Legislature(2019 - 2020)BARNES 124

04/08/2019 01:00 PM House RESOURCES

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01:32:28 PM Start
01:33:28 PM Presentation(s): Mining Industry Taxation, Department of Revenue
02:27:01 PM Presentation(s): Mining Industry Update
03:05:07 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 15 Minutes Following Session --
+ Presentation: Mining Industry Taxes by Dept. of TELECONFERENCED
-- Testimony <Invitation Only> --
+ Presentation: Mining Industry Update by TELECONFERENCED
-Deantha Crockett, Exec. Dir., Alaska
Miners Association
-Karen Mathias, Exec. Dir., Council of
Alaska Producers
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         April 8, 2019                                                                                          
                           1:32 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Geran Tarr, Co-Chair                                                                                             
Representative Grier Hopkins, Vice Chair                                                                                        
Representative Sara Hannan                                                                                                      
Representative Ivy Spohnholz                                                                                                    
Representative Chris Tuck                                                                                                       
Representative Dave Talerico                                                                                                    
Representative George Rauscher                                                                                                  
Representative Sara Rasmussen                                                                                                   
MEMBERS ABSENT                                                                                                                
Representative John Lincoln, Co-Chair                                                                                           
COMMITTEE CALENDAR                                                                                                            
PRESENTATION(S):  MINING INDUSTRY TAXATION~ DEPARTMENT OF                                                                       
     - HEARD                                                                                                                    
PRESENTATION(S):  MINING INDUSTRY UPDATE                                                                                        
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
BRANDON SPANOS, Deputy Director                                                                                                 
Tax Division                                                                                                                    
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided a PowerPoint presentation                                                                       
entitled, "Mining Tax Overview," dated 4/8/19.                                                                                  
KELLY MAZZEI, Excise Audit Manager                                                                                              
Tax Division                                                                                                                    
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions  during the Department of                                                             
Revenue presentation on mining taxation.                                                                                        
DEANTHA CROCKETT, Executive Director                                                                                            
Alaska Miners Association                                                                                                       
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:     Co-provided  a   presentation  entitled,                                                             
"Mining Industry Update," dated 4/8/19.                                                                                         
KAREN MATHIAS, Executive Director                                                                                               
Council of Alaska Producers                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:     Co-provided  a  PowerPoint  presentation                                                             
entitled, "Mining Industry Update," dated 4/8/19.                                                                               
ACTION NARRATIVE                                                                                                              
1:32:28 PM                                                                                                                    
CO-CHAIR  GERAN   TARR  called   the  House   Resources  Standing                                                             
Committee meeting to order at  1:32 p.m.  Representatives Hannan,                                                               
Talerico, Spohnholz, Rauscher, Hopkins,  and Tarr were present at                                                               
the call  to order.   Representatives Rasmussen and  Tuck arrived                                                               
as the meeting was in progress.                                                                                                 
^PRESENTATION(S):    MINING   INDUSTRY  TAXATION,  DEPARTMENT  OF                                                               
   PRESENTATION(S):  MINING INDUSTRY TAXATION, DEPARTMENT OF                                                                
1:33:28 PM                                                                                                                    
CO-CHAIR TARR  announced that the  first order of  business would                                                               
be a presentation by the Tax Division, Department of Revenue.                                                                   
1:34:16 PM                                                                                                                    
BRANDON  SPANOS, Deputy  Director,  Tax  Division, Department  of                                                               
Revenue  (DOR),  provided  a  PowerPoint  presentation  entitled,                                                               
"Mining  Tax Overview,"  dated 4/8/19.   Turning  to slide  3, he                                                               
outlined Alaska's mining  tax history.  He said the  tax began in                                                               
1913  with the  original  tax  being 0.5  percent  on mining  net                                                               
income of  more than $5,000 and  no tax for net  income less than                                                               
$5,000.   He  explained that  the state  levies a  mining tax  on                                                               
mining  net  income and  royalties  received  in connection  with                                                               
mining properties  and activities in  Alaska.  The  Tax Division,                                                               
he  noted,  collects  Mining  License   Tax  primarily  on  those                                                               
engaging in coal and hard-rock mining.                                                                                          
MR. SPANOS moved to slide 4  and noted numerous changes were made                                                               
to  the tax  between 1915  and 1953.   In  1951, the  Territorial                                                               
Legislature authorized the three  and one-half-year exemption for                                                               
all new mining operations, he  related, which is still in statute                                                               
today.   In  1955, he  continued, the  current tax  structure was                                                               
adopted:   no tax on mining  income of $0-$40,000; 3  percent tax                                                               
on  mining income  between [$40,0001]  and $50,000;  and up  to 7                                                               
percent tax on mining income over $100,000.                                                                                     
1:36:29 PM                                                                                                                    
REPRESENTATIVE HANNAN asked whether  the amount of money entailed                                                               
by the three and one-half-year  exemption has been calculated and                                                               
whether  the  exemption's  goal  is  to  give  an  operation  the                                                               
opportunity to break even before the state starts taxing it.                                                                    
MR. SPANOS replied  he doesn't know whether a  calculation on the                                                               
lost revenue has been done.  He  said most mines operate at a net                                                               
loss in  the first  year or  so, therefore  [the tax  loss] would                                                               
generally be  minimal.  The number  of those trying to  claim the                                                               
credit  is in  the double  digits, he  continued, and  only about                                                               
seven have ever been approved.                                                                                                  
REPRESENTATIVE  HOPKINS inquired  how  Alaska  compares to  other                                                               
states for mining taxation.                                                                                                     
MR. SPANOS  responded the tax  structure is relatively  unique in                                                               
that the  tax is  based on  income, so it  is structured  like an                                                               
income  tax.   In most  states the  tax is  a true  severance tax                                                               
based on  either weight  or value of  the product,  he explained,                                                               
whereas Alaska's  is a  severance tax  that is  based on  the net                                                               
income of the operation.                                                                                                        
CO-CHAIR  TARR offered  her understanding  that the  exemption is                                                               
for  three and  one-half  years from  the day  that  the mine  is                                                               
considered operational.                                                                                                         
MR. SPANOS confirmed no tax is  paid for three and one-half years                                                               
from the date of initial production.                                                                                            
1:38:30 PM                                                                                                                    
MR. SPANOS resumed his presentation.   Showing slide 5, he stated                                                               
that anyone  who is  operating, or  extracting, or  attempting to                                                               
extract, valuable  metals, ores, or  minerals must have  a mining                                                               
license.   The mining license is  in lieu of a  business license,                                                               
he explained,  so it is  on any miner,  even those who  are doing                                                               
small suction dredging or placer  mining, although it is unlikely                                                               
they  would  pay any  tax.    There  is  no license  through  the                                                               
Department of  Commerce, Community, and Economic  Development, he                                                               
continued, so DOR  is the licensing body.  One  taxpayer may hold                                                               
multiple licenses  on the  property he/she  is mining,  he added.                                                               
There are  no fees  for the mining  license and  anyone operating                                                               
without a license is guilty of a misdemeanor.                                                                                   
REPRESENTATIVE  HANNAN  inquired  about  the cost  of  a  typical                                                               
business license for a corporation.                                                                                             
MR.  SPANOS replied  that a  business license  is issued  for two                                                               
consecutive years and costs $100.                                                                                               
MR. SPANOS  continued his presentation.   Addressing slide  6, he                                                               
said  the different  mining license  types are  coal, hard  rock,                                                               
open  pit, placer  and  suction  dredging.   Coal  mining is  the                                                               
removal  of  coal,  he  noted, while  hard  rock  mining  usually                                                               
entails drilling shafts  into a rock face,  using explosives, and                                                               
then crushing  the removed  rock to extract  the minerals.   Open                                                               
pit mining is the digging of  a pit, he stated, and placer mining                                                               
recovers valuable minerals from loose  gravel.  Ninety percent of                                                               
the licenses are for placer or suction mining, he added.                                                                        
MR.  SPANOS turned  to slide  7  and reviewed  the three  license                                                               
categories.   Two types of licenses  are issued for an  owner, he                                                               
said.   An owner/operator owns and  operates his or her  own mine                                                               
and an  owner/lessor owns and  leases to someone else  to operate                                                               
the owner's property.   The third type of  license, he continued,                                                               
is the  lessee/operator that leases  the property from  an owner.                                                               
He explained  the license category  matters because the  owner of                                                               
the  property  is  the  only  one  who  can  take  the  depletion                                                               
deduction, so DOR wants to know who that is.                                                                                    
MR. SPANOS displayed  slide 8 and noted that a  mining license is                                                               
not required  for someone  who is:   merely holding  property for                                                               
exploration; holding  a mineral interest in  undeveloped and non-                                                               
