Legislature(1993 - 1994)
05/14/1994 09:00 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
JOINT HOUSE STATE AFFAIRS STANDING COMMITTEE,
HOUSE JUDICIARY STANDING COMMITTEE AND
HOUSE SPECIAL COMMITTEE ON OIL & GAS
May 14, 1994
9:00 a.m.
HOUSE STATE AFFAIRS COMMITTEE
MEMBERS PRESENT
Representative Al Vezey, Chairman
Representative Pete Kott, Vice Chair
Representative Jerry Sanders
Representative Fran Ulmer
Representative Gary Davis
Representative Bettye Davis
Representative Harley Olberg
HOUSE JUDICIARY COMMITTEE
MEMBERS PRESENT
Representative Brian Porter, Chairman
Representative Jeannette James, Vice Chair
Representative Gail Phillips
Representative Pete Kott
Representative Joe Green
Representative Cliff Davidson
Representative Jim Nordlund
HOUSE SPECIAL COMMITTEE ON OIL & GAS
MEMBERS PRESENT
Representative Joe Green, Chairman
Representative Pete Kott, Vice Chair
Representative Gary Davis
Representative Jerry Sanders
Representative Harley Olberg
Representative Joe Sitton
OTHER LEGISLATORS PRESENT
Representative Con Bunde
Representative Bill Hudson
Representative David Finkelstein
Representative Tom Brice
Representative Gene Therriault
COMMITTEE CALENDAR
SB 377: "An Act relating to state agency fiscal
procedures, including procedures related to the
assessment and collection of certain taxes; and
providing for an effective date."
PASSED HOUSE CSCSSB 377(STA) OUT OF COMMITTEE
WITNESS REGISTER
BRUCE BOTELHO, Attorney General
State of Alaska
Department of Law
P.O. Box 110300
Juneau, Alaska 99811-0300
Phone: 465-3600
POSITION STATEMENT: Testified in support of SB 377
SPENCER HOSIE, Legal Counsel for the
Department of Law
510 L Street
Anchorage, Alaska 99501
Phone: None Given
POSITION STATEMENT: Testified in support of SB 377
PAUL WESSELLS, Director of Tax
BP Exploration, Alaska
900 E. Benson Blvd.
Anchorage, Alaska 99519
Phone: None Given
POSITION STATEMENT: Testified in opposition to SB 377
DARREL REXWINKEL, Commissioner
Alaska Department of Revenue
P.O Box 110400
Juneau, Alaska 99811-0400
Phone: 465-2300
POSITION STATEMENT: Testified in support of SB 377
RICHARD BREWER, Assistant Director
Oil and Gas Audit Division
Department of Revenue
15021 Longbow
Anchorage, Alaska 99516
Phone: 176-1363
POSITION STATEMENT: Testified in support of SB 377
JIM PALMER
Alaska Oil & Gas Association
121 W. Fireweed Lane
Anchorage, Alaska 99501
Phone: 272-1481
POSITION STATEMENT: Submitted written testimony and
commented on SB 377
RAGA ELIM, Legislative Liaison
Office of the Governor
P.O. Box 110001
Juneau, Alaska 99811-0001
Phone: 465-3500
POSITION STATEMENT: Commented on SB 377
PREVIOUS ACTION
BILL: SB 377
SHORT TITLE: STATE AGENCY FISCAL PROCEDURES
SPONSOR(S): FINANCE
JRN-DATE JRN-PG ACTION
04/13/94 3633 (S) READ THE FIRST TIME/REFERRAL(S)
04/13/94 3633 (S) FINANCE
04/13/94 3650 (S) FIN WAIVED UNIFORM RULE 23
04/14/94 (S) FIN AT 09:00 AM SENATE FIN 518
04/20/94 (S) RLS AT 06:45 PM FAHRENKAMP
ROOM 203
04/21/94 3839 (S) FIN RPT CS 6DP 1DNP SAME TITLE
04/21/94 3839 (S) FN TO SB & CS PUBLISHED (ADM)
04/21/94 3839 (S) ZERO FN TO SB & CS PUBLISHED
(REV)
04/21/94 (S) FIN AT 10:00 AM SENATE FIN 518
04/21/94 (S) RLS AT 02:15 PM FAHRENKAMP
ROOM 203
04/22/94 3870 (S) RLS RPT 3CAL 1NR 4/22/94
04/22/94 3876 (S) READ THE SECOND TIME
04/22/94 3877 (S) FIN CS ADOPTED Y12 N8
04/22/94 3877 (S) AM NO 1 MOVED BY KERTTULA
04/22/94 3882 (S) QUESTION: AM NO 1 GERMANE?
04/22/94 3883 (S) AM NO 1 GERMANE Y17 N3
04/22/94 3883 (S) AM NO 1 ADOPTED Y14 N6
04/22/94 3883 (S) AM NO 2 MOVED BY DONLEY
04/22/94 3884 (S) AM NO 2 FAILED Y9 N11
04/22/94 3884 (S) ADVANCED TO THIRD READING UNAN
CONSENT
04/22/94 3884 (S) READ THE THIRD TIME
CSSB 377(FIN) AM
04/22/94 3884 (S) PASSED Y16 N4
04/22/94 3885 (S) EFFECTIVE DATE PASSED Y17 N3
04/22/94 3885 (S) Pearce NOTICE OF
RECONSIDERATION
04/22/94 3885 (S) TAKE UP RECON ON SAME DAY
WITHDRAWN
04/22/94 3937 (S) RECON TAKEN UP SAME DAY Y18 N2
04/22/94 3937 (S) PASSED ON RECONSIDERATION Y16
N4
04/22/94 3938 (S) EFFECTIVE DATE SAME AS PASSAGE
04/22/94 3941 (S) TRANSMITTED TO (H)
04/27/94 3746 (H) READ THE FIRST TIME/REFERRAL(S)
04/27/94 3747 (H) STA, O&G, JUDICIARY, FINANCE
05/07/94 (H) STA AT 08:00 PM CAPITOL 102
05/07/94 (H) MINUTE(STA)
05/08/94 (H) MINUTE(STA)
05/13/94 (H) STA AT 09:00 AM CAPITOL 519
05/13/94 (H) MINUTE(STA)
05/14/94 (H) STA AT 09:00 AM CAPITOL 519
05/15/94 4412 (H) STA RPT HCS(STA) 1DP 4NR 2AM
05/15/94 4413 (H) DP: VEZEY
05/15/94 4413 (H) NR: SANDERS, OLBERG, G.DAVIS,
ULMER
05/15/94 4413 (H) AM: B.DAVIS, KOTT
05/15/94 4413 (H) -PREV SENATE ZERO FN (REV)
4/21/94
05/15/94 4413 (H) REFERRED TO O&G
05/15/94 4413 (H) O&G REFERRAL WAIVED
05/15/94 4414 (H) JUD REFERRAL WAIVED
05/15/94 4414 (H) FIN REFERRAL WAIVED
05/15/94 4414 (H) RULES TO CALENDAR 5/15/94
05/15/94 4415 (H) READ THE SECOND TIME
05/15/94 4415 (H) STA HCS ADOPTED UNAN CONSENT
05/15/94 4415 (H) AMENDMENT NO 1 BY VEZEY
05/15/94 4415 (H) AMENDMENT NO 1 ADOPTED UNAN
CONSENT
05/15/94 4416 (H) AMENDMENT NO 1-A BY VEZEY
05/15/94 4416 (H) AMENDMENT NO 1A ADOPTED UNAN
CONSENT
05/15/94 4416 (H) AMENDMENT NO 2 BY B.DAVIS
05/15/94 4416 (H) AMENDMENT TO AMENDMENT NO 2 BY
VEZEY
05/15/94 4417 (H) AM TO AM NO 2 ADOPTED UNAN
CONSENT
05/15/94 4417 (H) AM NO 2 AS AMENDED ADOPTED Y24
N14 E2
05/15/94 4418 (H) AMENDMENT NOS 3-5 NOT OFFERED
05/15/94 4418 (H) ADVANCED TO THIRD READING UNAN
CONSENT
05/15/94 4418 (H) READ THE 3RD TIME HCS CSSB
377(STA) AM H
05/15/94 4418 (H) FAILED PASSAGE Y15 N23 E2
05/15/94 4419 (H) ULMER NOTICE OF RECONSIDERATION
05/16/94 4437 (H) RECON TAKEN UP/IN THIRD READING
05/16/94 4438 (H) RECONSIDERATION FAILED Y18 N21
E1
05/16/94 4438 (H) MOTION TO RESCIND PREV ACTION
IN FLNG TO
05/16/94 4438 (H) ...ADOPT HCS CSSB 377(STA) AM
H(FLD H)
05/16/94 4439 (H) RESCIND PREVIOUS ACTION FLD Y15
N24 E1
05/19/94 (H) RETURNED TO SENATE
05/19/94 (S) PERMANENTLY FILED IN THE (S)
ACTION NARRATIVE
TAPE 94-64, SIDE A
Number 000
SB 377 - STATE AGENCY FISCAL PROCEDURES
CHAIRMAN VEZEY called the House State Affairs Committee to
order at 9:00 a.m. on Saturday, May 14, 1994, convened
jointly with the House Oil & Gas Committee and the House
Judiciary Committee. Chairman Vezey said, "The subject
before us is SB 377. I'd like to go back and clear up one
thing on the record, I know that Attorney General, Bruce
Botelho, is with us this morning and Mr. Botelho, you might
could help us here - there is some confusion on the record
as to the address of Mr. Spencer Hosie."
ATTORNEY GENERAL, BRUCE BOTELHO: "He is the contract
attorney from San Francisco. (Undiscernible) Alaska Bar
formerly of Anchorage."
CHAIRMAN VEZEY: "Do we have an address we can use for him?"
MR. BOTELHO: "Mr. Chairman, I would expect that he would be
here real shortly. In fact, he's walking in
(indiscernible)."
CHAIRMAN VEZEY: "Mr. Hosie, we're trying to clean up a
little detail. Our transcribing secretary would like to
have an address for you, if possible."
MR. SPENCER HOSIE: "510 L Street, Anchorage, Alaska 99501."
CHAIRMAN VEZEY: "Thank you, very much. Next on our witness
list I'd like to call Mr. Paul Wessells with BP. Mr.
Wessells, do you have a statement you'd like to give us or
you just want to take questions, or.."
PAUL WESSELLS: "If I might, I have a statement."
CHAIRMAN VEZEY: "Please. If you would state your name, and
I have your address on the witness sign-in sheet, so."
Number 037
MR. WESSELLS: "Good morning, Chairman Vezey, Chairman
Porter, Chairman Green and members of the committee. My
name is Paul Wessells and I am Director of Tax, BP
Exploration, Alaska. I'm hear today to testify on behalf of
BP against the proposed retroactive changes in the statutes
of limitation on assessment and collections, as set forth in
Sections 1 and 2 of Senate Bill 377. Although, oil and gas
taxes may seem like an obscure subject to most people, the
tax administration system in Alaska, at least on paper, is
not a great deal different from others, including the
federal income tax system. When it's time to do your taxes,
you read the instruction booklet, you fill out a return,
calculate the tax you owe and then write a check. As I'm
sure some of you are painfully aware from personal
experience with the IRS, that's usually not the end of the
matter. It's no different for oil and gas producers here in
Alaska. The auditors in the Department of Revenue examine
the returns we file, ask for explanations of items in these
returns, and then decide whether the correct amount of tax
has been paid. If the auditors believe we should have paid
more, they give us a bill for the extra tax and some sort of
explanation of how they calculated the bill. This bill for
additional tax is called an assessment and demand for
payment. The IRS uses a different name for the bill they
give you when they finish an audit, but the process leading
up to that bill is essentially the same. Now just because
you get this bill from the IRS or the Department of Revenue
doesn't mean you owe it. The auditor might have made a
mistake, either in calculating the bill or interpreting the
rules contained in the tax statutes and regulations.
Whatever the nature of the mistake in an assessment,
taxpayers have the right to ask the state and the IRS to
correct the error. The way a taxpayer asks a correction is
by filing an appeal. In Alaska, taxpayers usually start the
error correction process by asking for an informal
conference with a Department of Revenue employee. If all
the errors are not corrected, the taxpayer can request a
formal hearing, presided over by a hearing officer, who is
also a Department of Revenue employee. After the formal
hearing, the department's hearing officer writes a decision.
The Commissioner of Revenue then reviews that decision. If
the commissioner approves the decision, it is formally
issued and becomes the official position of the department
on the matter. At that stage, the taxpayer has 30 days to
appeal that decision to court. In a nutshell, that's how
the tax audit and appeal system or process works within the
Department of Revenue in Alaska.
"So how do the statute of limitations fit into this? Well,
their rules are there to regulate the audit and appeal
process. Simply put, they give the department three years
from the filing of a tax return to audit it and send the
taxpayer the bill for additional tax that the auditor thinks
should have been paid, and then an additional six years to
get the claim into court for collection. If the department
doesn't send the bill within the three year period, it can
never claim and collect any additional tax from the
taxpayer. We're talking about additional tax here. The
same rule applies to your federal taxes. If you haven't
heard from the IRS within three years after April 15, you
can throw your records away. You won't be needing them,
because they won't ever be able to send you a bill for an
extra tax for that year. Here in Alaska, the six-year
statute is satisfied if within the six years the department
considers and decides a tax appeal and the appeal gets into
court. In other words, when the appeal gets to court, it
becomes a judicial proceeding of the type that the six-year
statute talks about. What this means is that if the
Commissioner of Revenue does not make a final administrative
determination of a taxpayer's appeal before the six year
period runs out, the state can't collect the bill. So it's
three years to audit and six years to collect. Nine years
altogether.
"Now I'd like to talk about how Senate Bill 377 would change
these rules. The amendment contained in Section 1 would
change the three-year audit statute so that even after the
three years are up, the auditors can raise new and unrelated
issues and increase their claims without limit for more tax
at any time, so long as the department has not finished its
consideration of the appeal and issued its formal hearing
decision. Section 2 of Senate Bill 377 would change the
six-year statute so that the clock for the six years isn't
running while the tax assessment is being appealed within
the Department of Revenue or in court. This doesn't sound
like a big deal, until you stop and think about what it
really means. The six-year statute currently sets a time
limit on how slowly the department can consider and decide a
tax appeal. It has to get its work done on the appeal in
six years. But under the administration's proposal, the six
year clock won't be running while the department considers
the appeal. So the department will, under this legislation,
be free to take as many years as it wants to, to make a
final decision. And under the change proposed to the three-
year statute, at any point during all that time while the
department has the appeal, it can change its mind about what
the tax laws meant years earlier when the taxpayer
originally filed its return. Can you imagine what you would
think if after an IRS audit, you got a bill for an
additional $1,000. You filed an appeal explaining why you
didn't think you owed it, and then heard nothing from the
IRS about the disposition of your appeal until nine years
later, at which time you get a bill for an additional $2,000
with an explanation that the IRS has come up with a new
interpretation of the same rules. And, of course, the
$3,000 has 12 years of interest added to it. Well after you
managed to calm down, if that were possible, you'd probably
think that something was terribly wrong with the U.S. tax
system. Now you probably think I have a pretty vivid
imagination to come up with a story like that. Let me
assure you, that except for the amount of tax, this story is
true and it happened to BP, right here in Alaska. This
changing of the department's mind during the course of an
extended tax appeal is one of the most troubling problems
Alaska has with its present tax system. And because of tax
confidentiality, it is one of the most difficult to explain
to the public with real life examples. In effect, this
institutionalized revision makes it impossible for a
taxpayer to know what the correct amount of tax is when it
files its return and its time to pay. It's absolutely
impossible.
