Legislature(1995 - 1996)
03/22/1995 02:10 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
MARCH 22, 1995
2:10 P.M.
TAPE HFC 95 - 59, Side 1, #000 - end.
TAPE HFC 95 - 59, Side 2, #000 - end.
TAPE HFC 95 - 60, Side 1, #000 - #247.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 2:10 P.M.
PRESENT
Co-Chair Hanley Representative Kohring
Co-Chair Foster Representative Martin
Representative Mulder Representative Navarre
Representative Brown Representative Parnell
Representative Grussendorf Representative Therriault
Representative Kelly
ALSO PRESENT
Representative Joe Green; Jeff Logan, Staff, Representative
Green; Brooke Miles, Juneau Branch Administrator, Alaska
Public Officers Commission; Deborah Vogt, Deputy
Commissioner, Department of Revenue; Paul Dick, Juneau
Operations, Income & Excise Audit Division, Department of
Revenue; John Walsh, Staff, Representative Foster;
Representative Al Vezey; Joe Ryan, Staff, Representative
Vezey; Neil MacKinnon, Alaska Miners Commission, Juneau;
Jules Tileston, Division of Mining, Department of Natural
Resources; Steve Borell, Executive Director, Alaska Mining
Association, Anchorage.
SUMMARY
HB 13 An Act requiring persons authorized to make or
incur political campaign expenditures before
filing for nomination to office and groups acting
on behalf of them to file certain election
campaign finance disclosure reports.
CS HB 13 (STA) was reported out of Committee with
a "do pass" recommendation and with a zero fiscal
note by the Department of Administration dated
3/09/95.
HB 197 An Act providing for exploration incentive credits
1
for activities involving locatable and leasable
minerals and coal deposits on certain land in the
state; and providing for an effective date.
CS HB 197 (RES) was reported out of Committee with
a "do pass" recommendation with a House Resources
Letter of Intent with fiscal notes by the
Department of Revenue dated 3/22/95 and the
Department of Natural Resources dated 3/22/95.
HOUSE BILL 13
"An Act requiring persons authorized to make or incur
political campaign expenditures before filing for
nomination to office and groups acting on behalf of
them to file certain election campaign finance
disclosure reports."
JEFF LOGAN, STAFF, REPRESENTATIVE JOE GREEN, stated that HB
13 would make it easier for the public to know who is
contributing money to non-party candidates running for
statewide and legislative office.
He explained that the current problem is that non-party
candidates for legislative office, who gain access to the
general election ballot by going through the petition or
write-in process, are not required to file campaign finance
disclosure reports during the primary election cycle.
Alaska Public Office Commission Policy decision 15.13-82-2
has established requirements for candidates.
Mr. Logan explained that HB 13 would require prospective
non-party candidates for legislative office to disclose to
the public, during the primary election reporting cycle, who
is making campaign contributions to them.
BROOKE MILES, JUNEAU BRANCH ADMINISTRATOR, ALASKA PUBLIC
OFFICE COMMISSION (APOC), responded to Committee questions
on the included fiscal notes. She pointed out that the
discrepancy on the two notes arose from the first version of
the legislation which was printed in error. It did not
specify that only State candidates would need to have a
letter of intent on file, and that those candidates would be
required to file the primary series campaign disclosure
reports. She concluded that the correct fiscal note on the
legislation would be a zero fiscal note.
Representative Brown asked who would be included in the
bills coverage that had not previously been covered. Mr.
Logan replied those affected by the legislation would be
candidates who are seeking election, non-party candidates,
who are filing with a letter of intent and will not be on
2
the ballot until the election.
Representative Martin MOVED to report CS HB 13 (STA) out of
Committee with individual recommendations and with the
accompanying fiscal notes. There being NO OBJECTIONS, it
was so ordered.
CS HB 13 (STA) was reported out of Committee with a "do
pass" recommendation and with a fiscal note by the
Department of Administration dated 3/09/95.
HOUSE BILL 197
"An Act providing for exploration incentive credits for
activities involving locatable and leasable minerals
and coal deposits on certain land in the state; and
providing for an effective date."
JOHN WALSH, STAFF, REPRESENTATIVE RICHARD FOSTER, explained
that Alaska's economic future is dependent upon resource
development. Alaska is rich in mineral resources. Many of
the communities owe their existence to the rich mineral
deposits beneath or near municipal boundaries. He added,
future deposits have yet to be discovered and could only be
developed following extensive exploration efforts.