producing land;  or mining sand,  gravel, quarry rock,  or earth.                                                               
He pointed out  that sand, gravel, quarry rock,  and earth mining                                                               
was exempted from taxation in 2012.                                                                                             
1:42:35 PM                                                                                                                    
MR. SPANOS  turned to slide  9 and  said anyone holding  a mining                                                               
license, or anyone that should  be holding a mining license, must                                                               
file a Mining License Tax return.   This would include anyone who                                                               
is  extracting or  attempting to  extract valuable  minerals from                                                               
the  earth, he  continued, as  well as  anyone who  is a  royalty                                                               
recipient.   Royalty recipients pay  taxes on the  royalties they                                                               
receive,  he added,  and those  that are  paying the  royalty get                                                               
that as a deduction on their tax  return.  Moving to slide 10, he                                                               
said the  tax return is an  annual return that is  due before the                                                               
first  day of  the fifth  month following  the taxpayer's  fiscal                                                               
year end,  or for calendar year  taxpayers, the return is  due by                                                               
April 30.     He said a  6-month extension  would be  provided if                                                               
[the requisite] form were filed.                                                                                                
1:44:02 PM                                                                                                                    
REPRESENTATIVE HANNAN asked who would  be a fiscal year taxpayer,                                                               
as opposed to a calendar year taxpayer.                                                                                         
MR. SPANOS  replied it would  depend upon how the  corporation or                                                               
company  is  formed.   A  company  would  choose fiscal  year  as                                                               
opposed  to calendar  year based  on its  business practices  and                                                               
would make the election with  the Internal Revenue Service (IRS).                                                               
A fiscal  year can  be the  end of any  month, he  explained; for                                                               
example,  if the  mining  is  only occurring  in  the summer  the                                                               
taxpayer may want the fiscal year to end right after the summer.                                                                
REPRESENTATIVE HANNAN  noted that the number  of mining companies                                                               
paying  tax to  the  State  of Alaska  is  small.   She  inquired                                                               
whether DOR knows all of their fiscal years.                                                                                    
MR. SPANOS responded  that in 2014 DOR started a  new system, the                                                               
Tax  Revenue   Management  System,  for  which   the  legislature                                                               
appropriated the  money.  This  system allows DOR to  have better                                                               
reporting  and better  confidence  in its  numbers  and data,  he                                                               
said.  As far as fiscal  year versus calendar year, he continued,                                                               
there are  roughly 500 taxpayers  in the mining tax  world, while                                                               
in the corporate tax world  there are about 17,000 taxpayers that                                                               
have calendar year  and fiscal year end dates, with  many more on                                                               
fiscal years than in the mining  group.  He said the department's                                                               
reports are fairly straightforward and  DOR can run those reports                                                               
and see who  is on which.  The number  of taxpayers that actually                                                               
pay  the Mining  License Tax  is fairly  small, he  said, but  he                                                               
doesn't have that  number with him today.  He  explained that the                                                               
report is done  on the state's fiscal year, so  a tax received in                                                               
the state's fiscal year is reported in that fiscal year.                                                                        
1:47:31 PM                                                                                                                    
MR. SPANOS resumed  his presentation.  Continuing  with slide 10,                                                               
he said that  shortly after [funding] the  Tax Revenue Management                                                               
System in  2014 the legislature  passed a statute  requiring that                                                               
all  returns  be filed  electronically.    However, he  noted,  a                                                               
waiver from filing an electronic tax  return can be granted.  The                                                               
mining tax world  has the most waivers, he  continued, with about                                                               
50 percent of the returns  filed electronically and rest filed on                                                               
paper.  If  a taxpayer files on paper without  having a waiver, a                                                               
$25 penalty  for 1 percent  of the tax due  is incurred, so  in a                                                               
case of  the mining license it  is usually $25 that  the taxpayer                                                               
is  paying.   The larger  taxpayers that  actually pay  tax would                                                               
either have a waiver or file electronically.                                                                                    
MR. SPANOS moved to slide 11  and reviewed how the Mining License                                                               
Tax is calculated.  The tax is  based on net income, he said, and                                                               
net  income is  the gross  income [from  mining operations]  less                                                               
deductions [of allowable mining  expenses].  Mining gross income,                                                               
he explained,  includes everything  from the value  received from                                                               
selling the  mineral all the way  up to the fair  market value of                                                               
the product that is shipped out of  the state.  If the product is                                                               
[not sold, but  is] shipped out of the state,  [DOR] cannot track                                                               
it any  longer and therefore the  income is based on  what should                                                               
have been  received when the material  was shipped out.   He said                                                               
allowable  deductions  include  depletion, direct  expenses,  and                                                               
indirect  expenses.    Direct expenses  include  such  things  as                                                               
royalties paid,  fuel, oil, development costs,  extraction costs,                                                               
maintenance  and  repairs,  salaries, transportation  costs,  and                                                               
depreciation  of mining  equipment.    Indirect expenses  include                                                               
advertising,  insurance,  legal  and  professional  fees,  office                                                               
supplies, rent for the office,  utilities, and overhead.  He said                                                               
expenses  disallowed as  a deduction  include exploration  costs,                                                               
federal income tax,  losses on the sale of  mining equipment, net                                                               
operating losses, and other capital losses.                                                                                     
1:49:45 PM                                                                                                                    
REPRESENTATIVE RASMUSSEN  asked whether  any recent  studies have                                                               
compared Alaska's mining tax system to those in the Lower 48.                                                                   
MR. SPANOS answered that no  studies have been done, but hearings                                                               
[have  been  held] in  the  past.   The  previous  administration                                                               
proposed  to increase  the  tax,  he said,  and  there were  many                                                               
discussions about  what that  would look  like.   At one  point a                                                               
task force was  proposed to look at the structure  of the tax and                                                               
compare it to other states, but that never came to fruition.                                                                    
1:50:31 PM                                                                                                                    
REPRESENTATIVE TALERICO  requested confirmation  that exploration                                                               
cost is not an allowable deduction.                                                                                             
MR.  SPANOS  confirmed  exploration  cost  is  not  an  allowable                                                               
deduction.  But, he continued, a  credit is available and will be                                                               
reviewed later in the presentation.                                                                                             
REPRESENTATIVE TALERICO  related he  knows of  a mine  that spent                                                               
millions  of  dollars on  exploration  costs  so the  mine  could                                                               
expand.   He surmised those  costs wouldn't count as  a deduction                                                               
against the Mining License Tax.                                                                                                 
MR. SPANOS replied correct.                                                                                                     
1:51:12 PM                                                                                                                    
REPRESENTATIVE RAUSCHER  asked how many mines  in Alaska actually                                                               
pay a tax.                                                                                                                      
MR. SPANOS offered  his belief that about 10 mines  are the major                                                               
taxpayers.  He deferred to Ms. Kelly Mazzei to answer further.                                                                  
KELLY MAZZEI,  Excise Audit Manager, Tax  Division, Department of                                                               
Revenue (DOR),  answered that a few  years ago DOR broke  out the                                                               
numbers by tax brackets:  10  taxpayers were in the uppermost tax                                                               
bracket of 7  percent with a net income of  over $100,000, and 19                                                               
taxpayers were  in the 5  percent tax  bracket with a  net income                                                               
between $40,000 and  $100,000.  The majority  of taxpayers, about                                                               
400, had  a net income between  $0 and $40,000 and  therefore did                                                               
not pay a tax.                                                                                                                  
1:52:51 PM                                                                                                                    
REPRESENTATIVE SPOHNHOLZ requested the definition of depletion.                                                                 
MR. SPANOS said he would be discussing depletion later on.                                                                      
1:53:08 PM                                                                                                                    
REPRESENTATIVE TUCK  inquired as  to how and  who sets  the [fair                                                               
market] value  of mined material  that isn't sold in  Alaska [but                                                               
is shipped out  of the state].  He further  inquired whether that                                                               
has  been tested  to ensure  that that  would be  the value.   He                                                               
clarified he  is asking  whether the Tax  Division sets  the fair                                                               
market value or verifies it through audit.                                                                                      
MR. SPANOS answered that when  a taxpayer is regularly exporting,                                                               
generally  the mined  material  is sold  somewhere,  so [the  Tax                                                               
Division] would base it on that  value if it were an arms  length                                                               
transaction.   If  it  weren't an  arms   length transaction,  he                                                               
continued, [the Tax  Division] would look at what it  is sold for                                                               
in  the market.   The  number of  taxpayers is  fairly small,  he                                                               
added, so  the division is able  to work with taxpayers  when the                                                               
division has  a question.   If it is in  the course of  an audit,                                                               
the division  will generally  take the  state's best  interest to                                                               
heart  when looking  at  that  fair market  value.   However,  he                                                               
noted, a taxpayer that disagrees always has appeal rights.                                                                      