"The proposed amendments to the statutes of limitation that
you are being asked to enact in this special session would
ratify this course of conduct. Even if this is legal, and
we don't think it is, is it a sensible tax policy?
Apparently the administration does not think so, that's why
their proposal for the future is a rule that gives the
department five years to audit and make its claim for more
tax, and after that tax claim, that claim cannot be
increased after the five years. Well then I must ask you,
if the amendment to the three-year statute that is being
proposed to deal with years before 94 is not good policy for
the future, why is it fit for the past?
"Now I'd like to say a few words about our efforts; that is
BP's efforts, in recent weeks to find a compromise on this
legislation. We've had a number of discussions with the
attorney general, in an effort to find the middle ground.
As you know from the letter you received from our President,
John Morgan, we offered not to claim the six-year collection
statute as a defense in consideration for the administration
dropping its insistence on retroactivity. We also supported
legislation that would adopt royalty settlement values as a
basis for tax valuation. The administration rejected these
overtures. During our several discussions with them, it has
become very clear to us that withdrawing support
retroactivity, especially with regard to the three year
limit on assessments, is an idea that they will not accept.
As you all know from Mr. Sullivan's testimony yesterday, the
Supreme Court is scheduled to hear a case next week that
will determine the proper interpretation of the three year
limit on assessments. We had hoped that the administration
would conclude that our offer not to claim the six-year
statute would avoid the prospect of amounts being quote
`taken off the table' closed quote, in negotiations and that
a proper judicial determination of the meaning of the three-
year statute would be satisfactory. BP is prepared to live
by whatever the court decides. Why isn't the
administration? Is it concerned that the state might not
prevail? That is the problem, the message for business in
Alaska is pretty ominous and that is; if the state wants
your money bad enough it will do anything, even change its
laws retroactively in order to get it. In addition to being
bad policy for the state by sending a very clear stay away
message to investors, SB 377 won't even deliver as
advertised; that is, as a catalyst to settlement of these
old tax claims. It only adds another procedural twist that
both sides' litigation teams will spar over. And it won't
save the alleged $3 billion of back taxes from falling off
the table. Either it is already fallen, or the present law
keeps it from falling off the table. Thanks for this
opportunity to testify. I'd be happy to answer any
questions you might have."
Number 260
CHAIRMAN VEZEY: "Thank you, Mr. Wessells. Is it, from your
testimony, that your opinion that either the purpose,
objective or effect of this legislation is to influence the
court decision."
MR. WESSELLS: "Mr. Chairman, I listened to the testimony
yesterday and there was a lot about the court decision and
how this legislation might interact with it or how it might
be effected, or might affect the decision, I can't really
answer the question of what the motivation is here. But you
know, it seems very odd to me that we're here and we spent
all this time talking about this legislation when, indeed,
that is the issue before the court. At least, on the three-
year statute. There's been quite a lot of testimony on both
sides about whether this interpretation of the three-year
statute that is going to be before the court, has been, or
the position that is being taken in this legislation, is
longstanding policy in the Department of Revenue. There's
been quite a lot of testimony on that and based on what
I've heard, it sounds to me like longstanding can only mean
from 1989 forward and I think, that as far as this process
that we're going through in trying to determine, you're
trying to determine, whether this legislation makes any
sense, you're really being asked to make a finding of
whether this policy was legitimate. That's really the issue
that is before the court. When they find it, if they're
allowed to, then it will be the law of the state and no one
will question it, including us. If you do so, it'll still
be an open question."
CHAIRMAN VEZEY: "Thank you. Are there questions?
Representative Sitton."
Number 293
REPRESENTATIVE JOE SITTON: "Mr. Chairman, if Mr. Wessells'
has it, I'd appreciate a copy of his remarks. Do you have a
printed copy?"
MR. WESSELLS: "I do not have it with me, but I will have
one made and get it to you very soon."
CHAIRMAN VEZEY: "If you could transmit a copy to the
committee aide, why we can ...."
MR. WESSELLS: "I'd be happy to."
CHAIRMAN VEZEY: "Yes, Representative Bunde."
Number 298
REPRESENTATIVE CON BUNDE: "Thank you, Mr. Chairman. Could
I infer from your remarks that it's an open question that if
we don't allow the courts to settle it now, it will be back
in court again?"
MR. WESSELLS: "Well, I think there's a serious question
about the constitutionality or would be a serious question
about the constitutionality of a law of this sort that
reaches back 18 years and substantially affects the
expectations and rights of people that have been developed
or held over that period of time. I suspect some taxpayer
is going to challenge that."
CHAIRMAN VEZEY: "Representative Porter."
REPRESENTATIVE BRIAN PORTER: "Thank you. Mr. Wessells, I
understand your position on if Section 1 were in place, that
the affect of that would make Section 2 a forever situation.
But if Section 1 were not in place, would it be your
impression that Section 2, basically represents the state of
the case law now?"
MR. WESSELLS: "Well, there is a decision in Superior Court,
the Tesoro case, bearing on Section 2. That is a decision
of the Superior Court. There has not been a decision in the
Supreme Court, so I think that's still an open question."
REPRESENTATIVE PORTER: "One more, if I may, Mr. Chairman.
You mentioned early on in your testimony something that I
quite frankly haven't gotten absolutely clear in my mind.
Without any proprietary information, is it your impression
that generally, all of these claims are claims that the
problem with them or the case in court, for example,
represents a desire not to accept assessments that were made
after the three year period, but that claims have been made
on all oil produced, it's just the increased additional
claims on the same oil that is in dispute."
MR. WESSELLS: "I'm not aware of any, I can tell you that we
have, there are no taxable years that are in question for BP
here, in which there would be no liability for additional
claims because of the three-year statute of limitations. It
is - the issues that we have are with respect to additional
assessments that have been made after that period of time."
REPRESENTATIVE PORTER: "Thank you."
CHAIRMAN VEZEY: "Further questions? Representative
Davidson."
REPRESENTATIVE CLIFF DAVIDSON: "Thank you, Chairman Vezey.
I'm sorry, sir, I did not get your name."
MR. WESSELLS: "Wessells."
REPRESENTATIVE DAVIDSON: "Mr. Wessells, good English name,
huh?"
MR. WESSELLS: "Dutch, actually."
REPRESENTATIVE DAVIDSON: "I'm sorry. Mr. Wessells, the
negotiations about which you spoke, who were all the parties
involved in those negotiations?"
MR. WESSELLS: "The negotiations, you mean the conferences
that we've had with the administration concerning this
legislation?"
REPRESENTATIVE DAVIDSON: "The ones that you mention in your
discussion there. In your written statement, you talked
about negotiations. Who were all the parties represented in
that."
MR. WESSELLS: "I don't recall, Mr. Chairman, mentioning any
negotiations. I did mention, though, that we did have
conferences with members of the administration concerning
attempts to reach a middle ground on this legislation and
the discussion that I had, and the president of the company
had, was with the attorney general."
REPRESENTATIVE DAVIDSON: "Were there, was there legislative
involvement in those negotiations?"
CHAIRMAN VEZEY: "Representative Davidson, for clarity, I
think we're all aware that there have been negotiations
going on between the administration and the taxpayers."
REPRESENTATIVE DAVIDSON: "Are you attempting to...."
CHAIRMAN VEZEY: "Representative Davidson."
REPRESENTATIVE DAVIDSON: "...what's in the record, Mr.
Chairman?"
CHAIRMAN VEZEY: "Representative Davidson, you're out of
order. Representative Davidson, we are aware that
negotiations are going on. Those negotiations are
privileged information regarding litigation. It would not
be appropriate to try to interject the content of those
negotiations into this meeting."
REPRESENTATIVE DAVIDSON: "All I'm trying to establish, Mr.
Chairman, is the fact that apparently there was legislative
involvement in those negotiations. The content is of no
consequence, to me, in making the point for the record."
CHAIRMAN VEZEY: "I think you're going too far,
Representative Davidson. You're out of order. You may ask
if they're in negotiations, that's as far as you can go."
REPRESENTATIVE DAVIDSON: "Are there negotiations with
legislative parties?"
Number 373
MR. WESSELLS: "Mr. Chairman, I'm not sure I understand the
question in terms of what negotiations we're referring to
here. I've said we did have discussions concerning the
proposed legislation, not only with members of the
legislature, but also with the attorney general."
CHAIRMAN VEZEY: "Representative Davidson will have to
clarify his questions because negotiation is a broad term."
REPRESENTATIVE DAVIDSON: "Well, Mr. Chairman, I don't want
to go against your ruling, so what I'll do is move onto my
second question, if I may."
CHAIRMAN VEZEY: "Please."
REPRESENTATIVE DAVIDSON: "You raised the specter of
constitutional issues. What are those constitutional
issues?"
MR. WESSELLS: "The issue in this case would be if this
legislation were passed, whether a bill or a law
retroactively affecting rights of taxpayers for a period of
18 years would be constitutional."
REPRESENTATIVE DAVIDSON: "So does that involve the right of
due process, is that what you're talking about?"
MR. WESSELLS: "That would be one issue, I would suppose,
yes."
REPRESENTATIVE DAVIDSON: "On that supposition, Mr.
Wessells, it is my understanding and it's footnote 3 on page
8 of the court opinion, the Superior Court judge indicates
that the court finds no merit in these constitutional
arguments, so how do you respond to that?"
MR. WESSELLS: "Well, I would say that we're only
speculating about a case in the future that might occur.
That would only occur if this legislation were passed, and
there hasn't been any ruling in the state of Alaska, that
I'm aware of, of this sort on legislation of this sort."
REPRESENTATIVE DAVIDSON: "I have another line of
questioning, Mr. Chairman. Thank you. You've talked - you
gave the fantastic story about the IRS, it was a good one.
Let me ask, if in fact what would be the position of your
company if, at the end of those nine years, there was new
information or new discoveries made that resulted in say,
tens of millions of dollars or maybe even hundreds of
millions of dollars going back to your company, would you
then think that it was a travesty or would your company take
that money?"
MR. WESSELLS: "Mr. Chairman, I think the question is
whether, if the Department of Revenue during the course of
an audit or appeals process disclosed a new position or had
a new interpretation of the law, or indeed, new facts came
to light, which I think was the point, whether in a
circumstance where the statute of limitations on assessments
had actually run out, whether I would think that that was a
travesty. Well, it's a value judgment on whether it's a
travesty or not, is one matter. What the law is, is what
really counts. And if the law says that those claims could
not be made, then we have to comply with the law."
REPRESENTATIVE DAVIDSON: "What is your company's, Mr.
Wessells, what is your company's understanding of, when the
SOL clock starts regards new information that is discovered
in the course of the appeals process, initiated by
yourselves?"
MR. WESSELLS: "The only information that would, I think the
only information that came - that would come to light or
might come to light in the course of the appeals process
that would allow the statute of limitations to continue to
be opened would be some finding or evidence of fraud."
REPRESENTATIVE DAVIDSON: "Well, I understand there's two
other things, but you didn't get to my question in the way
that I thought you would. Does this mean then, that when,
you call it new interpretation, I would say it also involves
a new understanding of the materials that you have presented
in your tax return. Are you saying that a new understanding
which results in the amount that goes back and forth between
the parties goes either way, that there should not be a new
billing offered?"
MR. WESSELLS: "Mr. Chairman, I think that the best way I
can answer that is that to try to respond to what I think is
the policy in the statute of limitations. And it is to seek
closure in the debate over a tax liability. Certainly new
understandings of the existing facts could occur 20 years
after the fact - at any time, after the return is filed. I
think that there is a policy though in this statute of
limitations that says at some point, the parties have to cut
to the chase, decide what the bill is, and argue that out.
And that's the end of the matter. That's the way I feel
about it and I think that was the intention in the statute
and the policy behind it."
Number 451
REPRESENTATIVE DAVIDSON: "So, then if I understand you
correctly, it is your position that the appeals process does
not suspend the statute of limitations clock."
MR. WESSELLS: "That's correct. The three-year statute of
limitations, that is correct. The only thing that suspends
it is a finding of fraud or an agreement."
REPRESENTATIVE DAVIDSON: "Well, Mr. Chairman, I have
additional questions that regards the negotiations, but I'm
sure that you wouldn't permit them, so I'll close at that."
CHAIRMAN VEZEY: "Representative Davidson, you're not clear
on which negotiation you're referring to. If you're
referring to settlement negotiations, those are a matter of
attorney-client privilege and not a proper subject for this
hearing. If there's some other negotiation you're referring
to, please be specific."
REPRESENTATIVE DAVIDSON: "Ah, I am referring to
negotiations that should, in view, I think, of the
overwhelming amount of the public sentiment, be at least,
discussed in a public forum."
CHAIRMAN VEZEY: "I'm sorry, that's not our privilege. We
can't make that determination here."
REPRESENTATIVE DAVIDSON: "All I was trying to do is to, at
least for purposes of establishing on the record, that who
is it that should be involved in these negotiations. It
seems that we've got some confusion as to who's negotiating
what for whom and I'm trying to understand, Mr. Chairman,
are there legal breaches, are there things that we should be
examining as public servants, serving the public interest,
that we can't get to because of attorney-client privilege
and thereby exclude some kind of legislative closure to
those negotiations. I understand it's a very difficult
thing, and I appreciate your generous offer to give me
latitude."
CHAIRMAN VEZEY: "Representative Davidson, as legislators we
need to, more than most people, respect the issue of
separation of powers and it is not our place to interject
ourselves into the court system and their process."
REPRESENTATIVE DAVIDSON: "Well stated."
CHAIRMAN VEZEY: "Further questions of Mr. Wessells before
we start going through the bill section by section?"
REPRESENTATIVE DAVIS: "Mr. Chairman."
CHAIRMAN VEZEY: "Representative Davis."