Mr. Walsh noted that HB 197 would offer an incentive to
industry. Under the legislation, exploration dollars
invested in development of a producing mine would be
eligible for credit against taxes due as a result of
production revenues. If the prospect never advances to the
production phase, no credits would be released.
He added, without tax incentives, current trends would
continue. In the past decade, available exploration
investments have poured out of the country and into
lucrative third world countries. HB 197 proposes a tax
credit which would send a strong message to the mineral
industry that Alaska is open for business. Exploration
dollars would then stay in the State.
NEIL MACKINNON, ALASKA MINERAL COMMISSION, JUNEAU, testified
in support of HB 197. He pointed out that two mining
companies doing business in Alaska have left the State and
gone to South America where the governments welcome
investments with limited regulation, minimal taxes, and low
cost production expenses. He stressed that Chile, Columbia,
Mexico, Indonesia and Canada have all benefited from the
outflow of U.S. and Alaskan capital. Mr. MacKinnon advised
that this exit is detrimental to our long range economic
future, and threatens to doom future generations to
continued government dependence for cost of living
3
subsidies. He appealed to the Committee to pass the
legislation.
Representative Martin confessed concerns with "giving away"
the State's resources. Mr. MacKinnon pointed out that the
State would generate money through the mining claims rental
costs. He countered that the State would be generating more
capital than at present, through encouragement of
exploration, claims taking, and investing.
Representative Brown asked if exploration costs were
currently deductible. Mr. MacKinnon replied that the costs
would be although they did not represent a double deduction.
Representative Grussendorf recommended adding an expanded
"window of time" opportunity for the investors. Mr.
MacKinnon suggested that if a window of time was added that
window should be extended for more than four years.
Representative Mulder remarked that the market is driven by
taxation and royalties. He felt that the proposed
legislation could enhance that market. Mr. MacKinnon
advised that the legislation is property specific and that
the credit is tied to the property and the exploration of
that specific place.
Representative Martin thought that elimination of the
environmental laws would enhance the legislation. Mr.
MacKinnon agreed that shortening the permit process would be
beneficial.
JOE RYAN, STAFF, REPRESENTATIVE AL VEZEY, provided a
philosophical overview of the legislation pointing out that
there are many places in the world enticing mineral
development markets. He added that Alaska also has that
resource capability and that those markets need to be made
"marketable".
DEBORAH VOGT, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
advised that the Knowles Administration does not support HB
197 or the other tax credit bills before the Legislature.
The Department is not in favor of additional tax credits
unless it can be shown that the State will benefit from the
transaction.
She added, HB 197 does not provide an examination of
particular projects. She added that there would be no
balancing of the attributes of the project and no
recognition of a particular projects ability to pay taxes.
Currently, there is little collected from mineral taxes in
the State.
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Ms. Vogt pointed out that the legislation would affect the
Department of Revenue. The credits should be calculated to
guarantee that they do not exceed 50% of the combined amount
payable under the two taxes established in statute. That
limit would be calculated at each site. The credits could
be applied against any or all of the taxable payments.
Deputy Commissioner Vogt provided the Committee with a
handout illustrating the "Separate Accounting Methods".
[Attachment #2].
(Tape Change, HFC 95-59, Side 2).
Ms. Vogt continued discussion of the handout. She concluded
that the apportionment method of calculating the net income
tax would not fit with the tax incentives established in HB
197. The tax incentives are site specific. A corporate tax
would be United States or worldwide specific. She added,
from a practical perspective, the corporate income tax site
specific credit would not fit with world wide apportionment
or the "waters edge" nation-wide apportionment. The
legislation would credit the license tax.
Co-Chair Foster and Ms. Vogt discussed the complications of
licensing within the mining sites and the complexities of
the taxation concern. Ms. Vogt reiterated that the primary
reason that Administration opposed the legislation is that
it would provide a tax credit, while at the same time the
current Administration does not see any potential revenue to
be earned by the State.
Co-Chair Foster voiced strong opposition to the
Administration's position, noting that legislation would
place resources into Western Alaska and work possibilities
into an area with high unemployment. Ms. Vogt understood
the intent of the legislation although indicated that there
would need to be proof that it would accomplish that intent.
She pointed out that currently, the mining industry pays
little tax; she questioned how the current regulations acted
as a disincentive.