REPRESENTATIVE TUCK asked whether disagreement happens often.                                                                   
MR.  SPANOS replied  the fair  market value  issue happened  more                                                               
often when the division was dealing  with sand and gravel   while                                                               
not a  lot of  these materials  were exported,  there was  a fair                                                               
market value calculation.  He said  he couldn't recall it being a                                                               
dispute issue in recent years.                                                                                                  
1:54:57 PM                                                                                                                    
REPRESENTATIVE  RASMUSSEN requested  the definition  of an  arms                                                                
length sale for the Tax Division's purposes.                                                                                    
MR. SPANOS responded arm's length would  be that a third party is                                                               
involved.   If  an entity  were selling  to a  sister entity,  it                                                               
would  not be  an  arm's  length transaction.    It  is based  on                                                               
ownership of each company, he said.                                                                                             
MR.  SPANOS displayed  slide 12  and continued  his presentation.                                                               
He explained  that depletion is  the term used  for "depreciation                                                               
of a  mineral property used to  extract a natural resource."   He                                                               
said development  costs are capitalized  and then  depleted using                                                               
one  of two  allowable methods  - cost  depletion and  percentage                                                               
depletion.  Alaska  statute defines both methods,  he stated, and                                                               
provides  that the  taxpayer can  use the  method that  gives the                                                               
taxpayer  the  most benefit.    The  percentage depletion  cannot                                                               
exceed 50  percent [of  a taxpayer's net  income], he  noted, and                                                               
the  statute says  a taxpayer  gets  percentage depletion  unless                                                               
cost depletion is more favorable.                                                                                               
MR.  SPANOS moved  to  slide  13 and  explained  that under  cost                                                               
depletion, the  most traditional method, total  development costs                                                               
are  deducted over  an  estimated life  of the  mine.   Once  all                                                               
development  costs are  deducted  or depleted,  a cost  depletion                                                               
expense  is  no longer  allowed,  he  explained.   He  said  cost                                                               
depletion  is limited  to  the  cost basis  of  the  mine and  is                                                               
calculated  as follows:    the  deplete rate  is  the cost  basis                                                               
divided by  estimated number  of recoverable  units and  then the                                                               
depletion rate is multiplied by the number of units sold.                                                                       
1:57:17 PM                                                                                                                    
REPRESENTATIVE RAUSCHER  asked what  the second  largest taxpayer                                                               
is next  to the oil  industry, as far  as natural resources.   He                                                               
clarified he is  meaning the amount of taxes the  taxpayer has to                                                               
pay based on the taxpayer's revenue, so the percentage.                                                                         
MR. SPANOS answered  he would get back to the  committee on that.                                                               
However, he  noted, in 2018  the fishing industry paid  about $46                                                               
million  in Fishing  Business Tax  and $9.7  million in  Resource                                                               
Landing Tax, plus the fishing industry  has other taxes.  He said                                                               
that  in fiscal  year  2018  roughly $47.3  million  was paid  in                                                               
Mining License Tax, so the fishing industry paid more in 2018.                                                                  
REPRESENTATIVE RAUSCHER asked whether mining and fishing are it.                                                                
MR. SPANOS replied he believes so.                                                                                              
1:59:03 PM                                                                                                                    
REPRESENTATIVE HANNAN  inquired how  the division  determines the                                                               
number of  years that cost  depletion is  going to be  taken out;                                                               
for example, whether it is the permitted life of the mine.                                                                      
MR.  SPANOS reiterated  that  there are  two  different types  of                                                               
depletion.   Cost  depletion is  over the  estimated life  of the                                                               
mine,  he  said;  [the  number of]  recoverable  units  would  be                                                               
estimated  and  that [number]  used  to  calculate the  depletion                                                               
until it is  fully depleted.  He pointed out  that the mine could                                                               
continue to operate after the depletion is fully taken.                                                                         
REPRESENTATIVE  HANNAN  asked who  tells  the  division what  the                                                               
estimated  life of  the  mine  is    the  operator, the  agencies                                                               
giving the operator permits, or some other factor.                                                                              
MR. SPANOS  responded it would  be the operator and  the operator                                                               
would have  specialists who determine how  many recoverable units                                                               
there are.                                                                                                                      
REPRESENTATIVE  HANNAN  inquired whether  the  life  of the  mine                                                               
expenditure typically matches what the mine is permitted for.                                                                   
MR. SPANOS answered  that the division sees  cost depletion fully                                                               
depleted  and mines  still operating,  and so  an analysis  would                                                               
need to be done to see if that is typical.                                                                                      
MR. SPANOS returned  to his presentation and  addressed slide 14.                                                               
He explained that  percentage depletion is based  on a percentage                                                               
of  the  gross income  [less  royalties  paid].   The  percentage                                                               
amount is spelled out in statute  and is based on what mineral is                                                               
being extracted,  he said; for example,  the percentage depletion                                                               
for  coal mines  is 10  percent and  for sulphur  mines it  is 23                                                               
percent.  The depletion deduction is  capped at 50 percent of the                                                               
net income of the taxpayer, he  continued, and can be taken after                                                               
the costs are fully depleted from the development of the mine.                                                                  
REPRESENTATIVE TUCK asked  whether both methods could  be used or                                                               
only one or the other.                                                                                                          
MR. SPANOS replied  that a taxpayer gets one or  the other method                                                               
in  each  year,  whichever  method  is  most  beneficial  to  the                                                               
taxpayer.   So, both methods can  be used over various  years, he                                                               
continued, but only one method can be used per year.                                                                            
2:02:02 PM                                                                                                                    
MR. SPANOS  resumed his  presentation.  Turning  to slide  15, he                                                               
discussed the three  and one-half-year mining tax  exemption.  He                                                               
noted  that since  2001 approximately  26 requests  for exemption                                                               
have been  received -  19 were  denied and 7  were granted.   The                                                               
exemption statute spells out that it  is basically for a new mine                                                               
operation, he explained, so an  [Affidavit of Initial Production]                                                               
must  be filed  with the  Department of  Natural Resources  (DNR)                                                               
spelling out why  it would be a  new mine.  The  mine is analyzed                                                               
by DNR,  he continued,  and if  DNR believes  it falls  under the                                                               
definition of a  new mine it will  let DOR know and  the new mine                                                               
will  receive  a three  and  one-half-year  exemption.   He  said                                                               
considerations  that might  go  into  that determination  include                                                               
whether  the prior  owner has  paid  taxes, the  location of  the                                                               
mine,  geological structure,  mining  techniques and  technology,                                                               
and new capital invested.                                                                                                       
REPRESENTATIVE RAUSCHER  inquired what  the average  reason might                                                               
be for why the 19 exemption requests were denied.                                                                               
MR. SPANOS responded it would be  if the land has been previously                                                               
mined, because if it has  already been mined someone cannot claim                                                               
it is a new mine.                                                                                                               
CO-CHAIR TARR  asked whether the  denied exemption  requests were                                                               
primarily because the land had been mined before.                                                                               
MR. SPANOS answered  he would have to get back  to the committee,                                                               
but that that  typically is the reason.  The  statute says if tax                                                               
has  been paid  on it  before  it is  an indication  that it  has                                                               
obviously been  mined before.   He said  the categories  that are                                                               
looked at are  to determine whether it is a  new mining operation                                                               
or the  mine is being started  up again.  In  further response to                                                               
Co-Chair Tarr, he suggested Ms. Mazzei be asked the question.                                                                   
MS.  MAZZEI  replied that  in  her  experience most  denials  for                                                               
exemptions  are  because  it  is  not  considered  a  new  mining                                                               
operation.   The  reasons could  have to  do with  the technology                                                               
used  and  what  type  of  new capital  is  invested,  she  said.                                                               
Sometimes  an applicant  believes it  is a  new mining  operation                                                               
because a  significant amount of  money was spent  in considering                                                               
new mining  technology and  new assets.   However,  the exemption                                                               
request  will  most  likely  be denied,  she  continued,  if  the                                                               
applicant cannot  prove beyond  a reasonable doubt  that it  is a                                                               
brand-new technology  and not just  maintaining or  repairing old                                                               
technology.  Another reason, she  added, would be if an applicant                                                               
tried to stay on  a mining location in an area  that has not been                                                               
mined  before and  therefore the  applicant  thinks it  is a  new                                                               
mining  operation;  but  if  it  is  adjacent  to,  or  could  be                                                               
considered part  of, a previous  mining operation  that exemption                                                               
request would probably be denied.                                                                                               
2:06:04 PM                                                                                                                    
REPRESENTATIVE  HANNAN  offered  her understanding  that  a  mine                                                               
operation doesn't  have to be  entirely new property  [to qualify                                                               
for the  three and  one-half-year exemption].   An  applicant for                                                               