Number 482
REPRESENTATIVE GARY DAVIS: "Thank you. Mr. Wessells, in
practical terms, due to the complexities of the audits of
this, you indicated that, you know, the policy should be to
reach closure. Should that not be there, because of the
complexities, you could probably go on forever changing
numbers and looking at codes, and looking at issues, and
chasing down a barrel of oil, or, isn't that true, if there
isn't a policy of some closure, a statute of limitations
number that should probably come up as - could be almost
anywhere."
MR. WESSELLS: "I would agree with that. I think that is
why I emphasized earlier, I think that, different
jurisdictions, different states, will have different means
of effecting that, either in the policies or the laws
affecting what their departments of revenue do during the
course of hearing a taxpayer's appeal. It happens that in
Alaska, there is an awful lot of latitude that the
department has, and the commissioner has, in reaching a
final determination in the scheduling of that - has a lot of
authority in terms of setting the schedule - how long it
takes and so forth. And the statute here in this case kind
of sets an outer limit to that. It's a statute that can be
extended, by the way, of course by mutual consent, so it's
not draconian in the sense that it forces the administration
or, excuse me, the commissioner to not have enough
(indiscernible). And, of course, the commissioner always
has the ability to levy a jeopardy assessment, if time is
running short and the taxpayer is not cooperative in terms
of giving time. So, I would agree that some sort of limit
on the process is necessary, not only for the taxpayers; it
is necessary for the state, as well. You have a situation
where you get to open tax years that stretch for over 15
years, you as the people that figure out how to run this
state, are not sure at all, because of, as you well know,
what amount of tax is actually going to be collected. And
it affects the planning, I'm sure it does - it must. So I
think it's in everybody's interest to have a closure on
these matters."
REPRESENTATIVE G. DAVIS: "Mr. Chairman, if I might."
CHAIRMAN VEZEY: "Please, Mr. Davis, Representative Davis."
REPRESENTATIVE DAVIS: "Mr. Wessells, has it been BP's
policy to agree to extend the three years?"
MR. WESSELLS: "Yes. I have not been in Alaska for this
whole period of time and I've not been engaged in these
matters before - directly before 1992, but we did a rough
reconnaissance and found that we had - we knew of 34 times,
at least, that we had extended this three-year statute of
limitations, and we didn't get through all the files. So,
that is why in John Morgan's letter to the legislature, he
mentioned (indiscernible due to background noise on the
tape). I'm not aware of a time, any time, that we've been
requested to extend the three-year statute of limitation,
that we denied that request."
CHAIRMAN VEZEY: "Representative Sitton."
REPRESENTATIVE SITTON: "Mr. Chairman. And why would you do
that, Mr. Wessells? Why are you agreeable to all these
extensions all the time?"
MR. WESSELLS: "Well, because we're trying to work with the
Department of Revenue to resolve these issues in a business-
like way. And we recognize that it does take time to deal
with these very complicated matters. So, it is in the
interest of both parties, to try to settle these issues in a
sort (indiscernible) way, rather than to have a face-off in
a litigation over every single item that might arise as an
issue in a tax return."
CHAIRMAN VEZEY: "Representative John Davies."
Number 537
REPRESENTATIVE DAVIES: "Thank you. Mr. Chair, I apologize
for being late this morning and if this question has been
asked, I beg the indulgence of the members here, but one of
the issues that you've raised here is the one of closure,
you know and some sort of end to the process, and I just
wonder if you would comment on the route that's available to
you through the formal hearing process and being able to
close off the process that way. You know, assuming that - I
guess I'm a little confused too, maybe you could preface
that with an answer to another related question which is,
if, as is the case, and I've no doubt to believe that's it's
true, that every time the state is asking for an extension,
you have, and we had substantially similar testimony from
Exxon - the representative from Exxon yesterday, why are we
arguing about the statute then, if every single time the
state asks you for an extension, you extend it, then what
are we doing here?"
MR. WESSELLS: "Two questions. I'll answer them in order.
As far as the choice of formal hearing or formal conference
as a methodology for drawing closure, first of all let me
say that's it not clear in every instance that that will
indeed draw closure to the administrative process. We
heard Mr. Sullivan of Exxon yesterday related to us a story
about a formal conference decision that was, at least
initially, approved by the commissioner that was remanded to
the division - the audit division - for computations and
findings, that is still open as far as I know, so it - or at
least I was left with that impression. So, because you
choose that route, doesn't necessary mean that, at least in
that instance, that you get a final determination. But on a
more, a less legalistic and on a more practical level, BP is
not a very litigious company and our experience in dealing
with, it's not something we prefer to do, it's quite
expensive - these formal hearings, as we are learning
presently, because we have elected to go through the formal
hearing process, is quite involved in terms of the time it
takes and the cost that's associated with it. Our
experience has been with other tax jurisdictions, that we've
managed to work out reasonable agreements about tax
liability in a reasonable amount of time. This is true,
both with the federal tax authorities and with other states.
So, it is not something that 10 years ago we would have
thought was the normal course of events to choose. Indeed,
I must tell you, that during the last several years of
trying to resolve our tax liabilities with the state of
Alaska, on occasion, we have had at least one employee in
the Department of Revenue - one official - implore us not to
take that route, to continue to discuss these matters on an
informal basis, because it seemed like we were making some
sort of progress toward resolution. So, I think that the
notion that taxpayers can always draw things to a close and
it's desirable to do so, by electing the formal route is a
notion that is not necessarily in the best interest of both
parties (indiscernible)."
REPRESENTATIVE DAVIES: "Mr. Chairman, may I follow up with
one more."
CHAIRMAN VEZEY: "Please."
REPRESENTATIVE DAVIES: "One other potential way to close it
off would be to pay the tax that was claimed that was owed
and then to follow up with a refund. And it's my
understanding, that that does really foreclose the
possibility of the state making further increases, which
seems to be one of the...."
MR. WESSELLS: "Well, I would have thought it would, be
under this, as I read Senate Bill 377, that wouldn't work
either because the statute of limitations on assessments
would be open even during the course of a claim for refund.
So that if you - the only way to really gain closure, if
this were the law, would be to pay the assessment and go
mum."
REPRESENTATIVE DAVIES: "So you read this to say that if the
issue was reopened by filing for the refund, that then the
state could continue to up the assessments even during that
process?"
MR. WESSELLS: "If we look at Section 1 (a) (1), the added
language, however, any time during the administrative
consideration of a taxpayer grievance, or of a claim for
refund, or a claim for credit or refund, what that says to
mean is that I could choose the route that you just
described, pay the assessment, claim it as a refund, and
then get another assessment, because I've reopened the
process by making a claim for refund. At least that's what
it seems to say to me."
REPRESENTATIVE DAVIES: "Thank you."
MR. WESSELLS: "You had another question though, I don't
think I answered."
REPRESENTATIVE DAVIES: "No, I think you answered them,
thank you."
CHAIRMAN VEZEY: "Representative Davidson."
Number 607
REPRESENTATIVE DAVIDSON: "Thank you, Mr. Chairman. Mr.
Wessells, you talked about 34 extensions - I don't know how
you broke that down, or if you did. How many of those were
requested by the state and how many were requested by your
company, do you know?"
MR. WESSELLS: "They were all requested by the state."
REPRESENTATIVE DAVIDSON: "Have you requested any extensions
on appeal?"
MR. WESSELLS: "No, not that I'm aware of."
REPRESENTATIVE DAVIDSON: "Not that you're aware of. What
kind of information or events have typically resulted in
different assessments for your company?"
MR. WESSELLS: "The ones that come to mind immediately, are
ones where the Department of Revenue has either changed its
view of an interpretation of the law or regulation, or has -
actually, the ones that I can recall, that I can think of,
are ones where the department has taken a different position
from one that had been taken before on the meaning of a
statute or a regulation."
REPRESENTATIVE DAVIDSON: "Primarily then, differing
opinions in regards to interpretation."
MR. WESSELLS: "That's right."
REPRESENTATIVE DAVIDSON: "So, that brings me to this
question of what kinds of information may the state have
access to, once the appeals process kicks in, that before
that, they did not have available to them?"
MR. WESSELLS: "If my understanding of the law is correct,
the department can gain access to any information through
the subpoena process. And I don't think that that changes
at all during the course of an appeal, an administrative
appeal. The rules that are agreed to or ordered by a
hearing officer in a formal hearing context may be more
specific or a little different, but in terms of the ability
to access information, there is not a difference."
REPRESENTATIVE DAVIDSON: "Would it be fair to say though,
that information available in the appeals process might very
well, legitimate result in a different assessment, up or
down?"
MR. WESSELLS: "Well, I suppose that it's possible, but it's
still the same information that would have been available
during an audit process."
REPRESENTATIVE DAVIDSON: "If you had enough information or
understanding, right?"
MR. WESSELLS: "Right."
REPRESENTATIVE DAVIDSON: "Mr. Chairman, I have just one
other question, if I may."
CHAIRMAN VEZEY: "Please."
Number 639
REPRESENTATIVE DAVIDSON: "Thank you. I asked this question
yesterday of another company and the question is, what
pushes the pace of your company's response to the appeals
process or court proceedings?"
MR. WESSELLS: "Well, when we receive an assessment, we have
60 days from the date of the receipt of the assessment, to
either pay it or to file an appeal. When we file an appeal,
we file what is called a protest, which sets out, at length,
the reasons why we think the assessment is incorrect, is in
error. Once that is filed, at the time it is filed, there
is a presumption in the procedures that one will have an
informal conference, unless it is waived when you file that
appeal. On only one occasion, have we waived that right to
an informal conference. So then, our experience is
primarily with filing the protest and setting up or seeking
the informal conference resolution process. From that point
on, taxpayers, at least BP in its experience, have no
control over the timing issues. It's in the hands of the
Department of Revenue, at that stage. The only thing that
we could do to control the situation from that point on, is
actually to pay the assessment."
REPRESENTATIVE DAVIDSON: "So, if the chronological goal
line is three years, your company would never delay to reach
that goal line, is that a fair statement, then?"
MR. WESSELLS: "Well, the three years as I described the
process earlier, three years is, I think, there in order
that an audit can be done and that an initial assessment can
be made. And as I said earlier, the extensions that we have
given, have been in the context of allowing those audits to
be completed. After the audits are completed, indeed they
may take more than three years, because, and that's what the
extensions are about, and we've done what we can in terms of
trying to get the work done."
REPRESENTATIVE DAVIDSON: "So, when that chronological goal
line has been reached, does that mean there's a different
kind of approach or attitude that your company takes toward
the appeals process?"
MR. WESSELLS: "No, as I said earlier, that we have, we try
to, as we do with other taxing jurisdictions, we try to
operate as best we can, or most often on as informal of
basis as we can, in order to try to resolve issues. And, so
as far as we're concerned, the process itself, is not
changed all that much. The thing that is different, is from
that point in time when the audit process closes, we know
exactly what the claims of the state are regarding our tax
liability, and we know what the discussion is about, and
don't expect to have new claims or new positions develop
during that appeals process."
REPRESENTATIVE DAVIDSON: "Not even if the relation back
doctrine falls into place or relates to the issue?"
MR. WESSELLS: "Sorry, Mr. Chairman, I'm not sure I
understand the relevance of the relation back doctrine to
this appeals process that we're discussing."
CHAIRMAN VEZEY: "I'm not positive that I do either. Could
you elaborate, Representative Davidson."
REPRESENTATIVE DAVIDSON: "Well, it's my understanding from
what I learned yesterday, and it's pretty interesting to be
learning law by doing it, I guess, but that in the process
of appeal, if something new is learned that it relates back
to what the original figures were and that because of that
new information and that relationship of that new
information to what the tax was issued back there, that it
is legal and right for the sovereign power to, I guess, as I
learned yesterday, in any civil matter, the new information
can force a new situation. Maybe I should leave it at that,
because I'm certainly not legally trained, but I'm getting
more respect for those in that profession all the time.
Thanks."
MR. WESSELLS: "Well, I think, that if the question,
relating back to yesterday's testimony, is whether the
Superior Court's decision in the Exxon case, is one that our
company thinks is correct, and that is that the three-year
statute of limitations says what it means and that is, that
after the three years there's not an ability to issue a new
assessment, then I would say `yes' our company agrees with
that interpretation."
REPRESENTATIVE DAVIDSON: "So you've agreed with the
Superior Court's decision regarding that aspect of the case,
but when that same court says that these constitutional
issues that due process...
TAPE 94-64, SIDE B
Number 000
REPRESENTATIVE DAVIDSON, CONTINUED: "...in fact would you
continue appeal, if in fact, you disagreed with the lower
court's decision regarding the constitutional issues. Do
you understand my question, Mr. Chairman?"
Number 010
CHAIRMAN VEZEY: "I'm not thoroughly understanding it, but
I'm beginning to get your drift. I'm having a little
difficulty separating the issue of three years-statute of
limitations on filing an assessment and the issue of
bringing new facts into an appeal case. I'm not sure where
you're drawing the line and I believe the testimony we have
received, no one has disputed the fact that during the
course of an appeal, new facts can be brought in. There is
dispute over the authority of the state to increase the
assessment during that process. But I'm not quite sure
where you're coming from."
Number 020
REPRESENTATIVE DAVIDSON: "Well, I guess what I'm not quite
sure is about where you understand that, I mean, it seems to
me in this bill, we have a definitive five year cap on
everything. It seems to me that what that Section 2, I
believe, does is it throws out the doctrine of relation
back. And what I don't understand is what your position is
regarding well, if in fact, we have new, and remember, we're
talking about a period of time when we had a huge case of
separate accounting go to court, we're talking about a tax
return that was filed in June of 79, right in the middle of
when separate accounting was in effect, and then went to
court. The state won that case and found that they could do
separate accounting, but we chickened out and changed the
law, what I don't understand about your position, Mr.
Chairman, is do you think that, even after three years and
new information is brought to light, because of new
understanding of what something meant or how it relates to
the bottom line, how much taxes are paid, the state does not
have the right to collect that? Because often times the
appeals process is started by the taxpayer himself."
CHAIRMAN VEZEY: "It's not my position that we're
discussing, Representative Davidson. I was trying to relate
to you what I had heard in testimony to help you phrase your
question."
REPRESENTATIVE DAVIDSON: "I appreciate that, Mr. Chairman."
CHAIRMAN VEZEY: "And we do, I think, tend to jump around a
little bit and mix apples and oranges some. The.."
UNIDENTIFIED SPEAKER: "It is a fruit basket, I promise."
CHAIRMAN VEZEY: "I don't think that the testimony is not
disputed that new facts can be brought up during the case of
an appeal. But I believe it's been Mr. Wessells' testimony
that they do not believe the state has a right after three
years to file an assessment, nor does, I believe I
interpreted his testimony to mean that after three years,
they do not have a right to increase an assessment. Maybe
I'm wrong on interpreting his testimony, but that's what I
think I've heard."
