accurate payments for the taxes owed. He asked the
department's opinion about the amount of auditors. Mr.
Tangeman stated that the audit master positions helped a
great deal. He noted that 2006 was the first audit that
included a net tax. He believed that the current amount of
auditors was sufficient.
2:57:05 PM
Representative Costello asked the result of the audits. Mr.
Tangeman responded that confidentiality issues compromise
his ability to disclose the information.
Mr. Tangeman commented on areas that will be contested due
to varying interpretations of the statute.
Mr. Dees detailed Slide 22: "Timeline for processing a
Transferable Tax Credit Certificate under AS 43.55.023(b)."
He stated that the loss can only be interpreted at the end
of the calendar year.
Mr. Dees discussed Slide 23: "Timeline for Application for
AS 43.55.025 Alternative Credit for Oil and Gas
Exploration." He explained that the taxpayer/producer has
six months to file for the credit following completion of
the project. If a taxpayer has a tax liability, and they
are submitting a claim, they are allowed to offset the
claim against the liability. Adjustments in the eventual
amount of the credit through audit lead to assessment of
the difference.
3:00:59 PM
Mr. Dees discussed Slide 24: "Transferable Tax Credit
Certificates"
Companies may also claim tax credits by applying for a
Transferable Tax Credit Certificate (TTCC)
†Available to companies (explorers) with no
tax liability to which credits can be
applied
†Tax Credit Certificates under 43.55.023(a)
and (b) must be split or applied over two
years (except credits issued for
expenditures incurred south of 68 degrees
North latitude effective July 1, 2010)
†May be transferred to another taxpayer or
cashed with the state
Mr. Dees discussed Slide 25: "Production Tax Credits Under
AS 43.55 Claimed by FY ($M)." The graph illustrates
activity witnessed since the inception of the credits.
Representative Guttenberg asked if the category titled pre-
2007 included all activity prior to 2007. Mr. Dees
responded yes.
Representative Wilson asked if the legislature could
ascertain the effectiveness of specific credits. Mr.
Tangeman thought it impossible to tie barrels of oil
produced to a certain tax credit. He believed that
confidentiality issues would prevent the gleaning of the
requested information.
Representative Wilson wished to ascertain the effectiveness
of certain tax credits. Mr. Tangeman responded that a
decline curve would be difficult to employ in deducing
barrels of oil produced.
3:06:14 PM
Representative Neuman asked if the years illustrated were
fiscal years or calendar years. Mr. Tangeman responded
fiscal years.
Representative Neuman asked about the story told by the
data about successful investments in Alaska. Mr. Tangeman
responded that tax credits are applied for and used.
Activity occurred for tax credit applications. He believed
that DNR could provide additional information regarding
production. He claimed that DOR can show how much of the
credit system is used. The results of the credit system are
not the specialty of DOR.
Representative Gara commented on the net operating loss
credit. He asked about the money spent on the operating
loss credits and whether the wells became productive. Mr.
Tangeman offered to research the question and report to the
committee.
3:08:37 PM
Co-Chair Thomas asked if a tax break for royalties might
simplify the process for the oil industry. Mr. Tangeman
stated that the tax credits are observed during the current
meeting, but the producers might speak to the needs of the
industry.
3:10:45 PM
Representative Gara commented that DOR reported recently
that capital credit applications were working. The
governor's proposal claims that the current system is not
effective. He stated that he was provided with various
answers from the department.
Mr. Tangeman stated that the system itself is working. The
industry is taking advantage of the credits offered.
Capital investment was up. The individual successes are
difficult to discern. He stated that the credits and tax
rates are an important equation.
Representative Guttenberg added that the state wishes to
see an increase in exploration. He wondered if the credits
were effective in increasing production. He asked where the
revenue forecast indicated that the credits have the
desired effect. Mr. Tangeman responded that the system is
working for the department. He was not prepared to discuss
the results. He stated that he would discuss results when
the governor's bill was presented.
3:16:13 PM
Co-Chair Thomas commented on the increased use of tax
credits.
Mr. Tangeman stated that he relies on the industry to
provide information about their plans. The credit estimates
are based on industry testimony.
Mr. Dees added that Slide 25 depicted information received
through January 4, 2011. He expected to receive more
applications.
Mr. Dees introduced Slide 26: "Transferable Tax Credit
Certificates." He commented that the chart was a graphical
depiction of the previous slide.
Mr. Dees discussed Slide 27: "Transferable Tax Credit
Certificate Activity by Fiscal Year ($M). He explained that
the slide depicts the dollar value issued each fiscal year,
the amount refunded, and the amount transferred or applied
to taxes. As of February 4, 2011, the state had
approximately $73 million worth of transferable tax credit
certificates outstanding and available to be submitted for
cash.
Representative Guttenberg asked if the fiscal year basis is
consistent throughout industry and the departments.
3:19:56 PM
Mr. Dees replied that most taxpayers operate on a calendar
year basis. The state's basis is converted to the fiscal
year. He noted that the refunded amounts tie to the amount
paid in fiscal years. With the elimination of the 24 month
reinvestment period, the state encountered increased
activity in the processing the claims for cash refunds of
the credit certificates. The projection is for a $430
million impact of production tax credits. He added that the
department uses the fiscal year to interpret information
viewed on other state financial statements.
Mr. Dees discussed Slide 29: "Cash Refunds History,"
Cash Refunds Governed by AS 43.55.028:
• To cash must be usable against tax liability
• Must show subsequent (24 months) QCEs or lease bids
equal to cash sought (repealed in 2010)
• Have a zero tax owed in current and past years
• Have no more than 50,000 BOE/d
3:23:41 PM
Mr. Dees discussed Slide 30: "Cash Refunds History." The
slide illustrated the tax credits purchased by fiscal year
from 2007 through 2/4/11.
Mr. Dees discussed Slide 31: "Cash Refunds History." The
slide provides an overview of the oil and gas tax credit
fund. The current balance of the fund is $75 million.
Representative Guttenberg wondered what would occur if
further appropriations were not made. Mr. Dees responded
that the statute reads that the state would refund tax
credits as the appropriations are available.
3:25:37 PM
Mr. Dees illustrated Slide 32: "Impact of Production Tax
Credits Total State Stimulus." He explained that the slide
depicts the total impact of the stimulus since the
inception of PPT on a fiscal year basis.
Mr. Dees introduced Slide 33: "Capital Expenditures by Year
($M)."
Representative Doogan referred to Slide 31 and understood
that the industry spent $2.7 billion in capital
expenditures and $900 million was then refunded by the
state. He deduced that the state covers one third of the
costs with the oil industry responsible for two thirds of
the costs. Mr. Dees pointed out the lag time for the
transferrable tax credit certificates. Expenditures that
gave rise to the credits occurred in earlier periods. He
did not recommend the comparison.
3:29:31 PM
Representative Doogan asked if the numbers presented
represent a one third, two third comparison. Mr. Dees
concurred.
Representative Neuman asked about credits sold from one
company to another. He wondered about the average price for
of the credits. Mr. Dees replied that he was unaware of the
average price because the transaction is between two
private companies. The state honors the certificate at full
value. Mr. Tangeman added that the change in the law states
that a company is not required to hold the certificate for
a full 24 months and then reinvest the like amount. The
certificates can be turned in for cash immediately, thus
eliminating the market.
3:32:00 PM
ADJOURNMENT
The meeting was adjourned at 3:32 PM
| Document Name | Date/Time | Subjects |
|---|---|---|
| Production Tax Credits for 02.10.11 House Finance Committee.pdf |
HFIN 2/10/2011 1:30:00 PM |