the exemption could  reach out into new boundaries,  but in areas                                                               
not mined  before, and  could be  using new  technology in  a new                                                               
shaft.  She posed a hypothetical  scenario in which a new vein is                                                               
discovered 100 yards away in  another direction at the Kensington                                                               
Gold  Mine currently  operating in  her district.   She  surmised                                                               
that  when Kensington  filed  to get  into  that new  underground                                                               
vein, it  could be considered  a new mine even  though shore-side                                                               
and top-side the same physical plant would be operating it.                                                                     
MS. MAZZEI  responded correct.   Paraphrasing  from parts  of the                                                               
regulation, she  related that the  following would be  looked at:                                                               
geological structure  of the  ore body in  relation to  other ore                                                               
bodies  the person  mines; the  mining techniques  and technology                                                               
used; and  the extent to which  the person is required  to invest                                                               
new  capital,  employ  different personnel,  and  use  additional                                                               
facilities to  exploit the  resource.   The exemption  statute is                                                               
under  Title  38 of  the  Department  of Natural  Resources,  she                                                               
pointed out,  so DNR usually looks  at the details of  the mining                                                               
operation  more  than does  the  Tax  Division  and DNR  makes  a                                                               
recommendation.   Determining the  eligibility for  the exemption                                                               
can become  quite complicated  and is  not necessarily  black and                                                               
white,  she noted.   It  can  take quite  a bit  of research  and                                                               
geographical mapping to come up with a determination.                                                                           
REPRESENTATIVE HANNAN  inquired whether three and  one-half years                                                               
is a common  length of time for an exemption  in most states that                                                               
have operational mines.                                                                                                         
MR. SPANOS answered he doesn't  know whether other states have an                                                               
exemption  for new  mines.   He  said he  would get  back to  the                                                               
REPRESENTATIVE  RASMUSSEN stated  she is  also curious  about the                                                               
amount  of  time  because  her   understanding  from  a  previous                                                               
presentation is  that it  takes 15-17 years  to have  the permits                                                               
done in Alaska.  How Alaska  compares to other states needs to be                                                               
considered by the committee, she said.                                                                                          
2:10:27 PM                                                                                                                    
MR. SPANOS moved to slide 16  and continued his presentation.  He                                                               
reviewed  Alaska's  two  mining   tax  credits,  the  Exploration                                                               
Incentive  Credit and  the Education  Tax Credit.   He  explained                                                               
that  a  person could  receive  a  credit for  exploration  costs                                                               
incurred  up   to  $20  million.     Exploration   costs  include                                                               
surveying,  drilling exploration  holes, [conducting  underground                                                               
exploration, sampling,  and aerial  photography].   The Education                                                               
Tax  Credit  was expanded  and  extended  in  2011 and  2014,  he                                                               
continued, and  only four taxpayers  have claimed this  credit in                                                               
the Mining  License Tax; most of  the claims for this  credit are                                                               
taxpayers in the corporate income tax.                                                                                          
REPRESENTATIVE  TUCK   asked  whether  the  state   approves  the                                                               
Exploration Incentive  Credit before the activity  takes place or                                                               
during the activity.                                                                                                            
MR. SPANOS replied  it is claimed on the tax  return, so is after                                                               
the  fact.   To  his  knowledge, he  said,  the division  doesn't                                                               
approve those credits.  He deferred to Ms. Mazzei to answer.                                                                    
MS.  MAZZEI  responded  that exploration  expenses  are  incurred                                                               
before applying for  the credit and taking it on  the tax return.                                                               
She  said  taxpayers  use  Form   665  to  file  for  The  Alaska                                                               
Exploration  Incentive Credit,  which is  available to  payers of                                                               
the Alaska  Mining License Tax,  the Corporation Net  Income Tax,                                                               
and through DNR's Production Royalty Tax.                                                                                       
REPRESENTATIVE RAUSCHER asked how  much the Exploration Incentive                                                               
Credit has cost the State of Alaska.                                                                                            
MR. SPANOS replied that the state  has had no claims for that tax                                                               
credit in the Mining  License Tax.  He said he  would get back to                                                               
the committee  regarding how much  credit has been  claimed under                                                               
the Corporation Net Income Tax and the Production Royalty Tax.                                                                  
REPRESENTATIVE RAUSCHER said he would  also like to know how much                                                               
the four mines have contributed to the state's revenue.                                                                         
MR. SPANOS replied  that the four mines he  mentioned had claimed                                                               
the Education Tax Credit, not the Exploration Incentive Credit.                                                                 
REPRESENTATIVE RAUSCHER  asked whether the mines  have benefitted                                                               
from the Exploration Incentive Credit.                                                                                          
MR. SPANOS  reiterated that  no one  has claimed  the Exploration                                                               
Incentive Credit in the Mining License Tax.                                                                                     
2:14:40 PM                                                                                                                    
REPRESENTATIVE HANNAN  requested an explanation of  the Education                                                               
Tax Credit.                                                                                                                     
MR. SPANOS qualified  the credit has changed over time  and he is                                                               
going from  memory, but explained  that the taxpayer would  get a                                                               
portion of the  first $100,000 spent, which he thinks  may now be                                                               
up to  100 percent, and the  taxpayer would get a  portion of the                                                               
next $100,000 spent.                                                                                                            
REPRESENTATIVE  HANNAN  asked where  the  money  would have  been                                                               
spent;  for  example, whether  it  was  contributed to  a  school                                                               
district or the workers got masters degrees in geology.                                                                         
MR. SPANOS answered  it is for contributions  to education, which                                                               
includes  secondary  education,  so colleges  are  generally  the                                                               
largest recipients of the donations.                                                                                            
REPRESENTATIVE HANNAN  surmised the University of  Alaska College                                                               
of Mines might be a common  recipient of donations.  She surmised                                                               
the donation could then be used as a deduction by the taxpayer.                                                                 
MR.  SPANOS clarified  it would  be  a credit  on the  taxpayer's                                                               
taxes.   The credit has been  expanded to fit more  than just the                                                               
traditional  colleges, he  said, so  the donation  could be  to a                                                               
nonprofit as an education charter.                                                                                              
REPRESENTATIVE HANNAN  inquired whether  it would  include school                                                               
districts for grades  K-12 and observed that  people were shaking                                                               
their heads no to the question.                                                                                                 
CO-CHAIR TARR recalled a presentation  by a University of Alaska,                                                               
Fairbanks, professor  in which  it was  stated that  Greens Creek                                                               
Mine donates to the mining certification program.                                                                               
REPRESENTATIVE  RASMUSSEN asked  whether  companies  are able  to                                                               
have a  fund that  reimburses their  employees for  education and                                                               
whether a company  could apply for the Education  [Tax Credit] if                                                               
the company pays the tuition directly for an employee.                                                                          
MR. SPANOS answered a company would  need to structure it so that                                                               
it is a  charitable contribution.  If a company  just pays for an                                                               
employee's education, he continued, it  would not be considered a                                                               
contribution to  a charitable  organization.   He said  a company                                                               
could set up a nonprofit,  contribute to that nonprofit, and have                                                               
the nonprofit  determine where  that money  goes, which  could be                                                               
for the company's employees.                                                                                                    
2:17:30 PM                                                                                                                    
CO-CHAIR TARR expressed her surprise  that no one has applied for                                                               
the Exploration Incentive Credit.   She asked whether this credit                                                               
is a new addition to the tax structure.                                                                                         
MR. SPANOS replied no, it isn't  new.  He said the division finds                                                               
that  most  of  the   education   credits   are  claimed  in  the                                                               
corporate  income  tax  world.     They  are  available  in  many                                                               
different  tax types,  he  said, including  mining,  oil and  gas                                                               
production, oil  and gas property,  but generally are  claimed on                                                               
the corporate tax return.                                                                                                       
CO-CHAIR TARR  offered her understanding that  the aforementioned                                                               
answer from  Mr. Spanos was  for the  Education Tax Credit.   She                                                               
inquired  whether the  taxpayer must  choose  to use  one or  the                                                               
other of the two credits.   She explained that in relation to the                                                               
three  and one-half-year  exemption, she  is trying  to determine                                                               
why  taxpayers wouldn't  want to  have the  Exploration Incentive                                                               
Credit applied  against their taxes.   She asked whether it  is a                                                               
mathematical calculation that would favor one over the other.                                                                   
MR. SPANOS responded  he suspects the taxpayers  are claiming the                                                               
Exploration Tax  Credit in a different  tax type.  He  said he is                                                               
more familiar with  the Education Tax Credit.   A taxpayer cannot                                                               
take the  same tax  credit in multiple  tax types,  he explained;                                                               
the credit can only  be taken in one tax return  or can be broken                                                               