REPRESENTATIVE DAVIDSON: "To have the right to decrease
that assessment."
CHAIRMAN VEZEY: "Yes. That would be my understanding of
the testimony. And, Mr. Wessells can elaborate on that if
that clarifies the question."
MR. WESSELLS: "I would agree. Yes, that's right."
REPRESENTATIVE DAVIDSON: "I guess it puts the public
interest at a disadvantage, from my perspective."
CHAIRMAN VEZEY: "Well, as a committee, we can debate this
at a later time, but if we would confine our questions, at
this time, to the written (indiscernible)."
REPRESENTATIVE DAVIDSON: "Sure."
CHAIRMAN VEZEY: "Representative John Davies."
Number 099
REPRESENTATIVE DAVIES: "Thank you, Mr. Chair. Mr. Wessell,
I'm sorry, I did lead you astray a little bit, with a follow
up question and we didn't get to one of the questions that I
did ask, you were right. And that question was, following
on your testimony that, I take it, that essentially all the
time that the state asks for an extension, that you have
granted that to complete the assessment process."
MR. WESSELLS: "To my knowledge, yes, that's correct."
REPRESENTATIVE DAVIES: "And so my question was just simply,
if that's true, then why are we debating this? I mean, why
are we here, what's the problem then?"
MR. WESSELLS: "Because, I think the reason is, because the
state or the Department of Revenue, has not asked for
extensions of the statute during the course of the appeal.
I'm not aware of a single time, and I must qualify this,
because I'm not aware in my own experience or I have been
told my anyone else in our company, that there has ever been
such a request."
REPRESENTATIVE FRAN ULMER: "Mr. Chairman."
CHAIRMAN VEZEY: "Representative Ulmer."
REPRESENTATIVE ULMER: "That's a very interesting point that
I guess we ought to think a little bit about - you have not
objected to extensions before the appeal was filed, but.."
MR. WESSELLS: "Whenever we've been asked. Excuse me..."
REPRESENTATIVE ULMER: "Whenever you've been asked, but you
weren't asked during the appeal, and so you're taking the
position that because of that, because the appeal was filed
and because you weren't asked for an extension, that those
claims are lost to the state. And, that's a very different
way of looking at this issue, because if the position of the
industry was that you were objecting to the retroactive
change because you wanted some finality, you didn't mind not
having the finality before the appeal was filed - you
granted the extensions, but once the appeal was filed, you
changed your position and decided that you didn't, at that
point, feel as though additional time was in the industry's
best interest. I guess, I don't know..."
Number 146
MR. WESSELLS: "That's, Mr. Chairman, that is really, that's
not correct."
REPRESENTATIVE ULMER: "Okay, let's talk about it."
MR. WESSELLS: "As I said earlier, we grant and continue to
grant extensions so that the audit process can be completed.
That is what the extension is for. The statute of
limitations is there to draw closure on the claims that the
state can make for additional tax, which is what the audit
process is designed to accomplish. In terms of how we
approach the appeals process, in the same way the state
approaches it, or at least we thought it did, was that the
issues of liability are then defined in terms of - and we
had been given a bill based on those claims, and we proceed
to try to get that bill corrected through the appeals
process. At that stage, in our view, and in my view, the
fact-finding has been completed and the issues
(indiscernible), and we know what we're talking about and
that's how we proceed to try to resolve those issues. We
have given, in every instance that I'm aware of, extensions
in order that the audit process for defining those issues
can be thorough and complete. Once that process is closed
through the receipt of an assessment, then we either pay it
- which I might add, we've done on some occasions - or we
actually file the protest and commence the appeal process."
REPRESENTATIVE ULMER: "Mr. Chairman, I guess I'm just
saying that the commencement of the appeal process - seems
to me it would be unfair to use that to bar the previous
claims. Because neither party can necessarily control how
long the appeals process takes."
MR. WESSELLS: "Well, first of all, it would not bar that
process, if the process commenced within the three year
period, which it can do, or during an extension of that
three year period. Because under the statute, then the
statute of limitations for assessment would still be open."
REPRESENTATIVE ULMER: "But isn't that what happened? I
mean, you did grant the extensions, I thought you said you
granted all the extensions until the appeal process began
and then you are just contesting the fact that the state
didn't ask for, and you did not grant any extensions after
the appeal process began."
MR. WESSELLS: "Well, we were never... No. I can't tell
you the timing on each case, but it is possible in some of
these instances that the three-year statute on assessments
was still open when the appeals process commenced, because
it had, in our case, it would have been extended for some
period of time and perhaps we received the assessment before
that period concluded. So there was technically, and
actually legally, there would have been an opportunity to
issue a new assessment in a situation like that."
REPRESENTATIVE ULMER: "Well, I think it is an important
point and maybe I'm headed down a path that others aren't
interested in, so I won't ask any more questions about it,
but I would like some additional information from whomever
in the room that has some about this question of whether the
objection to the length of time that we're talking about is
only because the state did not ask for and you did not give
an extension after the appeals began; as opposed to simply
objecting - the arguments that I've been hearing have been
pretty much, we object to the lack of timeliness because of
freshness, staleness, difficulty of maintaining records, et
cetera. But yet, I hear you saying you didn't object to any
of those extensions until the appeal process began. And
just using the fact that the state didn't ask for an
extension after the appeal process should not somehow close
the door on those claims, just doesn't seem fair to me."
Number 232
MR. WESSELLS: "Mr. Chairman, in order that the record
reflect the intent of my statement, or that my answer to
your question, there has been no objection during the course
of an appeals process to any view on the statute of
limitations taken by the Department of Revenue, because,
indeed, there was never any question that arose during that
period of time. I mean if a statute of limitations
extension is requested, then we have the choice of either
granting the extension or consenting to the extension
mutually during any period, as long as the statute has not
terminated as of that time (indiscernible). Well, if the
question is never raised, there's not a possibility of an
objection. So we are not objecting to anything."
CHAIRMAN VEZEY: "Representative Phillips, did you have a
question? Representative Hudson."
REPRESENTATIVE BILL HUDSON: "Thank you, Mr. Chairman. Mr.
Wessells, just trying to understand better the practice of
granting extensions, were the extensions, for the most past,
limited by agreement to the scope; that is, I'm trying to
figure out if, when extensions were granted beyond the three
year period, if they may have at certain times, increased
the assessment; that is, the state's value of assessments
that might have been agreed upon by the company and paid by
the company. I'm trying to decide just what affect the
increases beyond the three year period of time - the
mutually agreed upon openings or increases - were they
limited by scope and do you recall if there has ever been a
case when they were granted that they also increased the
assessment? The state's assessment."
MR. WESSELLS: "Well, I'm not aware of any that have been
limited as to scope. Really, the ones that I know about,
that I've seen, or even executed myself, have been for the
specific tax. They have to be specific to the tax in the
year they address. But in terms of limiting them to any
specific issues, I'm not aware of that happening for our
company."
REPRESENTATIVE HUDSON: "Thank you. May I have another
question, please, Mr. Chairman. Just so that I can clearly
understand it, yesterday, I asked of Mr. Sullivan whether or
not claims prior to the three year, up to the three year,
and during those periods of agreed upon extensions remained
alive - the impression that I've gotten, at any rate from
the Department of Law, is that at risk is if you don't
complete this within three years or if we don't pass this
bill, that everything back, is dead. And, I think,
yesterday we heard, and I'm sure that I misinterpreted that,
so I just want to try to understand it, is it your
understanding that all of the claims that the state has, up
to the three year periods of time and during those agreed
upon extensions, remain alive -is it just the period beyond
that time where there is no agreed upon extensions that is
at risk or potential at risk?"
MR. WESSELLS: "I think that the only ones that could be
referred to as being at risk that were, these are
assessments now that we're talking about or claims, that
were validly made during the three year period, before it
had closed, that would be at risk would be those the might
be foreclosed from collection by the six-year statute of
limitations."
CHAIRMAN VEZEY: "Representative Davidson."
Number 301
REPRESENTATIVE DAVIDSON: "Thank you. I think
Representative Hudson asked a very important question there
so, I'd like to ask, if I may, what I heard you say in
response to his question, and my understanding of the
question was, if the appeals was started and resulted in an
increased amount for the state but the three year period ran
out, then the appeals process was completed after that three
year chronological goal line that some people can reach for
advantage, you're saying that then, it's your understanding
that the six year period kicks in because despite the fact
that the appeals process was not complete within the three
year goal line, it's too bad for the state, you just lost
that money? Or did you say that the state can, in fact, go
ahead and collect that increased amount because there's
still that six year period?"
MR. WESSELLS: "During the appeals process, there's no
final, if I understand, Mr. Chairman, the question
correctly, the appeals process is the period of hearing or
during which a formal hearing takes place where there's an
informal conference concerning the tax liability, and it
proceeds and continues until there is a final determination
- an administrative determination that is made by the
Commissioner of Revenue. As I stated in my testimony, it's
pretty clear in the statutes that, during this period of
time, at least by our interpretation, during this period of
time, the six-year statute of collections is running. It
runs from the date on which the assessment is received, for
six years. That sets the time limit for the Department of
Revenue to get the appeals process completed. Mind you, the
Department of Revenue can make a final administrative
determination any time it wishes to during (indiscernible).
It can issue a letter saying, `we've listened to your
complaints, this is our final determination,' so it is not
necessarily within the power of the taxpayer to prolong this
process in such a way that it can say, `Aha, you haven't
collected.'"
REPRESENTATIVE DAVIDSON: "And so, Mr. Chairman, at that
point then, in your response to Representative Hudson's
question, it was my understanding that the appeals process
on the amount to be determined for the assessment was not
complete. Now, you're telling me that, well hey, the
commissioner can just, two minutes before the time the three
years period is up, say, `This is what you owe' and then we
get into the six year period. Is that what you're saying?"
MR. WESSELLS: "No. The question that I was responding to
was, `What is the nature of the, and what is the time that
it takes to, or what is the nature of the appeals process
and the length of it' and my response that that is within
the power of the Department of Revenue to determine."
REPRESENTATIVE DAVIDSON: "But, Mr. Chairman, Representative
Hudson asked the question and the way he formed the question
was if the appeals process - if there was an appeal running,
and that was not complete at the end of three years, and
then from what I heard this man say it was, `but the state
still has the right to collect on that increased amount,
because that six year period is still running.' Now he's
saying that the guillotine of the three years came down on
the goal line -I mean, it's very confusing here, I'd like to
have some clarification from the answering of his question
or if you could shed some light on this (indiscernible), I'd
appreciate it."
CHAIRMAN VEZEY: "I didn't quite hear it that way,
Representative Davidson. Is that question in Representative
Davidson's mind clear to you, Mr. Wessell?"
MR. WESSELL: "Not at all. If I might give a try to a
response that would..."
CHAIRMAN VEZEY: "I think he's saying that you're
(indiscernible) on what can happen during the appeals
process. I haven't heard that, but that's what he - I
believe that's what you're saying, is it - you're saying
that you heard two different testimonies on what can happen
during the appeals process."
REPRESENTATIVE DAVIDSON: "Essentially."
MR. WESSELLS: "Let me try to set the record straight and
clear on this. As I said in my prepared testimony, the
statute of limitations sets a nine year period from the time
a return is filed. There is an initial three year period
that the Department of Revenue has to issue an assessment or
claim for additional tax. The Department of Revenue then
has six years from the date of that claim, if it is valid,
if it falls within the three year period, to collect, to get
that case into court for collection. It's not actually to
collect the money, but to get the case out of the appeals
process and into the court proceeding for collection."
CHAIRMAN VEZEY: "Does that answer your question,
Representative Davidson?"
REPRESENTATIVE DAVIDSON: "Well, it's still a little fuzzy,
because it seems like that's not the way Representative
Hudson asked the question."
CHAIRMAN VEZEY: "No, Representative Hudson didn't ask the
question that way, you're correct."
REPRESENTATIVE DAVIDSON: "Well, what I heard Mr. Wessell
just now say is that...well, he still didn't make the
definitive separation between what he means by the end of
the three year period and beginning of the six year period,
as it affects an appeal in progress."
REPRESENTATIVE PORTER: "Mr. Chairman."
CHAIRMAN VEZEY: "Representative Porter."
REPRESENTATIVE PORTER: "If I may, that's the dispute."
REPRESENTATIVE DAVIDSON: "Fair enough."
CHAIRMAN VEZEY: "Representative James."
Number 309
REPRESENTATIVE JEANNETTE JAMES: "Thank you, Mr. Chairman.
Mr. Wessells, let me explain to you how I understand the
statute of limitations works and then I'd like to hear your
response to what it is. My understanding of the statute of
limitations on assessments is to provide a period of audit
time to be able to get a determination of whether, in fact,
the taxpayer owes additional money or not, when an audit is
in process. And during that period of time, then the state
may ask the taxpayer to extend time because they haven't
been able to sufficiently complete the audit in that period
of time. Providing that the audit then is concluded and an
assessment is given, that then the six-year statute clicks
in and says that within that six year period of time, any
appeals or decision making to determine whether that is a
final assessment or not, agreed to or not, by the taxpayer
during that six year period of time, if that hasn't happened
then have to file an action in court. And once the action
in court is filed then, of course, the clock is tolled until
the decision of the court. We know those can go on for
years. If I understood what you were answering
Representative Davidson's question was this scenario, that
if you had extended the three year period and maybe you'd
extended it for two years or three years, or any indefinite
length of time, but shortly after the extension that they
filed the assessments, and you appealed. And you're still
within either that three year period or an extension of that
three year period, and if then they came up with another way
of doing the calculation which included more money, that you
would think they were still within the time frame to do
that."
MR. WESSELLS: "Absolutely."
REPRESENTATIVE JAMES: "But, if in fact your extension of
time or the three years had gone by and they decided then
that there was a change in their interpretation or a change
in something that they wanted to increase the assessment,
that they're barred because the statute of limitation has
gone by. Problematic to me, and here comes my question,
problematic to me is, is what I've been hearing in the
testimony here is that, the state believes that as long as
they have an assessment in (indiscernible) the three years,
that they can continue to - and this assessment because of
the relation back doctrine, which actually says as long as
they're still assessing, that the statute of limitation is
not there at all. In other words, it isn't even a statute
of limitation, it just goes on and on, as long as they were
able to get something in there in the beginning. And then
essentially on beside that, the six years doesn't even
start to toll until a final decision has been made or not,
and you go to court. I'm trying to figure out, and this is
my question to you: Do you think that what has been
happening is, a total disregard for the statute of
limitations, as I understand it?"