Ms. Vogt explained that there has been an effort
internationally to encourage states to appeal the worldwide
unitary tax. The Alaska State Legislature repealed that tax
in 1990 except for oil companies. Currently, the "waters
edge" apportionment system is used in Alaska.
Representative Brown asked if the Department of Revenue was
involved in the corporate income tax expense audit. Ms.
Vogt understood that obligation would be under the direction
of the Commissioner in the Department of Natural Resources
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and would determine the amount of the credit. She added,
the definition of "site" specific would need to be clarified
within the legislation.
Representative Kelly questioned if the legislation posed
accounting problems for the Department. Ms. Vogt responded
that there would be significant problems with the
legislation as currently drafted.
Representative Grussendorf asked specific incentives which
the State could offer. Ms. Vogt noted royalties, rent and
mining license tax.
PAUL DICK, JUNEAU OPERATIONS, INCOME & EXCISE AUDIT
DIVISION, DEPARTMENT OF REVENUE, added, there is a 3.5 year
exemption for the mining license in statute at this time.
Representative Martin asked if the Department had authority
on privately owned lands. Ms. Vogt replied that taxing
authority spreads throughout the State and that it is
irrelevant who owns the property.
STEVE BORELL, EXECUTIVE DIRECTOR, ALASKA MINING ASSOCIATION,
ANCHORAGE, explained that the focus of the bill would bring
new mining exploration into Alaska. The credit would not
occur until and unless a mine begins operating at a profit.
The legislation would encourage both the individual
prospector and the larger international mining companies to
invest in Alaska.
Mr. Borell emphasized that the legislation has come at an
important time. As a result of uncertainty over possible
changes to the federal mining law and an oppressive
regulatory climate, there continues to be an exodus of
exploration funds away from federal lands throughout the
western U.S. Alaska cannot correct all aspects of these
problems but Alaska can adopt the proposed legislation as an
incentive to encourage investment. He added, the financial
incentives of the legislation would not make or break the
project. They would act as an encouragement for companies
to invest in Alaska and show the world that Alaska has a new
attitude toward mineral investments.
Mr. Borell pointed out that the bill contains several
important aspects that would encourage investment and at the
same time mesh into and follow the existing mining license
tax system. This would require a minimum of administrative
effort and if successful would result in new mines that
would pay royalties to the State.
More specifically, the legislation would apply to direct
exploration costs only, and could be credited against only
one half of the taxes or royalties payable in any given
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year. Credits would be made against new royalties which
currently don't exist. There would be no affect on the
existing royalties, applying to all classes of lands.
Mr. Borell provided to the Committee and then discussed a
handout from the Alaska Miners Association, Inc., addressing
the Airborne Geophysical Mapping dated March 1995.
[Attachment #1]. Mr. Borell advised that mineral taxes have
paid the Department approximately $2 million dollars per
year. Representative Brown pointed out that the Department
of Mining and License estimated that they received $162
thousand dollars per year. Mr. Borell interjected that the
remainder paid to the State originated from coal royalties.
(Tape Change, HFC 95-60, Side 1).
Representative Martin asked if each type of mineral
exploration was taxed at a variable rate. Mr. Borell noted
that the legislation categorizes the existence and the
location, and that depth, extent and quality are important.
He concluded, the reason Alaska receives little revenue to
the state coffers through rents, royalties and taxes is
because there is little mining currently occurring in the
State.
Representative Brown expressed concern that the bill would
allow miners to take credits for additional sites. Mr.
Borell referenced Page 2, Line 4, "....a credit may not be
granted under (a) of this section for exploration activity
described in that subsection that occurs after the mine
construction commencement date." The following language
outlines occurrences that would be included in new
exploration work that would not qualify. Representative
Brown asked for a description of "sites". Mr. Borell
replied a site was a mine project which began as a prospect.
Co-Chair Foster MOVED to report CS HB 197 (RES) out of
Committee with individual recommendations, the Letter of
Intent and the accompanying fiscal notes. Representative
Brown noted her concern regarding the proposed legislation's
effect on the corporate income tax. There being NO
OBJECTIONS, it was so ordered.
CS HB 197 (RES) was reported out of Committee with a "do
pass" recommendation, with the House Resources Letter of
Intent and fiscal notes by the Department of Natural
Resources dated 3/22/95 and the Department of Revenue dated
3/22/95.
ADJOURNMENT
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The meeting adjourned at 3:45 P.M.
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