up over  multiple tax  returns, but  it's simpler  to take  it on                                                               
one.  He said  he would analyze it and get  back to the committee                                                               
with an answer.                                                                                                                 
MR. SPANOS  returned to his  presentation.  Displaying  slide 17,                                                               
he provided  a five-year  comparison of  revenue from  the Mining                                                               
License Tax for the state's fiscal  years (FYs) 2014 to 2018.  He                                                               
reiterated that the Tax Revenue  Management System was rolled out                                                               
in 2014 and  said the division is comfortable with  the number of                                                               
taxpayers [being  accurate] in FY  2015.  But, he  continued, the                                                               
number was  perhaps undercounted in  FY 2014 when  the division's                                                               
recording was  done in a  folder system.   He said  $47.3 million                                                               
was collected  in tax  from 423  tax returns in  FY 2018,  but 10                                                               
companies are paying the majority of the tax.                                                                                   
2:20:17 PM                                                                                                                    
REPRESENTATIVE  HOPKINS observed  on  slide 17  that the  revenue                                                               
coming into the  state was up and down over  the five years being                                                               
compared, plus new  mines seem to inversely relate  to the amount                                                               
of  money that  came in.    He noted  the total  revenue was  $23                                                               
million [in FY 2014 with 366  taxpayers], $38 million [in FY 2015                                                               
with  468   taxpayers],  $11  million   [in  FY  2016   with  503                                                               
taxpayers], $41 million [in FY  2017 with 462 taxpayers], and $46                                                               
million  [in FY  2018 with  423 taxpayers].   Observing  that the                                                               
revenue [went down to] $10 million  in FY 2016 when the number of                                                               
taxpayers  [went   up  to]  503,   he  asked  what   causes  such                                                               
discrepancy year to year.                                                                                                       
MR.  SPANOS  answered  that  the   number  of  taxpayers  doest                                                                 
correlate  at all  to  the  revenue because  it  is primarily  10                                                               
taxpayers  that are  paying  that  revenue.   He  said the  large                                                               
number of licenses  being seen could just be  suction dredgers in                                                               
Nome.  The division has a  hard time getting certain taxpayers to                                                               
get a license, he  noted, so it could just be  that one year they                                                               
decide to  be compliant and the  next year they decide  not to be                                                               
compliant.   There may be  the exact  same number of  miners from                                                               
year to  year but  a different  number of  licenses from  year to                                                               
year.  Therefore,  he continued, the revenue is  the better thing                                                               
to  look at.   The  revenue is  dependent upon  the value  of the                                                               
minerals being  sold - if  zinc prices  go down, revenue  will go                                                               
down, and  if gold  prices go up,  revenue will go  up.   This is                                                               
because the tax is based on  net income, he explained, not on how                                                               
much is mined, although that is a factor.                                                                                       
REPRESENTATIVE HOPKINS  asked whether that  means there was  a 75                                                               
percent drop  in the value of  the commodities sold in  Alaska in                                                               
FY 2016.                                                                                                                        
MR.  SPANOS  replied  it  might   not  correlate  that  directly.                                                               
Commodity  prices might  have gone  down or  expenses could  have                                                               
gone up, and  other factors that could also weigh  into that.  He                                                               
deferred to the industry for help  with an answer because the Tax                                                               
Division  is the  revenue  collector and  sees  things after  the                                                               
fact.  The  division verifies numbers, he  continued, but doesn't                                                               
necessarily have the expertise as  to what factors drove the drop                                                               
in net income.                                                                                                                  
2:22:49 PM                                                                                                                    
REPRESENTATIVE TUCK  asked whether  the CBR Fund  on slide  17 is                                                               
the Constitutional Budget Reserve Fund.                                                                                         
MR. SPANOS responded correct.                                                                                                   
REPRESENTATIVE  TUCK  inquired  whether  that is  the  result  of                                                               
MR. SPANOS  answered the constitutional  language would  lead one                                                               
to  think that,  but  actually  it has  been  interpreted by  the                                                               
courts  to  mean  that  the  beginning  of  a  litigation  is  an                                                               
assessment.  Any  audit assessment or revenue letter,  even a $25                                                               
penalty for non-electronic  filing of a tax return,  he said, are                                                               
all assessments that would go into the CBR Fund once paid.                                                                      
REPRESENTATIVE   TUCK   offered   his  understanding   that   any                                                               
assessment  that  has  gone  to  court goes  into  the  CBR  Fund                                                               
MR. SPANOS  replied that that  was the  division's interpretation                                                               
at  one time.   However,  the [1994]  Hickel v.  Halford decision                                                             
stated it didn't even  have to go to court, he said.   So long as                                                               
the division sent  the taxpayer a notice and  demand for payment,                                                               
that was the beginning of  the litigation regardless of whether a                                                               
litigation actually  happened, and  therefore the  division needs                                                               
to transfer the money  into the CBR Fund if a  payment is made on                                                               
an assessment.   So, he  continued, any assessment in  the Mining                                                               
License Tax would be paid into the CBR Fund.                                                                                    
REPRESENTATIVE  TUCK offered  his understanding  that it  doesn't                                                               
have  to go  to court.    He asked  how the  final assessment  is                                                               
MR. SPANOS responded  it could be just a simple  audit.  He added                                                               
it would be  a notice and demand  for payment, so if  it shows up                                                               
on that demand it would be considered CBR.                                                                                      
MR. SPANOS noted his presentation is complete.                                                                                  
CO-CHAIR  TARR outlined  the questions  needing  follow-up:   the                                                               
number of taxpayers; the use  of the Exploration Incentive Credit                                                               
versus the Education Tax Credit,  and comparison of the three and                                                               
one-half-year exemption to the timeline  of how long it takes for                                                               
a mine to come on line.                                                                                                         
MR. SPANOS  said the division would  be sure to respond  to those                                                               
2:25:59 PM                                                                                                                    
The committee took a brief at ease.                                                                                             
^PRESENTATION(S):  MINING INDUSTRY UPDATE                                                                                       
            PRESENTATION(S):  MINING INDUSTRY UPDATE                                                                        
2:27:01 PM                                                                                                                    
KAREN MATHIAS,  Executive Director, Council of  Alaska Producers,                                                               
co-provided   the  PowerPoint   presentation  entitled,   "Mining                                                               
Industry  Update," dated  4/8/19.   She began  the update  with a                                                               
"safety moment"  in which  she urged  that any  committee members                                                               
taking a  tour of a mine  to please take the  safety glasses home                                                               
and use them.                                                                                                                   
2:27:32 PM                                                                                                                    
DEANTHA CROCKETT, Executive  Director, Alaska Miners Association,                                                               
co-provided the presentation  entitled, "Mining Industry Update,"                                                               
dated 4/8/19.   She displayed side 2 and outlined  the topics she                                                               
would be  discussing.  Moving  to slide  3, she pointed  out that                                                               
everyone is  dependent upon  the extraction  of minerals  for the                                                               
mine  products that  people depend  on.   To illustrate  this she                                                               
showed slide 4  with a photograph of turbines at  the Fire Island                                                               
Wind Farm in  Cook Inlet and explained that no  matter the source                                                               
of renewable energy,  it takes a substantial  amount of minerals.                                                               
Hybrid vehicles take  almost twice as much  copper as traditional                                                               
vehicles,  so the  mining industry  has a  huge part  to play  in                                                               
renewable energy, she  said.  Turning to slide 5,  she noted that                                                               
gold,  silver, copper,  and tungsten  are some  of the  metals in                                                               
cell phones.  Alaska has three  primary gold producers and one of                                                               
the  nation's  top silver  producers,  she  continued, so  it  is                                                               
possible that Alaska minerals are in the phones of Alaskans.                                                                    
MS. CROCKETT displayed slide 6 and  said the red stars on the map                                                               
of Alaska  depict producing mines  [Red Dog, Fort  Knox, Northern                                                               
Star  Pogo,   Usibelli,  Kensington,  Greens  Creek],   the  blue                                                               
triangles  depict projects  in permitting  [Donlin, Pebble];  and                                                               
the  green  stars  depict advanced  exploration  projects  [Upper                                                               
Kobuk, Graphite Creek, Livengood, Palmer].                                                                                      
MS. CROCKETT  addressed the  producing mines.   She  related that                                                               
Red Dog  Mine is  located on NANA  Regional Corporation  land, is                                                               
the largest  lead and zinc  producer in  the U.S., and  has about                                                               
600 employees.  She stated Fort  Knox is in its twenty-third year                                                               
of operation, is [Alaska's] largest  producing gold mine, and has                                                               
640 employees  who drive between  work and  home each day.   Fort                                                               
Knox  has  expanded  into  its Gilmore  deposit  this  year,  she                                                               
continued, which  will extend  the life  of the  mine.   She said                                                               
Pogo is  the only mine located  entirely on state land,  has been                                                               
mining since  2006, has  320 employees,  is currently  the eighth                                                               
largest gold producer in the U.S.,  and was acquired last year by                                                               
Northern Star Resources,  a company new to Alaska.   She reported                                                               
that Usibelli  Coal Mine,  the state's only  coal mine,  has been                                                               