Number 425
MR. WESSELLS: "Mr. Chairman, if the interpretation of the
three-year statute, which I think the Department of Revenue
-the interpretation that the Department of Revenue ascribes
to the three-year statute, which I think you've described
correctly, and that is, that once an appeal has been filed,
that the statute of limitations on assessments is
effectively suspended, which is essentially what is in this
legislation, in Section 1 of 377, is a disregard, I don't
know if I'd call it a disregard, I think I would call it an
incorrect interpretation of the existing three-year statute
of limitations. And actually, and that is not a proper
interpretation of it."
REPRESENTATIVE JAMES: "A follow up if I might, Mr.
Chairman, and that is that, would you agree that the six-
year statute of limitations from the date of the assessment
to the closure or the blocking of collections is intended to
bring closure to the appeal process?"
MR. WESSELLS: "I think so, yes."
REPRESENTATIVE JAMES: "So that would then mean that because
the appeal was in process that the clock would not be - that
that clock still should be ticking, because that's the
purpose of (indiscernible) to close that assessment period,
I mean, appeals period."
MR. WESSELLS: "If there is no other - right - if there is
no other rule, if there's no other law, statute, regulation
or otherwise, that requires the Department of Revenue to
close the appeal process by issuing a final determination,
then the only one that will close it potentially, will be
the need for the Department of Revenue to get its case into
court for collection, which is regulated by the six-year
statute on collections."
REPRESENTATIVE JAMES: "Thank you."
CHAIRMAN VEZEY: "Thank you. Mr. Wessells, it's 10:15.
I'd like to take a break at this time. Can we come back to
Representative Davies and Davidson - can you come back say
at a quarter to eleven."
REPRESENTATIVE DAVIDSON: "Absolutely."
CHAIRMAN VEZEY: "Thank you. We'll come back to order at a
quarter to eleven."
REPRESENTATIVE DAVIDSON: "Mr. Chairman, can I just remind
you that ......."
CHAIRMAN VEZEY recessed the meeting.
Number 495
CHAIRMAN VEZEY called the meeting back to order at 10:47
a.m. on May 14, 1994. "We're in the middle of taking
testimony from Mr. Wessells. Mr. Wessells, I believe we
next have a question from Representative - you had a
comment, I'm sorry."
Number 497
MR. WESSELLS: "May I, Mr. Chairman if I could beg your
indulgence, I'd like to do what I can to clarify some
things, I think, that were left unresolved when we recessed.
Concerning the question of the so-called appeals process and
when it begins, and the status of the three-year statute of
limitations during that period of time. If I left the
impression that there's a bright line that exists between
the audit and the appeal, that is not actually the case.
The way the process works is we receive assessments during -
invalid assessments - during the period that the three-year
statute of limitations is open. And when we receive those,
we do have the 60-day period from the time of receipt, to
either pay them or to file a protest and appeal them. And
indeed we do that. It is also quite likely that in a
circumstance such as that, the three-year statute of
limitations will remain open, because we have extended it -
we've granted extensions during that period of time and
indeed we have received assessments during - a separate
assessment during that period of time, which is actually
after the first protest an appeal was taken, so it's a
series - there's the possibility of a series of assessments
and appeals co-existing at the same time, with respect to
the same year. They, in effect, become separate processes.
There's not one single, necessarily one single bright line
that separates the two. And, indeed, any assessment that
would be made during the initial three year period, or
period after that, which is subject to an extension of the
three year period, would be a valid assessment and is not in
question. The other matter that I wanted to clarify was
with respect to the holdings in the Exxon case in Superior
Court. There was a point that a - there's a footnote in
that case, that says that constitutional claims are not
valid. Indeed the court didn't even deal with any
constitutional issues, because it held for Exxon on the
basic interpretation of the statute and did not have a need
to deal with the constitutional issues. So there were no
constitutional issues decided in that case."
CHAIRMAN VEZEY: "Thank you, and I certainly - I did not
interpret your testimony as applying that the appeals
process was a neat line. I think to the contrary, that the
testimony has been that it is a complex area."
MR. WESSELLS: "It is also true that the law, there is a
case dealing with the six-year statute of limitations in
Alaska; which is the Tesoro case which holds that the six-
year statute of limitations is tolled; that is it does not
run or begin to run until after a final administrative
determination is made."
CHAIRMAN VEZEY: "Thank you. Representative John Davies,
you had a question of Mr. Wessells."
REPRESENTATIVE DAVIES: "Well, he just answered one of them.
I was going to ask him about the Tesoro case, because I
think that your original testimony about sort of a nine year
total statutory - statute of limitations picture, would only
be true in a very idealistic circumstance where there were
no protests filed. If there's a protest filed, at least
according to the Tesoro case, as I understand it, if there's
a protest filed or an appeal of the assessment issued at the
end of the three-year statutory period, then while that is
being adjudicated and decided in some way as to what the
final amount is owed, once that's determined, then if I
understand the Tesoro case correctly, then the six-year
statute begins to run on collections. Is that correct?"
MR. WESSELLS: "That's a correct interpretation."
REPRESENTATIVE DAVIES: "So that was one, Mr. Chair. The
other, if I might. Going back to Representative Hudson's
question, there are it seems to me, amounts of tax at issue,
maybe you didn't like the word `risk,' but at dispute or
something like that, that had to do with the three-year
statute, which would be those amounts that were included in
an assessment that were issued after the three-year
statutory period had ended, and during this extended appeal
process. I mean after all, that's really what we're arguing
about, here. I think that's the major issue of dispute
between the industry and the state, is whether you can up
the assessment after the three-year statute has run. Is
that not correct?"
MR. WESSELLS: "That's correct."
REPRESENTATIVE DAVIES: "And so, to the extent the state has
issued assessments that upped the ante, those amounts are at
dispute, isn't that correct?"
MR. WESSELLS: "It is those amounts..."
REPRESENTATIVE DAVIES: "No the underlying amount, the ones
that were filed timely during the three year period."
MR. WESSELLS: "During the three year period, that is
correct - it's the increment."
REPRESENTATIVE DAVIES: "But there is a significant
increment on the order - total of a billion dollars."
MR. WESSELLS: "I can't verify the amount in any way,
because I don't have all the information at my disposal."
REPRESENTATIVE DAVIES: "At least, Mr. Chair, it's my
understanding that that increment relates...."
CHAIRMAN VEZEY: "We're taking testimony from this witness,
so we can debate the....."
REPRESENTATIVE DAVIES: "Well, I guess, with respect to what
Mr. Wessells has said, is that he does agree with me that
there is at issue or debate a significant amount."
CHAIRMAN VEZEY: "Please, Representative Davies, let's limit
it to questions of the witness."
REPRESENTATIVE DAVIES: "Well, I just want him to - I want
to make sure that he and I - that we agree on what we agree
on and disagree on what we disagree on. I want to
understand, does he agree with the statement that I made
that there is a significant increment that's over and above
the original assessment that was issued during the three-
year statute. Is that correct?"
MR. WESSELLS: "There is an increment, certainly, in BP's
case. The significance of it in total is what I can't
really testify to."
REPRESENTATIVE DAVIES: "Okay."
MR. WESSELLS: "In terms of - and I think the question that
is being asked is the total magnitude of the significance,
and I don't know the answer."
REPRESENTATIVE DAVIES: "Okay, that's fair."
CHAIRMAN VEZEY: "Thank you, Mr. Wessells. No one else has
been able to answer that question either, so.
Representative Sitton, you were next."
Number 550
REPRESENTATIVE SITTON: "Thank you, Mr. Chairman. I'm not
sure we're dealing with the real problem here in our
discussions. I continue to be intrigued by the process and
how come our assessments aren't nearly always on the mark.
How come there's always debate and argument over the
assessments that come down. Is there something in the
process, in your view, Mr. Wessells, that we should be
looking at, while we're on this subject, or am I just
misunderstanding the whole thing because (indiscernible)."
Number 565
MR. WESSELLS: "I think that there will always be disputes
about tax liability in many jurisdictions. The laws are
often complicated, underlying facts are often detailed and
complicated, and I think that it is a natural outgrowth of
the law itself that this will occur. I will say that in our
experience as a company, the problems in resolving those
sorts issues in Alaska have been exceptional and I think
that indeed, we are making efforts presently, with the
Department of Revenue to try to get some clarity in the way
that the tax is calculated and in a way that we can agree,
so that we do get ourselves out of this box for the future
of having to have these periods go on forever to try to
resolve these issues. So, I think the issue, the problem
that you're talking about is being addressed and I think
it's being addressed in a constructive sort of way."
CHAIRMAN VEZEY: "Representative Hudson."
Number 605
REPRESENTATIVE HUDSON: "This is a question that I've been
wondering about and that is, if the legislature were to pass
this law and the court hears the ruling of the lower court
and upholds it, where are we then? I mean, because if we
pass the law, then it would be in conflict with the lower
court, and as affirmed by the Supreme Court's holdings, you
know it would be directly in violation of the court's
interpretation of the law. So I wonder where we would be at
that time?"
CHAIRMAN VEZEY: "Representative Hudson, I think it's very
important to point out that we can only ask the witness's
opinion; that is a decision that only the Supreme Court
(indiscernible)."
REPRESENTATIVE HUDSON: "(Indiscernible) don't answer it,
maybe somebody else, maybe the attorney general, or somebody
else can comment on (indiscernible)."
Number 630
MR. WESSELLS: "Well, I'd like to know the answer to that,
too, Mr. Chairman, but I think it's - I think one of the
reasons why passing this particular law would be bad, is
because there's a very strong possibility that, and I think
it was articulated well yesterday by Mr. Sullivan, that the
case will not be heard by the Supreme Court, and in effect,
the decision will have been made by the legislature."
CHAIRMAN VEZEY: "Thank you. Representative Davidson."
Number 645
REPRESENTATIVE DAVIDSON: "Thank you, Mr. Chairman. Mr.
Wessells, would you clarify your last statement that the
case would not be heard by the Supreme Court."
MR. WESSELLS: "The status of the case, as I understand it,
is this. It is on appeal to the Supreme Court by the
Department of Revenue. I would think it would be likely
that, should this legislation pass, the department will
withdraw its appeal, in which case the court would not have
anything to decide. Because they will have been told that
law that existed or that they were to interpret, no longer
existed, it had been retroactively repealed."
Number 670
REPRESENTATIVE DAVIDSON: "Is it your understanding that the
constitutional issues that were raised by both Mr. Sullivan
and yourself then would not continue as well, because you'd
already agreed, I think, that there was a due process
consideration by parties like yourself."
MR. WESSELLS: "Well, those issues are not before the court
presently. Because they have not been - they are not issues
in that particular action. They would not be issues until
this law were passed, if it is."
Number 690
REPRESENTATIVE DAVIDSON: "Well, that's an interesting
statement, because it's my understanding that the contention
of Mr. Sullivan yesterday is that his constitutional rights
were being denied and (indiscernible). Mr. Chairman, the
question I had was, in your statement, Mr. Wessells, you
talked about - this is exactly what you said `The six-year
statute currently sets a time limit how slowly the
department can consider and decide a tax appeal,' but you
said then, but under the administration's proposals the six
clock won't be running while the department considers the
appeal. Isn't that statement a bit - well, I can't think of
an adjective - but, I mean, the department does not consider
the movement of legislation in the courts, right? Isn't
that the judicial branch that sets how long it takes for the
process would occur. And once we get to the courts and the
clock is running, and that was the point I was trying to
make earlier, what pushes your company or industry's pace in
court proceedings?"
MR. WESSELLS: "Mr. Chairman, I think the best way to answer
the question to make the point that, a tax appeal is a
quasi-judicial process. An appeal is heard and decided by
the Department of Revenue, an administrative body which is
not a court, and there are no specific rules of how the
Department of Revenue and the commissioner is to function in
the disposition of those appeals. It's at, essentially, the
discretion of the commissioner; although there are - while
there not being any particular rules that do exist, there
are some basic issues of fundamental fairness we should
apply to the process, because at the end of the process,
there is a decision or a final determination, which
effectively has substantial weight in court, and that is
that essentially all the fact-finding has been done during
the course of an administrative appeal. There is no new
trial on the facts after the administrative appeal. And
consequently, the fact-finding is subject to some rules of
fairness. But to answer the question, it is not strictly a
court proceeding."
REPRESENTATIVE DAVIDSON: "Mr. Chairman, I have one final
question, if I may."
CHAIRMAN VEZEY: "Please."
REPRESENTATIVE DAVIDSON: "Mr. Wessells, well we know that
the SOL, I understand, was enacted in 1976. If we were to
delete from statute what was enacted in 1976, what do you
think would be the result? We certainly would clear up
these kinds of issues, right? Or would we? What would be
your response?"
MR. WESSELLS: "Well, certainly the issues would be cleared
up in the sense that the taxpayers could not claim, as
defense, that a statute of limitations barred any
assessment, I think, or collection, for that matter. I
think that the result would be that it would be very
difficult for taxpayers and the Department of Revenue to
resolve differences about tax liability and (indiscernible)
administrative process and that the degree of litigation
that would exist, with respect to these sort issues, would
be multiplied substantially."
REPRESENTATIVE DAVIDSON: "Did the industry help, in fact,
enact that legislation back in 1976."
MR. WESSELLS: "I have no knowledge of that, Mr. Chairman."
REPRESENTATIVE DAVIDSON: "Thank you, Mr. Chairman."
CHAIRMAN VEZEY: "Representative Nordlund."
REPRESENTATIVE JIM NORDLUND: "Thank you, Mr. Chairman. Mr.
Wessells, I'm looking at a letter here from John Morgan,
it's an open letter to the public here in the Daily News,
and one of the items in here, is paragraph #4, in which BP
has been trying to find a way to compromise on 377. And
there's a statement in here that says that, `we offered to
settle our disputed taxes on the same basis as ARCO.' In
talking to the attorney general, he said that they would
love to make the same deal to BP that they made to ARCO.
I'm just wondering if you could expand...."
CHAIRMAN VEZEY: "Representative Nordlund, your line of
questioning is out of order. You encroaching on an area of
settlement negotiations. You missed all the testimony this
morning. Please limit your questions to the statute before
us, the witness and his expertise. We will stay out of the
area of the courts of Alaska."
REPRESENTATIVE NORDLUND: "Well, Mr. Chairman, the company
brought it up in the letter to the public..."
CHAIRMAN VEZEY: "Representative Nordlund, that's fine, but
we are not going to go into the area of settlement
negotiations and attorney-client privileged matters in this
hearing."
REPRESENTATIVE NORDLUND: "Mr. Chairman, I think that the
witness may be able to answer this question without
revealing any of the details of the negotiations."
CHAIRMAN VEZEY: "Do not - Please proceed very carefully.
You can ask questions, but not in regards to settlement
negotiations."
REPRESENTATIVE NORDLUND: "Okay, Mr. Chairman. Mr. Wessells
if you can answer this question without revealing anything
you feel is proprietary, I'd appreciate that."
CHAIRMAN VEZEY: "If it's a question about the progress or
the nature of the settle negotiations......(end of tape)
TAPE 94-65, SIDE A
Number 001
REPRESENTATIVE DAVIDSON: "Yes, thank you, Mr. Chairman.
Mr. Wessells, I got a letter from Mr. John C. Morgan,
President of your company, and in his letter he says,
`Everywhere in the world we conduct business, we must agree
on the rules with the host government settle on a system to
resolve disputes that may arise from time to time."
CHAIRMAN VEZEY: "Representative Davidson, could you speak
up a little bit, you're talking down to the table."
REPRESENTATIVE DAVIDSON: "I have a letter from your
president of your company and he talks about how they work
toward agreement on the rules in a host government, so as a
host to your company. If the legislature were to pass this
law, does that mean that you would find it within the
policies of your company that you would be able to live with
this legislation that we're discussing today?"
Number 027
MR. WESSELLS: "Well, our company will comply with the laws
of the areas that we operate in, no matter whether we agree
with the propriety of those laws, that is our deal and our
license to operate in a particular host environment, is to
comply with the law."
REPRESENTATIVE DAVIDSON: "So you would find a way to live
with this legislation where..."
MR. WESSELLS: "We comply with all the laws."
REPRESENTATIVE DAVIDSON: "Thank you. Thank you, Mr.
Chairman."
Number 043
REPRESENTATIVE ULMER: "Thank you. Could you tell me the
first time the industry raised this statute of limitations
as a defense to paying tax claims in the state of Alaska."
MR. WESSELLS: "I can't answer that question with respect to
any company other than BP. The first time that I am aware
of it with respect to BP, with regard to our 1978 tax return
for the oil and gas income tax, there was a reference made
yesterday to a case that was the Standard Alaska Production
Company case that was a declaratory judgment action decided
by the Supreme Court in 1989. That was with reference to
that particular year. That was a case in which we asked for
a declaratory judgment. By the way, Standard Alaska
Production Company is the same company as BP Exploration,
it's just that the name was changed in 1988, 1989 and that
is the one that I am familiar with which I would say was the
first time that issue was raised, certainly by our company."
REPRESENTATIVE ULMER: "In 1989?"
MR. WESSELLS: "No. The issue was first raised, I believe,
and I can't be precise about this, but it would have been
raised in the period of say, around 1984."
REPRESENTATIVE ULMER: "It was raised but was not
litigated?"
MR. WESSELLS: "As a defense."
REPRESENTATIVE ULMER: "Okay, but it was not litigated at
that time?"
MR. WESSELLS: "The litigation began because we were seeking
a declaratory judgment of the three-year statute of
limitations bar certain assessments for that year. So I'm
sorry I can't be precise about the dates but it was
certainly an issue that we were pursuing as of around..."
Number 090
REPRESENTATIVE ULMER: "So this is now ten years later. Why
was there no resolution of the issue between 1984 and 1994?
For some reason did those cases get settled and so you
avoided the necessity for a decision at that point or..."
Number 096
CHAIRMAN VEZEY: "Representative Ulmer I'm going to allow
your question. It is very repetitive of the questions and
answers we had yesterday. I will allow the witness to
continue, but the questioning is getting extremely
repetitive and I would ask members of the committee to be
attentive and to not track back over ground we've already
covered."
REPRESENTATIVE ULMER: "Well, we didn't have BP before us
yesterday, so..."
MR. WESSELLS: "The Supreme Court, in 1989, decided that
they would not declare the statute, would not give an
interpretation of the three-year statute because BP had not,
as it say exhausted all of its administrative remedies so
that it was necessary for BP to return to the Department of
Revenue and resolve this and get a finding from the
Department of Revenue and the hearing process on this
particular issue before any court in the state would
entertain the question. And that is why there was no
resolution at that time."
Number 122
REPRESENTATIVE DAVIDSON: "Thank you again, Mr. Chairman,
you have been very generous. Mr. Wessells, referring again
to Mr. Morgan's letter of May 9, Item number 4 says, `We've
been trying hard to find a compromise on Senate Bill 377.'
And he goes on, he says, `Due to the constructive efforts of
speaker Ramona Barnes to find this compromise, they included
an offer to use the six-year limit and an offer to use the
royalty valuation basis used for past settlements.' But is
it not true that the royalty valuation does not in fact
include anything at all as regards to transportation cost?
So wouldn't that be kind of a, a very misleading or at least
unfair, as far as the state and your company is concerned
for considering that kind of compromise?"
MR. WESSELLS: "Well, I wouldn't regard that as unfair. The
issue in the royalty litigations was settled by an agreement
was the value, at the same location that oil is valued for
tax purposes, of the value of the oil, the same barrels of
oil for royalty purposes. So it is an indication of a
valuation that the state has found reasonable in a context
of its claims and its rights with respect to royalties."
REPRESENTATIVE DAVIDSON: "So you do not see, really then, a
differentiation between the value of oil as it is decided in
royalty cases and as it is decided in tax cases?"
MR. WESSELLS: "Same oil."
REPRESENTATIVE DAVIDSON: "Same oil, same value. Thank you,
Mr. Chairman."
CHAIRMAN VEZEY: "Thank you. Seeing no further questions,
Mr. Wessells, thank you very much for your time this
morning. I appreciate your being with us. Next, I'd like
to hear from the Commissioner of Revenue if he is prepared
or wishes to testify. I certainly wouldn't coerce him to if
he didn't want to."
Number 168
DARREL REXWINKEL, Commissioner, Alaska Department of
Revenue: "Mr. Chairman, I would be more than happy to do
that. I know Mr. Hosie, who testified in front of you
yesterday, does have a plane to catch at 1:00 p.m. so that
he can get prepared for this tax case that is going to be
heard next week. And if it would be with your permission,
if he could have a few follow-up comments, I'd appreciate
it."
CHAIRMAN VEZEY: "Certainly."
Number 182
MR. SPENCER HOSIE: "Thank you, Mr. Chairman, I appreciate
your indulgence. As the commissioner mentioned, we have a
Supreme Court argument to prepare for and that brings me to
my first point in rebuttal. Contrary to what Mr. Sullivan
said explicitly, and to what Mr. Wessells said by
implication, that Supreme Court case will go forward next
week regardless of what this body does or what happens to
this piece of legislation. And for that matter, if this
piece of legislation is passed, the Supreme Court will still
necessarily decide the pending issue. There is a rule in
this state that issues of statutory construction are always
decided before issues of constitutional magnitude. That
means that this Supreme Court will decide the issue of 260
regardless of what happens with this litigation. Let me say
this plainly. The Supreme Court argument will go forward
next week, regardless of what happens here. The attorney
general will not fly to Anchorage waving a piece of
legislation saying this case is now moot. It would not be
moot. With that, let me turn to several other points."
Number 200
CHAIRMAN VEZEY: "If you would, Representative Porter would
like to ask a question, Mr. Hosie."
REPRESENTATIVE PORTER: "Would it not be moot because the
law is not effective yet or is it your position that even
after the law became effective that it would not impact the
case?"
MR. HOSIE: "Mr. Chairman, if that law were effective today,
that case would not be moot. The reason for that is that
the Supreme Court will have to decide whether the statute of
limitations, Section 260, permits amendments to timely
issued assessments. That question will always and
necessarily be reached before any constitutional question,
and the witnesses from BP and Exxon have both testified that
there will be a lawsuit filed, challenging the
constitutional basis of this legislation, should it pass. So
before that constitutional question is reached, the Supreme
Court would pass on the first question, the threshold
question, of whether Section 260 permits amendments. That
issue would not be rendered moot by this legislation even
were it effective as we speak."
Number 220
CHAIRMAN VEZEY: "Mr. Hosie, there is only one attorney at
this table, so please bear with us. What you're saying is a
policy decision of the state of Alaska, that they will not
withdraw this case before it is heard, regardless of what
happens with this legislation."
MR. HOSIE: "Mr. Chairman, more than a policy, it's a rule
of law, and the rule is that if the Supreme Court can
dispose of a case on a statutory ground, that is by
interpreting a statute, it will always do that before
reaching further to address constitutional issues. The
Supreme Court is reluctant to reach constitutional issues
and won't do it unless it has to. For that reason, it will
first address whether Section 260 permits amendments. That
will be true whether this legislation passes or not. That
will be true whether the legislation has an effective date
of yesterday or six months hence."
CHAIRMAN VEZEY: "...and I understand what you're saying is
the Department of Revenue would not ask the court to
withdraw the case."
MR. HOSIE: "That is absolutely right, Mr. Chairman."
CHAIRMAN VEZEY: "Representative Porter."
Number 240
REPRESENTATIVE PORTER: "I am still trying to get in my mind
the effect of this. If the case is not withdrawn and this
law in its present draft form is passed, it seems to me to
be two positions working against each other. One, if for
example, the Supreme Court were to say, were to uphold the
Superior Court's decision, they would say that a certain
portion of these claims have dropped off. The law we are
here to pass, and hypothetically has passed, would say `no,
they go on.' How is that resolved?"
MR. HOSIE: "That, Mr. Chairman, is resolved in a two-step
process. The Supreme Court first looks at and answers the
threshold question, `does the statute permits amendments?'
If it says `yes,' the case is over. What the department has
done is proper. If it says `no,' only then will it reach
the question of whether Senate Bill 377 somehow changes that
result. But the efficacy of this legislation, Senate Bill
377 will not be reached until after the Supreme Court
decides the underlying question of whether amendments to a
timely assessment are themselves timely. And I don't think
anyone from the industry would disagree with that statement
of law."
Number 265
REPRESENTATIVE PORTER: "If I may, Mr. Chairman, just one
more follow-up. The effect, then, of assuming state's
policy to pursue what this law would apparently provide if
it were passed, they would pursue a subsequent court
decision that would, if the Supreme Court in the case that
you will be arguing shortly, decides against the state's
position. They would be arguing against that decision?"
MR. HOSIE: "Yes, the case... Mr. Chairman, the case will go
forward and Exxon will make its points and the state will
make its points."
REPRESENTATIVE PORTER: "So while passing of this
legislation would not prevent the hearing, it could set up
the scenario to attack its decision if the decision were in
favor of supporting the Superior Court decision."
Number 280
MR. HOSIE: "Mr. Chairman, if the decision were in favor of
the taxpayers, then the Supreme Court would reach the
further question of whether this legislation should change
that result as an expression or a clarification of pre-
existing legislative intent. But that question will always
come second."
CHAIRMAN VEZEY: "Representative Green."
Number 287
REPRESENTATIVE JOE GREEN: "Thank you, and I hate to belabor
this but this is a little different spin than we'd heard
earlier. So, for an old head like me then, that
Representative Porter's questioning would say that after
they have, perhaps, decided in favor of the payer, they
reach down and look at 377 and that not only would affect
future but it would retroactively affect what may have
happened just prior to this even though this may not become
law until during the court hearing."
MR. HOSIE: "Mr. Chairman, that's right."
REPRESENTATIVE GREEN: "Okay."
MR. HOSIE: "If it gets to that point then the Supreme Court
would have to answer the question of whether this
legislation is effective in clarifying pre-existing
legislative intent."
REPRESENTATIVE GREEN: "Well that's what I thought you said,
I just want to be sure that -- thank you."
MR. HOSIE: "But the larger point is that the case is going
to go forward. That case will be argued next Wednesday."
Number 306
REPRESENTATIVE JAMES: "Thank you Mr. Chairman. If I'm
understanding you right, is that that you're saying that the
decision, or the oral argument that you're going to make in
this case next week is going to be based on the existing
statute and not on the legislation that is proposed to be
passed at this time. Your oral argument is going to based
on the existing statute and the decision of the court is
then going to be made on oral argument that does not include
any oral argument that is included in SB 377. No fuel for
that. Then you're saying that if the court makes a decision
that finds with the taxpayer the next step would then be to
say, `now you can bring in this evidence that the
legislature passed this statute with a declaratory provision
that this is what this always meant from 1976 to now.' And
then the next step would be, I believe, and this is my
question to you, would that not be a deprivation of due
process for the taxpayer if we, the legislature, stepped in
and made a declaratory statement of what this meant
superceding what the court's decision might be, and wouldn't
we maybe be interfering with... from one part of, from the
legislature to the judicial branch by doing that?"
MR. HOSIE: "Mr. Chairman, no. If the 78 Exxon case now
pending goes to decision before this legislation is passed
and if the case is decided on the briefs as now filed,
that's a done deal. That case is over. And so for 1978,
for Exxon, that issue would have been disposed of before
this, the question of the efficacy of this legislation was
even reached. The legislation would be relevant to similar
issues with similar taxpayers for other years but this is
not a situation where a taxpayer will be denied due
process."
REPRESENTATIVE JAMES: "If I might follow-up then, Mr.
Chairman. The presentation that was made to us yesterday
was that the Exxon case, which you were testifying about,
which was based on the three-year statute of limitations
dispute was one billion dollars on the table that would be
lost if we don't pass this piece of legislation and now you
are telling us that is not the case, that the court is going
to make the decision based on their interpretation of the
existing law. And that the taxpayers will get their day in
court and due process will not be objected to. So then that
throws off, that gets us back down, now we're talking about
two billion not three billion, which we've been telling
everybody that we have at risk."
MR. HOSIE: "Mr. Chairman, that's a very good question and
it raises an important point of clarification. The case
pending before Supreme Court involves one taxpayer - Exxon;
one tax year -1978; and a relatively small sum of money -- a
couple million dollars. The effect of that decision will be
to set a precedent, an immutable precedent that would be
quite clear, that would dispose of the much larger dollars
at risk in other similar cases. It is, in essence, a test
case. And so, even though it's just one taxpayer and one
year with small dollars, it's going to resolve this question
once and for all."
Number 362
REPRESENTATIVE JAMES: "If I might, Mr. Chairman, follow-up
on that. Wouldn't you believe that at this stage of the
game, that the smart decision is to let the court decide?"
MR. HOSIE: "Mr. Chairman, the court will decide, which is
the point I started with a few moments ago. The court will
decide whether Section 260 permits amendments. If this
legislation is passed, at some point in the future, the
court will have to decide a further question; whether the
legislation changes that outcome."
CHAIRMAN VEZEY: "Another question, Representative James?"
REPRESENTATIVE JAMES: "Yes, I have one more question and it
has to do with the same issue because, based on what you've
told us now, which is, as I agree with Representative Green,
is not the presentation that I understood to have been made
yesterday, that I believe that court precedence will and may
take precedence over any statutory change that we might make
that backed up. But the other part of that, that has come
out in the testimony is the $3 billion that is at stake,
which seems to be the reason why it's so important for us to
pass this piece of legislation. As far as I would
understand it, that based on that court decision
(indiscernible--coughing) billion dollars is hanging on, not
the decision that we are making this -- this, this, but not
this. So, that billion has nothing to do with whether or
not we pass SB 377. Now the other issue, as we also heard
testimony, that the division of the $3 billion is $1 billion
on a three-year statute and $2 billion on the six-year
statute, and we've also heard testimony that the taxpayers
have agreed to not call the six-year statute into play in
their decision. So, then, what does that do with the $2
billion that is out there based on the six-year statute and
you also have a lower court decision that says that your
interpretation of the six-year statute is okay."