operating since  1943, has about  100 employees, and  provides 39                                                               
percent of  Interior Alaska's electricity  generation.   She said                                                               
Kensington Gold Mine  began producing gold in  2010, is currently                                                               
undergoing exploration  to extend  the life of  the mine,  and at                                                               
387  employees  is  Southeast  Alaska's  second  largest  private                                                               
employer in terms of payroll.   She stated that Greens Creek Mine                                                               
is the  largest silver producer  in the U.S.,  is one of  the top                                                               
ten  producers worldwide,  and at  420 employees  is the  largest                                                               
private employer in Southeast Alaska in terms of payroll.                                                                       
MS. CROCKETT addressed the two  projects currently in permitting.                                                               
She  stated that  late last  year Donlin  Gold Mine  saw a  final                                                               
environmental impact statement and  joint record of decision from                                                               
the U.S. Bureau of Land Management  (BLM) and the U.S. Army Corps                                                               
of Engineers  (USACE).  Donlin anticipates  1,000 production jobs                                                               
depending on that production timeline,  she noted, and during its                                                               
camp operations  the mine  had a  90 percent  Calista Corporation                                                               
shareholder hire rate.  She  said the other project in permitting                                                               
is the Pebble Mine, a project  on which the committee has already                                                               
heard three presentations.                                                                                                      
MS. CROCKETT  addressed the advanced  exploration projects.   She                                                               
stated  Alaska  has a  lot  of  exploration, but  explained  that                                                               
advanced  exploration projects  are  considered advanced  because                                                               
the  viability and  economic feasibility  of  those projects  are                                                               
being looked at.  She noted  that much of the Upper Kobuk Mineral                                                               
Projects is (UKMP)  is taking place on  NANA Regional Corporation                                                               
land  and extensive  viability and  economic feasibility  studies                                                               
have been  done.  She said  Graphite Creek is a  graphite deposit                                                               
near Nome  that is  looking at its  economic assessment,  and the                                                               
Livengood gold  deposit north of  Fairbanks recently  completed a                                                               
second feasibility  study.  She  related that the  Palmer Project                                                               
near Haines is  a deposit of zinc, copper, gold,  and silver that                                                               
is going through a preliminary economic assessment.                                                                             
MS. CROCKETT  pointed out  that the more  than 200  active placer                                                               
mines in  the state are  not shown on  the map.   While typically                                                               
smaller  in nature,  she  said,  they do  have  a  big impact  on                                                               
Alaska.   She  called attention  to the  yellow dots  on the  map                                                               
located  all  over   the  state  and  explained   that  they  are                                                               
communities where mining employees live.                                                                                        
2:29:40 PM                                                                                                                    
REPRESENTATIVE  RASMUSSEN asked  what  the placer  mines mean  in                                                               
terms of jobs and what they bring economically to the state.                                                                    
MS. CROCKETT  replied that a  couple years ago the  Alaska Miners                                                               
Association looked  at the economic  benefits of just  the placer                                                               
mining industry  because it was  being said that placer  mines in                                                               
aggregate constituted a  seventh large mine in Alaska.   It turns                                                               
out this is  right, she continued.  Over 1,100  jobs are provided                                                               
and  he economic  benefits in  terms of  wages, procurement,  and                                                               
taxes paid are very similar to one  of the large mines.  She said                                                               
she would get back to the committee with specific numbers.                                                                      
2:30:14 PM                                                                                                                    
REPRESENTATIVE  HANNAN noted  Livengood is  an area  where mining                                                               
has occurred  for over 100 years.   She surmised that  the mining                                                               
was by  individual placer miners  and asked whether it  is likely                                                               
that Livengood  will be considered  a new  mine when it  comes on                                                               
line  since  a  new  corporation is  developing  it  versus  many                                                               
individual miners 100 years ago.                                                                                                
MS. CROCKETT  confirmed Livengood was  discovered as a  result of                                                               
placer operation, which found a  load deposit that was determined                                                               
to have  the resources for developing  a large mine.   She stated                                                               
it  would  be  different  investors and  a  different  permitting                                                               
system  altogether and  that while  she cannot  say in  certainty                                                               
[that it would be  considered a new mine, it would  be a very new                                                               
type  of mining  and new  application of  mining.   She said  she                                                               
would get back to the committee.                                                                                                
MS. CROCKETT resumed  her presentation.  Displaying  slide 7, she                                                               
answered the question of, "Why mine  here in Alaska?"  She said a                                                               
superb  job at  mining is  being done  in Alaska  and the  mining                                                               
operations and the  agencies regulating them account  for what is                                                               
a world class regulatory system.   She stated that Alaska's mines                                                               
are  permitted for  the  protection of  air,  land, water,  fish,                                                               
wildlife,  and  human  health  and  that  the  strict  regulatory                                                               
oversight  throughout a  mine   life  doesn't end  when the  mine                                                               
closes.   Extensive planning takes place  beforehand for closure,                                                               
she said,  and oversight of  the mine continues  post-closure for                                                               
reclamation and restoration of the  site.  Also, she added, there                                                               
is tailored financial assurance, meaning  that if for some reason                                                               
the state  must step in  and perform that reclamation,  the money                                                               
is there to cover the cost.                                                                                                     
MS. CROCKETT explained slide 8 depicts  what it takes to permit a                                                               
mine  in Alaska  and that  this information  was provided  by the                                                               
Department of Natural Resources (DNR).                                                                                          
2:32:04 PM                                                                                                                    
REPRESENTATIVE  HOPKINS brought  attention  back to  slide 7  and                                                               
asked whether it is Alaska's  regulatory system that Ms. Crockett                                                               
is saying is world class.                                                                                                       
MS. CROCKETT  confirmed she was referring  to Alaska's regulatory                                                               
system because  in a number  of cases  Alaska has gone  above and                                                               
beyond in its permitting and oversight of mining operations.                                                                    
MS. CROCKETT returned  to slide 8 and explained it  is an example                                                               
of the  approval process to permit  a large mine in  Alaska.  She                                                               
pointed out  that dozens  of local,  state, and  federal agencies                                                               
are involved in  this process and that the permits  listed on the                                                               
slide  are those  that  are  typical for  a  mine  that is  being                                                               
permitted on  state or  privately held  land.   She noted  that a                                                               
mine located on  federal land would have a  significant number of                                                               
additional permits, such  as those that are under the  BLM or the                                                               
U.S.  Forest  Service (USFS)  mining  regulations.   The  permits                                                               
listed on  slide 8, she continued,  contain multiple stipulations                                                               
that are  in addition  to the  compliance with  Alaska's statutes                                                               
and  regulations.   Alaska's permitting  agencies can,  and often                                                               
do,  prescribe  additional  practices  to the  operations  to  be                                                               
performed that  are outside  of Alaska's governing  laws.   It is                                                               
important to understand, she added,  that this permitting process                                                               
and all  of these permits  being obtained  by a developer  do not                                                               
guarantee approval.   Achieving each and every one of  these is a                                                               
back-and-forth project  between the  developer and  the agencies,                                                               
she  said,  and  throughout  this   process  there  are  multiple                                                               
opportunities for public participation.                                                                                         
REPRESENTATIVE  HOPKINS inquired  how  Alaska  compares to  other                                                               
states  in terms  of state  permits  that are  required for  such                                                               
things as air, water, fish, and habitat.                                                                                        
MS. CROCKETT responded that the  mines being permitted on federal                                                               
land would  have a  lot of similarities,  but offered  her belief                                                               
that  mines being  permitted  on state  or  privately owned  land                                                               
would be  more specific to Alaska.   She said she  would get back                                                               
to the committee with a side-by-side comparison.                                                                                
2:38:07 PM                                                                                                                    
MS. CROCKETT resumed  her presentation.  Displaying  slide 9, she                                                               
said Alaska has one of  the best water quality monitoring systems                                                               
in the world  with respect to mines.   Alaska's three-part system                                                               
has  some  unique  requirements  that set  it  apart  from  other                                                               
jurisdictions, she  explained.   First, Alaska does  the standard                                                               
water quality  monitoring.   Second, Alaska  goes a  step further                                                               
with  biomonitoring, uncommon  in other  jurisdictions, in  which                                                               
the  Alaska   Department  of  Fish  and   Game  (ADF&G)  oversees                                                               
monitoring of benthic algae and  fish, including metals uptake by                                                               
fish and their habitat and  population.  Third, Alaska requires a                                                               
third party audit.  This  transparent public process monitors the                                                               
company's compliance  as well  as the  agencies that  monitor the                                                               
company's reporting and results.                                                                                                
REPRESENTATIVE RAUSCHER  requested Ms.  Crockett to speak  to the                                                               