Number 392
MR. HOSIE: "Mr. Chairman, three points in response. First,
the Exxon case is a test case on the three-year statute,
which is the $1 billion. As a legal matter, it will dispose
of that $1 billion. If the Supreme Court rules in the
state's favor, that ends it. If the Supreme Court rules in
the taxpayer's favor and this legislation is passed and the
taxpayer's (indiscernible--coughing) adjusted and filed a
constitutional challenge, that will be another issue that
the Supreme Court would then have to reach. And so the $1
billion is presented via a test case now. And that will be
heard next week."
Number 402
REPRESENTATIVE JAMES: "Then just one follow-up question.
Then can't I assume that the $3 billion that we have been
told is the reason for passing SB 377 now, is not
necessarily the case, and that the court will make a
decision and that whatever the court decision is, in this
case, will be defining for the rest and the collection of
that $3 billion?"
MR. HOSIE: "Mr. Chairman, no, for two reasons. The Exxon
case involves a three-year statute but the issues in the
three-year statute and the six-year collection statute are
very similar. The Exxon case will address directly the
three-year statute, but by implication will have a dramatic
outcome on the two billion. So it's going to take care of
the one billion, one way or the other, for sure, but will
establish a precedent that will carry a lot of weight on the
pending six-year collection issue which involves the larger
two billion. But it's just a test case. It's not a class
action with all taxpayers and all tax years and all tax
types. So that remains out there. Second, this
legislation, according to the industry, may or may not be
effective. They are not going to concede to you that this
legislature can look at Section 260 and say, we are going to
declare prior legislative intent and be bound by that. If
that happens, this bill is passed, the industry is going to
say, `well it doesn't matter, it's a different legislature,
it's not binding, it's retroactive, there are due process
violations,' and that's a separate fight that hasn't been
briefed yet and hasn't been presented yet."
Number 428
REPRESENTATIVE JAMES: "Just one follow-up, Mr. Chairman,
thank you for giving me this extra time, and I've almost
forgotten my question."
CHAIRMAN VEZEY: "Snooze you lose, Representative James."
MR. HOSIE: "I think it's my answers, Mr. Chairman"
CHAIRMAN VEZEY: "Representative Hudson."
Number 431
REPRESENTATIVE HUDSON: "Mr. Hosie, if the Supreme Court,
the Superior Court, the Supreme Court upholds the lower
court's decision, wouldn't we, by the passage of this
legislation, then be left with the more expensive parts of
the bill such as the amendments that deal with the NGLs and
the present value and those kinds of things which clearly
have a detrimental effect on the treasury of the state of
Alaska?"
MR. HOSIE: "Mr. Chairman, good question. As I understand
the question, the point is that, if you're telling me that
this legislation doesn't necessarily solve the problem, why
then pay the price of admission with the other provisions
that the industry seems to prefer? The answer is that
although this bill doesn't necessarily solve the problem, I
think that the state is going to prevail in the anticipated
constitutional challenge. I think that this legislature has
absolutely the power to look back and clarify the intent of
a prior legislature and what a statute means or doesn't
mean. And that's what this case is about. It's about what
that 1976 statute means and doesn't mean. And who better to
pass on legislative intent than the legislature?"
Number 450
REPRESENTATIVE HUDSON: "Mr. Chairman, I am reminded of
House Bill 58 (indiscernible--laughter) to pass, describing
the intent of a legislature that I participated in, and we
lost that thing miserably."
MR. HOSIE: "Mr. Chairman, all I can say is that I trust it
would not happen on this issue, but it illustrates that the
court process is an uncertain process."
CHAIRMAN VEZEY: "Representative Bettye Davis."
REPRESENTATIVE BETTYE DAVIS: "Yea, pretty much my questions
have already been asked by Representative James, but would
you just, in very simply terms, tell me then what is the
necessity and what is the urgency for Senate Bill 377 if it
does not do what I thought you told me that it did do; what
is the purpose of us being here today and not in January?"
MR. HOSIE: "Because, if this bill were passed before next
Wednesday, the Supreme Court would take oral arguments on
the statutory question and probably remand the case for
additional briefing on the effect of this legislation. And
so it would take the first question of the meaning of the
statute, first, but would ask for additional briefings and
citations to legal authorities on the effect of this
legislation. And in that context, Exxon would make its
constitutional challenges and the state would oppose them.
And then that matter would eventually be heard by the
Supreme Court, too. Passage of this legislation now gets an
answer now."
Number 470
REPRESENTATIVE B. DAVIS: "May I continue please. Passage
of this legislation gets an answer now. It was my
understanding that you said that the threshold was that we
deal with Section 260. You get that question answered and
then they will deal with the constitutionality later. You
didn't say when. Is it all going to come in this same
trial, all that will take place? They go from one issue to
the other at the same time? It won't be like at a later
court date?"
MR. HOSIE: "Mr. Chairman, it almost certainly would be at a
later court date but fairly close in time. The court would
ask for additional briefing, give the party 60 or 90 days to
do that and then it would decide the second constitutional
challenge. If that doesn't happen, you go back to square
one, and it takes years to get these cases through the
process. So if this legislation is passed now, the Supreme
Court is going to give the parties an answer in the
relatively near term, especially considering the alternative
which is to go back to square one and have the taxpayers
file a Superior Court action that will take literally years
to work through the process. And so, passage of this
legislation now, brings the issue to a hearing, although in
two parts and gives both parties certainty in the relatively
near term. That's the time-critical nature of this."
Number 489
REPRESENTATIVE B. DAVIS: "So what I hear you saying then is
that you're not going to take the paper and wave it and say,
`Here we have this and that takes care of the court case,'
but you are going to take the paper and say, `Yes we have
this and this is urgent because this will now cut down on
litigation, time and cost by hearing both issues in a
reasonable amount of time.'"
MR. HOSIE: "Yes, Mr. Chairman, that's right. The court
would know about it but we would inform the court of the
passage of the legislation, ask the court to request
additional briefing, but of course it's not in the papers
now, but that would give both parties the opportunity to
brief the issue and present it to the Supreme Court in the
fairly near future be it 60 days or 90 days as opposed to
three or four or five years out."
Number 501
REPRESENTATIVE JAMES: "Yes, thank you Mr. Chairman. I
wrote it down this time so I won't forget what it was that I
wanted to say. And you're saying that, you know we hear all
the time when we pass legislation, `the court will decide.'
You know, in fact there's been some dissatisfaction out
there in the public that says, `You know, who makes the
laws? The legislature or the court?' and sometimes I wonder
about that. But they always say `the court will decide.'
Well, it looks to me like it would be prudent since what
you've just now told us, that the court - the decision is
going to go forward and that the court will make a decision
based on whether or not that our statutes say what they say
or it is implicit that it says, by not saying it, what the
department and the attorney general has interpreted it to
say. So there is a decision there that's going to be made
which is, the court will decide. And we should know that by
next year or sometime soon. Wouldn't it seem smart to
circumvent that second decision that we would have to fight
in the court at that point? Because we could come back and
we could make a law that says exactly, from perspectively,
exactly what it is that we interpreted it to mean. And then
there would be no decision once we have the court's decision
that that one didn't say that or it did say that. And if it
did say that, we don't have to do anything."
Number 520
MR. HOSIE: "Mr. Chairman, if the Supreme Court rules in the
state's favor, it would moot the need for the legislation in
terms of the legal outcome. However, there are two
practical problems that explain why this legislation has
been perceived as urgent in time. The first practical
problem: It is difficult to negotiate a resolution of these
cases with this uncertainty hanging out there. If the
parties are waiting for a Supreme Court decision, four or
five or six years down the road, you are going to see these
cases hang around for four or five or six years down the
road because the parties are too far apart, given the
uncertainty to come to closure. And so if the parties wish
to resolve these cases, and I think both sides want to get
these things behind them, we need to do something to
accelerate the resolution of this important and uncertain
issue. And that's why getting this thing heard before the
Supreme Court now is important. So it's to accelerate any
possible settlement of these major cases that are taking so
much of the state's time and so much of the taxpayer's
time."
REPRESENTATIVE JAMES: "But, Mr. Hosie, this is a 1978 tax
return. How come, in 1994, it's a real urgent hurry?"
MR. HOSIE: "Mr. Chairman, because it took that long for
this case to reach the Supreme Court. It took that long,
and that's not at all unusual. That's absolutely not
unusual. It just takes that long for a case to go through
the process. And that touches on a point I wish to speak to
in a moment, about whether the department controls the
process or whether the taxpayer controls the process, and
that's an important point of clarification that needs to be
made."
Number 542
REPRESENTATIVE JAMES: "Mr. Chairman, I just have a follow-
up on that issue, then, is that it's my understanding that
the six-year statute of limitations is precisely for that
purpose; to close the appeals process and to either get it
to court or not. It seems to me like that, and tolling
that, totally gives carte blanche, to take as long as they
need."
MR. HOSIE: "Mr. Chairman, that is -- I heard Mr. Wessells
say that, and we disagree. We disagree. That six-year
statute, as the industry has interpreted, requires that you
start to collect your judgment six years after the
assessment was issued. But, if you don't have a final
judgment for six years, you don't know what the final tax
is, you don't even know if you're right. So you're supposed
to go out and put a lien on BP's building in Anchorage
before the administration process is concluded? Before
they've been adjudicated to owe the state the money? It
doesn't make any sense to go out and sue someone to collect
a judgment before you have any judgment. Yet that's what
they suggest the department does. The second point: Mr.
Wessells said, `We have an absolute right to an informal
hearing.' True. They do. He also said, `It's been our
general, if not uniform practice, with a couple of
exceptions, to exercise our right to an informal hearing,
and that's their right, they can do that. Once they do
that, three years gets burned up very quickly. The
department does not control the timing of the process, not
unilaterally. It's a consensual process. The parties have
to agree to exchange documents, they've got to set up audit
trips, they've got to set up deposition schedules, they've
got to agree to briefing schedules, they have to get a
hearing officer to set time aside for the hearing. That all
takes time. And the department is not a king. It can't
say, `Okay, this is the schedule.' The parties debate that.
It is a consensual process to agree to the timing. And once
you're in the informal process, you can burn three years up
just like that. I wish it were faster, it should be faster.
We've all heard complaints about how slow litigation
progresses, but it is what it is."
Number 569
REPRESENTATIVE JAMES: "Just let me follow-up, then. If the
six-year statute of limitations isn't to make closure to
this appeals process and that it only starts in when the
appeals process is over, why would it take six years to take
it to court?"
MR. HOSIE: "Very good question, Mr. Chairman. Why have a
six year period that starts only after you know what you're
owed? Because the purpose of collection statutes is to give
certainty that once you are adjudicated to owe someone
money, they'll come and get it from you within a certain
period of time. The purpose of the collection statute is to
make sure people don't sit on their judgments too long. It
is not to control the timing of the adjudicatory process.
There are different rules for that. There are different
rules for that both in the civil system and the
administrative proceeding. A statute of limitations or a
statute of collections, neither is designed to say okay, you
have `x' number of years to get this case through trial,
through appeals to the Supreme Court and decided. There are
court rules that say if you delay in that process, your case
can be dismissed. That's not a statute of limitations, it's
a statute that requires that the parties litigate according
to a certain schedule. Nor is it a statute of collections."
REPRESENTATIVE JAMES: "But isn't it true that once the case
is in the court that the statute is tolled. That's not a
six year elimination to collect after you get into court,
it's six years to get there."
MR. HOSIE: "Well, Mr. Chairman, would that were true. That
was the dispute in the Tesoro case. The state said exactly
what you've just said, that the process tolls the six-year
statute. Because how can you start to collect what you're
owed until you know what you're owed. The industry
disagreed. And that was litigated in the Tesoro case and
was up in the Supreme Court, pending for 13 months before
the Tesoro case was settled. And one other point on that:
Mr. Sullivan referred to that Tesoro case again and again.
That doesn't decide fully and finally this issue. It's just
a Superior Court decision. It's no more final on the six-
year collection point than the formal hearing decision in
the state's favor in this Exxon case was. They're both
intermediate or lower level courts and sooner or later the
Supreme Court is going to look at that issue and until the
Supreme Court speaks, nobody knows what the final rule is
going to be. So that six year risk is still out there.
Unless they want to stipulate to live with this Tesoro
Superior Court appeal..."
Number 602
REPRESENTATIVE JAMES: "Let me just clarify and see if I
understand what you told me. You're telling me that in the
Tesoro case, that the six years that they were saying was
not running, was after the lawsuit was filed. Is that the
period of time they were arguing about or were they arguing
about before the lawsuit was filed?"
MR. HOSIE: "Mr. Chairman, they we're saying that you have
six years to start collection action after your assessment.
So if you get an assessment in 1980, the Department of
Revenue had better start collection proceedings in 1986,
even if the case is still in the administrative process or
on appeal. In other words they said, `Doesn't matter.
There's no tolling. It's not suspended. You got six years
to start collecting your money even if that is before you
know what you're owed or whether you're owed.' And let me
posit one hypothetical. If the Department of Revenue went
out and slapped a lien on BP's building before a final
determination of liability, I think then you'd be hearing
about due process problems from the taxpayer. But that's
what their position in the statute, the six-year collection
statute would require."
Number 615
CHAIRMAN VEZEY: "Representative Green."
REPRESENTATIVE GREEN: "Thank you, Mr. Chairman. Mr. Hosie,
you said earlier that it would be years if it had to be
resolved by the Supreme Court. The only time-specific that
I've heard you mention, because we have been told by others
that it would take a matter of five or six or seven months,
you mentioned eleven months or thirteen months or some
period like that in the Tesoro case. Was that before the
court actually took action, or was that the time that it
took the court to resolve? What was that eleven months in
the Tesoro case? What I'm getting at, really, is how long
would we rightfully expect to take if we allowed the Supreme
Court's opinion to dictate rather than to try and intervene
with statute?"
MR. HOSIE: "Mr. Chairman that is, to some extent, anyone's
guess. It is highly unlikely it would be more than six or
eight months in a case of this complexity. Like the Tesoro
case, it could be twelve to fourteen months. To answer the
more specific question, that eleven month period in the
Tesoro case was the period, and I think it was thirteen
months, it was the period after oral argument, when the case
was submitted to the court, to the time the party settled.