improvement of the water in Red Dog Creek once mining began.                                                                    
MS.  CROCKETT confirmed  that this  is right.   Due  to naturally                                                               
occurring mineralization,  she said,  the creek water  was devoid                                                               
of aquatic life.   When the mine went in,  the required treatment                                                               
of the  mine's wastewater actually  cleaned up Red Dog  Creek and                                                               
made it hospitable to aquatic insects, vegetation, and fish.                                                                    
REPRESENTATIVE  TUCK  requested  an   explanation  of  the  three                                                               
pictures on slide 9.                                                                                                            
MS. CROCKETT replied that the  left picture is phytoplankton, the                                                               
middle picture  is aquatic  insects, and the  right picture  is a                                                               
fish.  She  said these three things are what  ADF&G monitors when                                                               
conducting water quality monitoring around a mine site.                                                                         
2:38:03 PM                                                                                                                    
MS. CROCKETT returned to her  presentation and displayed slide 10                                                               
as an  illustration of Alaska mines  doing it right.   Fish Creek                                                               
near the Fort Knox Mine is  an example of doing things outside of                                                               
the governing statutes and regulations,  she said.  Placer mining                                                               
took place here during the Fairbanks  gold rush of the 1900s, she                                                               
recounted, and  left behind  a barren  area uninhabitable  by the                                                               
native fish populations.  Fort  Knox didn't operate in this area,                                                               
she continued, but development of  the mine created opportunities                                                               
to fix the damage and revitalize  the fisheries.  The mine worked                                                               
with ADF&G  to construct  the stream channels  seen in  the upper                                                               
right  photo,  she explained,  which  provided  for fish  passage                                                               
between  isolated ponds.   The  vegetation  was diversified  from                                                               
mainly black  spruce to  shrubs, willows,  and other  plants that                                                               
moose love.   This  area essentially became  a fish  and wildlife                                                               
sanctuary, she said.   She related that  ADF&G's restoration goal                                                               
for fish  size and  population was  achieved in  two years.   She                                                               
noted  that   summaries  of  the   ongoing  monitoring   of  this                                                               
successful project are available on DNR's web site.                                                                             
MS. CROCKETT  turned to  slide 11  and discussed  reclamation and                                                               
closure.  She explained that  Alaska law [AS 27.19] requires that                                                               
a mine's reclamation  and closure plan be approved  by DNR before                                                               
operations  can  begin.    Mines   must  also  provide  financial                                                               
assurance in the  event the obligations cannot  be performed, she                                                               
said,  and the  amount of  that assurance  must also  be approved                                                               
before  operations begin.   Financial  assurance  applies to  all                                                               
companies regardless of  where they are headquartered  and to all                                                               
mines regardless  of the  land status that  they are  located on.                                                               
She noted that  third party reviewers evaluate  the operation and                                                               
reclamation plans and conduct oversight  of the state and federal                                                               
agencies  that are  regulating the  operation  and approving  the                                                               
reclamation plan.   Alaska is  the only  state that does  this in                                                               
terms of mining, she added.                                                                                                     
2:40:29 PM                                                                                                                    
KAREN MATHIAS displayed slide 12  and highlighted the findings of                                                               
a recent  economic impact  study done on  mining by  the McDowell                                                               
Group.   She reported that  the mines provide 4,500  direct jobs,                                                               
plus   thousands  of   jobs   in  transportation,   environmental                                                               
management, and camp services, all jobs  that are paid for by the                                                               
mine  even though  they aren't  direct employees.   The  [average                                                               
annual] salary  of jobs in  the mining industry is  $102,000, she                                                               
said, which  is twice the state  average.  These jobs  tend to be                                                               
year  around and  many are  in  rural areas,  she continued,  and                                                               
mining  is important  to regions  in Alaska.   Additionally,  she                                                               
said, many  businesses contract with  the large mines -  the last                                                               
numbers show  about half  a billion  dollars in  procurement with                                                               
Alaska businesses.                                                                                                              
MS.  MATHIAS turned  to slide  13  and reviewed  the benefits  to                                                               
Alaska Native corporations.  The  story of mining in rural Alaska                                                               
is more than just the data, she  said.  For example, Red Dog Mine                                                               
has  had a  positive  impact on  people's  lives in  Northwestern                                                               
Alaska; with 55 percent of  Red Dog's employees are NANA Regional                                                               
Corporation shareholders.  She related  that when sending out the                                                               
agreement for  the mine's  construction back  in the  1980s, NANA                                                               
wanted royalties as well as  opportunities for its people to work                                                               
in  the  mine and  to  have  contracting  opportunity.   So,  she                                                               
continued, it  was a  three-fold economic  impact in  addition to                                                               
assuring that NANA maintained strong  oversight for marine mammal                                                               
protection and the environment.                                                                                                 
MS.  MATHIAS moved  to slide  14  and discussed  local and  state                                                               
government  revenue.   She said  local  governments received  $34                                                               
million [in  2018].   The two largest  taxpayers within  the City                                                               
and Borough  of Juneau are  from the mining industry,  she noted,                                                               
and the  largest taxpayer  in Fairbanks  and in  Northwest Arctic                                                               
Borough is  also the mining  industry.  Mining is  very important                                                               
to other regions,  she continued, such as Nome,  Healy, and Delta                                                               
Junction.   She  pointed  out  that $103  million  went to  state                                                               
government  [in 2018],  as well  as  $46 million  in other  state                                                               
government-related revenue.                                                                                                     
2:47:30 PM                                                                                                                    
MS. MATHIAS  addressed slide  15 depicting a  graph of  the five-                                                               
year average of state revenue  versus state costs for mining from                                                               
a 2016  study by the  University of Alaska's Institute  of Social                                                               
and Economic Research.  She said  it is important to consider the                                                               
net benefit  of mining to the  State of Alaska.   She pointed out                                                               
that the annual average of state  and local revenue was over $100                                                               
million, while  the state's annual operational  and capital costs                                                               
were much  lower [about $10 million].   One reason for  the large                                                               
net benefit  to the state,  she continued,  is that the  state is                                                               
able to bill  its permitting, monitoring, and  oversight costs to                                                               
the mining companies.                                                                                                           
MS.  MATHIAS displayed  slide 16  and noted  that land  ownership                                                               
really matters when  it comes to revenue.  The  state only gets a                                                               
royalty  payment if  the mine  is on  state land,  she explained.                                                               
For example,  she said,  Red Dog  Mine is on  NANA land,  so NANA                                                               
gets the royalty.   However, she continued, all of  the mines pay                                                               
the  Alaska Mining  License Tax  and also  the [Corporation]  Net                                                               
Income Tax.                                                                                                                     
MS. MATHIAS turned  to slide 17 and outlined sources  of the $148                                                               
million in  state revenue in  2018.   She said the  Alaska Mining                                                               
License Tax, rent,  and royalties [provided $58.8  million].  The                                                               
Corporation  Net   Income  Tax  [provided  $34.6   million],  she                                                               
continued,  and  the  Alaska Industrial  Development  and  Export                                                               
Authority  (AIDEA)  received  [$28.2  million]  for  use  of  the                                                               
Skagway ore terminal and the Red Dog port and road system.                                                                      
2:47:07 PM                                                                                                                    
REPRESENTATIVE  HANNAN noted  the  Red Dog  Mine  is entirely  on                                                               
Native corporation land.   She asked whether  the other producing                                                               
mines are on Native or state lands.                                                                                             
MS. MATHIAS responded by flipping ahead  to slide 20.  She stated                                                               
that the  five largest producing  mines are metal mines  and that                                                               
Usibelli Coal Mine is the sixth  largest mine in the state.  Pogo                                                               
and Usibelli,  she said,  operate exclusively  on state  land and                                                               
the royalties  go directly to the  state.  Only a  portion of the                                                               
Fort  Knox and  Kensington  mines, she  continued,  are on  state                                                               
land.   There are  other mines  that are  not operating  on state                                                               
land at all, she added.                                                                                                         
MS.  MATHIAS turned  to slide  18 and  resumed her  presentation.                                                               
Regarding  the Alaska  Mining License  Tax, she  said there  were                                                               
years of  declining commodity  prices, declining  exploration and                                                               
spending, and  declining job numbers,  while the only  thing that                                                               
seemed to be  increasing was operational cost.  All  of this, she                                                               
continued,  was  reflected in  the  revenue  the state  received.                                                               
This turned around  in 2016, she stated, and the  jump in revenue                                                               
was because things had improved.                                                                                                
MS. MATHIAS  moved to slide 19  and said it is  important to look                                                               
at  a bigger  picture than  just the  Alaska Mining  License Tax.                                                               
She explained that  from a company's standpoint a tax  is a tax -                                                               
it  doesn't matter  whether the  company  is paying  one type  of                                                               
state tax or a  federal tax - it all is a  cost of doing business                                                               
and so a company looks at it  in aggregate.  She pointed out that                                                               
a  mine on  state land  is  paying federal  corporate tax,  state                                                               
corporate  tax, the  Alaska Mining  License Tax,  and a  royalty.                                                               
Five of  the six producing  mines are in organized  boroughs, she                                                               
continued, and are also paying a  local property tax or a payment                                                               
in lieu of taxes (PILT), plus local taxes on local procurements.                                                                
2:50:35 PM                                                                                                                    
MS.  MATHIAS displayed  slide 21  and  said it  isn't just  about                                                               
revenue to  state government -  mining pays  its way.   She noted                                                               
that to  bring a  mine into production  the mining  companies pay                                                               
their  exploration, development,  and  construction costs,  which                                                               
can be hundreds of millions,  maybe even billions, of dollars for                                                               
the large  mines using modern  technology.  She pointed  out that                                                               
mining is more  expensive in Alaska than in  other states because                                                               
Alaska lacks infrastructure.  In  addition to setting up the mine                                                               
operation and the  mill, she continued, a mine may  be looking at                                                               
paying the costs  of building a power source, a  road, or a port.                                                               
Plus, she  added, every mine must  put up a bond  for reclamation                                                               
and closure.                                                                                                                    
MS. MATHIAS  turned to slide 22  and pointed out that  mines must                                                               
pay  Reimbursable Service  Agreements, which  is the  amount that                                                               
the state bills back to  the companies for the state's permitting                                                               
and oversight  costs.  She  reported that between the  years 2012                                                               
and  2017 this  amount  fluctuated between  $1  million and  $2.6                                                               
million.   This  fluctuation, she  explained, is  because when  a                                                               
large  mine  starts  permitting  there  is  a  real  increase  in                                                               
permitting cost.                                                                                                                
MS. MATHIAS spoke to AIDEA's  return on investment as outlined on                                                               
slide  23.   She noted  there are  a couple  exceptions to  mines                                                               
having to  pay their  infrastructure costs,  one being  the [$265                                                               
million] investment  that AIDEA  made into the  Red Dog  port and                                                               
road.   She explained  that AIDEA  has a dual  mandate    it must                                                               
make wise  investments that  make money for  the State  of Alaska                                                               
and it must  make investments that will  increase economic growth                                                               
in the state.   She said the  Red Dog port and road  have been an                                                               
absolute  success for  AIDEA in  regard to  these mandates.   She                                                               
specified that for  an initial investment of  $265 million, AIDEA                                                               
has received $465  million [as of 12/2017] and  the contract goes                                                               
to 2040.                                                                                                                        
MS. MATHIAS  moved to slide  24 depicting a graph  of exploration                                                               
spending  for the  years  2011  to 2018.    She  opined that  the                                                               
"Fraser report" is  a survey and is the  perception of individual                                                               
mining executives giving their personal  view and experience.  It                                                               
is  more important  to actually  look at  where they  spend their                                                               
money, she continued.  She related  that the four years from 2011                                                               
to  2016 saw  an incredible  decline in  exploration spending  in                                                               
Alaska, as well as globally.   Commodity prices tanked, she said,                                                               
companies had to write down a  number of acquisitions, and it was                                                               
almost impossible  to raise money for  mining exploration because                                                               
investors were  very cautious.   That has started to  turn around                                                               
over the last  couple years, she continued;  commodity prices are                                                               
improving and  there is a bit  more ease in raising  money on the                                                               
stock exchanges.   While this  upward trend  is far from  what it                                                               
was,  she added,  it  is going  in the  right  direction and  the                                                               
expectation for  Alaska is that 2019  will be as good  as 2018 or                                                               
potentially better.                                                                                                             
2:58:23 PM                                                                                                                    
S. MATHIAS  displayed slide  25 and discussed  how to  ensure the                                                               
increase of [exploration].  She  said modern economies around the                                                               
world need minerals.  While  Alaska has world class deposits, she                                                               
continued, it must compete for  global investment with all of the                                                               
other  mining jurisdictions  in the  world.   Alaska competes  by                                                               
having an attractive  investment climate, she added.   Alaska has                                                               
specific  challenges,   such  as  the  lack   of  infrastructure,                                                               
climate,  distance  from markets,  she  noted,  but what  can  be                                                               
controlled is  the perception that Alaska  is a good place  to do                                                               
business.  If Alaska doesn't  send that message, she warned, then                                                               
the  limited capital  can go  to other  jurisdictions.   Policies                                                               
that  show   fiscal  certainty  and  regulatory   certainty  help                                                               
investors  make  that  decision,   she  said.    Ultimately,  she                                                               
continued,  that means  more  money in  Alaska,  more jobs,  more                                                               
opportunities  for Native  corporations through  revenue sharing,                                                               
more  local procurement,  and more  revenue for  state and  local                                                               
governments.   Many Alaska communities  and thousands  of Alaskan                                                               
miners and their families depend on a healthy mining industry.                                                                  
MS.  MATHIAS  discussed a  slide  not  included in  her  prepared                                                               
presentation.  She said the slide  is for an electronic fund that                                                               
includes multiple  commodities and depicts information  up to the                                                               
year 2017.   Because the fund invests in many  mining stocks, she                                                               
noted, it provides  a sense of how volatile  commodity prices are                                                               
and what  is happening in the  industry.  She explained  that the                                                               
huge dip on the far left side  of the slide is the 2008 financial                                                               
crisis.  She  drew attention to the steady decline  from the high                                                               
in  2011 until  2016  and  said one  reason  the Alaska  [Mining]                                                               
License Tax  was so  low in 2016  was a result  of four  years of                                                               
MS.  MATHIAS  related  that  a  recent  report  from  the  Alaska                                                               
Department  of Labor  and Workforce  Development says  62 percent                                                               
local hire.   She  said it doesn't  include contractors  and some                                                               
self-employed,  including many  of the  1,100 placer  miners, and                                                               
therefore  the numbers  in the  McDowell Group  study tend  to be                                                               
higher.   However, she continued, in  places where it is  easy to                                                               
get to  work, like Fort  Knox, 100  percent of the  employees are                                                               
Alaskans living  in the  Fairbanks North Star  Borough.   [At the                                                               
Red  Dog Mine]  55 percent  of the  more than  600 jobs  are NANA                                                               
shareholders and [the mine's] overall  Alaska hire is 75 percent.                                                               
The  industry  wants  to  hire   Alaskans,  she  opined,  because                                                               
Alaskans already  know what it's like  to live in Alaska  and are                                                               
more  likely to  stay  and make  good employees.    She said  the                                                               
industry has  tried to encourage that  by supporting scholarships                                                               
and training programs.   Through the Educational  Tax Credit, $20                                                               
million  was invested  into vocational  programs at  high schools                                                               
and  the University  of  Alaska to  support  programs that  train                                                               
Alaskans to be the next generation of miners in Alaska.                                                                         
3:02:21 PM                                                                                                                    
REPRESENTATIVE  RAUSCHER pointed  out  that,  while the  Northern                                                               
Star Pogo Mine may not be  paying local taxes, the mine does have                                                               
some nice contracts  with the community in Delta  Junction and it                                                               
supports that community  and area very well.  He  noted he is the                                                               
representative for that district.                                                                                               
CO-CHAIR  TARR commented  that the  lack of  infrastructure might                                                               
not be  unique to  Alaska.   She recognized  that Ms.  Mathias is                                                               
Canadian  and  asked  whether other  big  geographic  areas  have                                                               
better solutions for that.                                                                                                      
MS.  MATHIAS replied  that a  comparison was  done of  a mine  in                                                               
northern Ontario that  went into production a few  years ago, the                                                               
mine  being roughly  the same  size as  Donlin in  the amount  of                                                               
throughput and  how much would be  milled each day.   She offered                                                               
her belief that  the capital investment was just  over $1 billion                                                               
Canadian while Donlin is looking at  $6-$7 billion.  She said the                                                               
mining jurisdictions  in Canada have  found ways, even  in remote                                                               
areas,  to  incentivize  mining,   whether  it  is  through  more                                                               
public/private  partnerships  in  infrastructure  and  electrical                                                               
transmission investment, or other ways such as tax incentives.                                                                  
MS. CROCKETT,  responding to Representative  Talerico, reiterated                                                               
that Usibelli Coal Mine provides  39 percent of Interior Alaska's                                                               
CO-CHAIR TARR  reminded the  presenters that  they had  agreed to                                                               
get  back  to the  committee  regarding  a state  comparison  for                                                               
required permits.                                                                                                               
3:05:07 PM                                                                                                                    
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 3:05 p.m.                                                                 

Document Name Date/Time Subjects
HRES Department of Revenue _Mining Presentation to Legislature 4.8.2019.pdf HRES 4/8/2019 1:00:00 PM
Mining Taxes
HRES Mining Industry Update 4.8.19.pdf HRES 4/8/2019 1:00:00 PM