And that was the thirteen month window, and the Supreme
Court still hadn't acted. And who knows how much longer it
might have taken? Who knows? And this illustrates a larger
point. The parties don't control the process. You can't
call up the Supreme Court and say, `Gentlemen, my clients
are anxious. Could you please give us a decision?' Anymore
than you can on a Superior Court level. You do that, I mean
you just can't do it. You would be very ill-advised to do
that."
Number 634
REPRESENTATIVE GREEN: "The reason for my question was that
your statement was considerably, by orders of magnitude,
bigger than what we had heard yesterday. So, I'm trying to
come to closure a little bit for the benefit of the
committee."
MR. HOSIE: "Yes, Mr. Chairman, good point of clarification.
If this bill is passed and if the effectiveness of Senate
Bill 377 is heard in the context of the pending case, albeit
some months after this argument coming up next week, you
will get a decision in the relatively near term. If it's
not appended to the pending case, if it's not part of the
pending case, albeit delayed by a couple of months, then
you're looking at years. Literally, three, four, five, six
years because what will happen is the department, the
taxpayers are likely to file a declaratory judgment in
Superior Court as you heard Mr. Wessells describe SOHIO did
in the late 1980s and that's brand new action. They go
down, they file a complaint and that just starts that
process and you have got to wait until you get a Superior
Court trial, then you got to wait for the decision, then you
got to appeal it, and so on and so forth. And so, if the
parties want to resolve these cases through negotiation, you
have to do something about the uncertainty of this issue.
This legislation serves to bring the issue to a head so that
we know where we are in the relatively near term. And
that's why it's been perceived as urgent by the attorney
general's office and by the administration. I believe
I...."
CHAIRMAN VEZEY: "Representative Finkelstein."
Number 652
REPRESENTATIVE FINKELSTEIN: "Thank you Mr. Chairman. The
issue that's come up lately in this is the issue of whether
the state can or whether the legislature can affirm the
state's intention about an existing case before the courts.
Not so much the issue whether we should, which is, you know
a policy issue, but whether we can. There was an analogy
made earlier to House Bill 58 that somehow the court was
saying there that we can't, and that wasn't my recollection
of that decision. That was a constitutional amendment where
the people had voted. It wasn't analogous at all. And the
issue of can, under the law, are we allowed to go in and, as
a legislature, affirm the policies of the state of Alaska,
things that we're operating under, essentially take a side
in the dispute and say, `Our intention is that this existing
policy continue.' Is there any doubt that we have the power
to do that?"
MR. HOSIE: "Mr. Chairman, none whatsoever. We have cases,
crystal clear. The Supreme Court of Alaska Case, Federal
Ninth Circuit Case. A legislature can look at a prior piece
of legislation and say... and clarify the intent. After
all, if the issue is what the prior legislature meant, who
better to pass on that than the current legislature? Or do
you want to defer entirely to the courts? Who makes law?
The legislature or the courts? And so the answer is that is
absolutely proper. And we can provide citations and cases."
REPRESENTATIVE DAVIDSON: "Thank you, Mr. Chairman. Mr.
Hosie, first two simple questions. Did Tesoro and Exxon, if
they were not to prevail, did they then have the additional
option, did Tesoro, does Exxon, if they do not prevail, have
the additional option of going on the Supreme Court - U.S.
Supreme Court?"
MR. HOSIE: "Mr. Chairman, on the question of what the
statute means, Section 260, the answer is almost certainly
no. On the constitutional question of whether this
legislation is effective at clarifying prior intent, the
answer is probably yes. They could file what is called a
petition for certiorari which is simply a request to the
U.S. Supreme Court to hear the case. Those requests are
almost never granted because the Supreme Court gets
literally thousands of them and hears, you know, only tens
of cases. And so as a practical matter the Supreme Court of
this state will have the last word on the meaning of 260 and
likely the last word on the constitutional questions the
taxpayers have raised."
REPRESENTATIVE DAVIDSON: "Would it not, because we're
dealing here with an issue that began when the state had
separate accounting, would separate accounting not just make
a lot of these things go away?"
MR. HOSIE: "Mr. Chairman, it's not a problem unique to
separate accounting. It's arisen in the Exxon case in the
context of the separate accounting tax. But it's a problem
common to production tax, severance tax, and other taxes.
It's an across-the-board problem. It's just that the
vehicle that's been used to bring it to the Supreme Court is
an old 43.21 or separate accounting."
REPRESENTATIVE DAVIDSON: "The issue before us involves a
1979 tax filing and that was taken, as I understand, to a
statutory construction court issue because you said that the
Supreme Court will not go forward with a constitutional
issue until they deal with a statutory construction."
MR. HOSIE: "First."
REPRESENTATIVE DAVIDSON: "So we've had a filing and the
appeals process, the statutory construction, litigation and
now the constitutional construction. Same as this case
here, right? That's where we are. Now, in 260 we're trying
to decide whether it is amendable. I want to know if, in
fact, there's a relationship, or how, if any, Section
43.20.200 relates to 260. And the reason I'm asking is
because of the sentence that says, `In the case of
additional tax due by reason of modification, recomputation
or determination of deficiency in a taxpayer's federal
income tax return, the period of limitation on assessment
commences from the date that the notice as required in
43.20.030.' Is there any kind of relationship there to 260
that impacts the amendability of 260?"
Number 704
MR. HOSIE: "Mr. Chairman, not for the purposes of the
dispute now. What that speaks to is the situation where a
taxpayer who pays taxes in both the state and federal (tape
ends)
TAPE 94-65, SIDE B
Number 001
CHAIRMAN VEZEY: "I couldn't quite hear the statute you were
referencing. Was that in regard to Alaska's corporate
income tax?"
REPRESENTATIVE DAVIDSON: "It's in 43.20.200. Is that what
you're talking about?"
CHAIRMAN VEZEY: "43.22.100?"
REPRESENTATIVE DAVIDSON: "No, it's in 43.20.200."
REPRESENTATIVE DAVIDSON: "If I may continue."
CHAIRMAN VEZEY: "Please."
REPRESENTATIVE DAVIDSON: "Thank you very much. So if the
federal government comes in and there is a reassessment, a
recomputation as a result of the IRS getting involved in
this period of separate accounting -- whatever happens, if
the IRS comes and makes determinations that they owe the
federal government new taxes, where does that leave the
state with regards to this question as well as others?"
MR. HOSIE: "Mr. Chairman, the provision..."
CHAIRMAN VEZEY: "Before you answer that we need to clarify.
I don't have the statute in front of me, 43.20 is the
corporate...?"
MR. HOSIE: "No, Mr. Chairman, it's not. The separate
accounting statute is 43.21 and that was repealed and
replaced by this statute which is the multi-state
apportionment approach, and so there is really no connection
between the two. That doesn't bare on the problem we have
here."
CHAIRMAN VEZEY: "But it is an income tax type -- it's not a
production tax, which is the subject before us?"
MR. HOSIE: "(Indiscernible due to static) That is correct,
it is a wholly different tax regime."
CHAIRMAN VEZEY: "So I guess my question is, are you sure
that's germane to this subject before us?"
UNIDENTIFIED SPEAKER: "Well I'm sure it's not now, but I
(indiscernible--laughter)."
Number 049
MR. HOSIE: "Mr. Chairman, with your liberty, may I take
three or four minutes to make some very brief points in
rebuttal to the testimony."
REPRESENTATIVE DAVIDSON: "Mr. Chairman, I'm sorry, but my
last question was the IRS thing because it all comes back,
then..."
CHAIRMAN VEZEY: "I thought you said it wasn't germane so I
went on."
REPRESENTATIVE DAVIDSON: "Oh, I see, that's okay, that's
fine; I'll ask another time. Thank you."
CHAIRMAN VEZEY: "Are you in a hurry to leave? There were
two other representatives that did have a question of you.
If you're in a hurry to leave, I'll let you make your
statements and..."
MR. HOSIE: "Well, with the chairman's indulgence, if I
could just make these points and then perhaps we could take
questions then. We're sort of covering a lot of ground but
not necessarily in a sequential sense. Exxon testified that
it was willing to grant extensions and, yes, Paul Sullivan
has granted extensions in the past. But he might not do
that tomorrow. And the question -- the policy question is,
should the state's tax revenues turn on the whim, what oil
company to say `yes' or `no' to an extension? Second, Mr.
Sullivan criticized the state's NGL position as being
unique. He said, `It's absolutely unique.' Well it is
unique, but why is it unique? Because the state's -- the
state's NGL gas situation is itself unique. The central gas
facility on the North Slope is (indiscernible--static)
unique in this country and it's not surprising that a unique
facility gives rise to unique questions. It would be
surprising if it were otherwise. Third, on the prior
administrative policy, Mr. Sullivan and Mr. Wessells both
said, `Well, there really was no policy until 1989. It was
just chaos and discord and no real agreement.' In making
those points, they confused the Division of Oil and Gas
Audit with the Department of Revenue as a department. The
division had a policy, a longstanding policy which was that
amendments were proper. That's why it issued the
amendments. It's conduct speaks for itself. That's why
there was a 1984 Attorney General's Opinion that said
amendments are proper. However, it took until 1989 for that
issue to get to a formal hearing where a formal hearing
officer speaking for the department as opposed to just the
division, could say, `we've heard the evidence, we've
considered the arguments and this is the formal departmental
policy.' It doesn't mean that there wasn't a division level
policy prior. There was. It just took until 1989 for there
to be a formal departmental decision. And once signed onto
by the commissioner, that formal decision became the
articulation of the department as a whole's, policy. And
that didn't happen until the spring of 1989. On records,
Mr. Sullivan said, `Well you know, if we get an assessment
that's narrowly drawn and speaks to charitable deductions,
we may throw our records that deal with income earned that
year. I know something about Exxon's record retention
policies. I know because in other litigation with that
company, and this is all a matter of public record, they've
threatened to send me to a salt dome in Leavenworth, Kansas,
that serves as their record retention facility. And
fortunately, I've been able to avoid that. But they have a
very detailed record retention policy and for key or vital
documents, they're retained and that shouldn't surprise us.
Second, Mr. Sullivan's premise that the initial assessments
were very narrow was wrong. The assessments talked about
downstream value and transportation costs. And the whole
tax year was in dispute. If you had a tax year in dispute
with general issues, would you throw your reference away?
Now the timing. There's been a suggestion that the
department controls the timing and I touched on this
earlier. It does not. The taxpayer asks for an informal --
the informal process has to work its course. Then there's
the formal. And that has to work its course. And the
department doesn't have the authority to goose the process
along. It's a consensual process. The policy of the
statute of limitations was suggested that the policy is
closure. And it is -- closure in this sense. If you're
going to sue someone, you've got a limited amount of time to
do it. Statutes of limitations don't speak to a different
question, which is, once you've sued someone, can you amend
your complaint or can you amend an assessment. That's not
even a statute of limitations question. It's an amendment
relation back question. You're already in dispute. And so
the closure contemplated by the statute of limitations is
the closure before a case starts, not how long it takes once
it starts -- a critical, critical distinction here. There
were questions and points about new information. And the,
perhaps, not so subtle message communicated by Mr. Sullivan
and Mr. Wessells was that, `Well gee, the department's --
the division's theories just keep on changing. There's
really no new information. You know, they get new ideas or
they read a lot differently all of a sudden.' Well that's
not entirely right and to cite one example, in giving no
taxpayer-specific information, one of the big issues in all
of these cases involves whether these taxpayers got revenue
above the federal ceiling price in 1979-1980. It took the
division some time to learn that they had perceived revenue
over ceiling price and only when they understood that, did
they realize that there was an issue there. When they
understood that there was actually revenue over ceiling
price, suddenly the question came, `Well, do we share in
that or are we precluded under the laws?' And so, often
it's the combination of new factual information as it
affects the laws and the interpretation of the laws. It's
not a situation where the department sits around and says,
`Well, gee, this sounds like a good new theory. Let's try
this today.' And to the extent that that impression was
communicated, that's really not an accurate depiction of the
process. And a final point there, the department is always
playing catch-up. These oil companies are in the business.
They know what their business is like, they know what the
oil is worth, they know what they sell it for, they know
what it costs them to get it to market. The division
doesn't know that. It doesn't know where the stuff goes, or
which boats were used or how much it costs to build the
boats until it gets all the information and figures it out.
The oil producers have an enormous head start. And three
years isn't enough time to figure it all out and come up
with a final number. Yet under the taxpayer's
interpretation, that's the division's obligation -- at risk
of not getting the correct tax. Thank you for your
indulgence, Mr. Chairman, I do appreciate it."
CHAIRMAN VEZEY: "Thank you. Do you have time for more
questions or do you need to leave?"
MR. HOSIE: "Certainly, by all means."
CHAIRMAN VEZEY: "Representative Bunde."
Number 199
REPRESENTATIVE BUNDE: "Just a very quick one and it's
probably going a bit astray here but I was struck by the
stress on urgency and there was a considerable amount of
stress on urgency, and I would just ask Mr. Hosie if, in his
opinion, if there is this urgency, would you consider it
advisable that then the state breaks off negotiations with
the taxpayers involved?"
CHAIRMAN VEZEY: "Representative Bunde, I think you missed
some of the testimony earlier, but I'm not sure which
negotiations you're talking about but we do not want to go
into the settlement negotiations that we all have knowledge
were going on indirectly. That is a matter for the courts
to deal with and not the legislature. If you're talking
about negotiations for constructing legislation, that's
perfectly legitimate discussion."
REPRESENTATIVE BUNDE: "I withdraw the question."
CHAIRMAN VEZEY: "Thank you, sir. Gary Davis -
Representative Gary Davis."
Number 219
REPRESENTATIVE G. DAVIS: "Thank you, Mr. Chairman. I
believe Exxon gave testimony that the state issued them an
amended assessment a day before a process was to take place.
Were you familiar with that, and what's the rebuttal to
that?"
MR. HOSIE: "I am, Mr. Chairman. Any change in the prior
assessment, the taxpayers call an amendment. But often, the
change simply involves the clarification of the underlying
data. And a number of the changes have been, for instance,
through the royalty case, the state developed a computer
barrel-tracking system, for want of a better term, that
allowed the state to know where each and every barrel went.
And as that process was completed, that information was then
used in the various amendments. But there were amendments
that were late in the process and Exxon complained and the
hearing officer heard those complaints. But it's not a
statute of limitations problem. If, for example a change
comes in the middle of an administrative process, the
taxpayer goes to the hearing officer and says, `Unfair. We
were sand-bagged, we want more time to respond.' And that
happens all the time on both sides, both in the
administrative process and the court process. But to
clarify that a little more, it's not a statute of
limitations problem. It's a conduct of the process problem,
and they're really different."
Number 227
REPRESENTATIVE G. DAVIS: "Mr. Chairman, and that's true and
I think that's what we're hearing here because we're hearing
two sides and we're trying to decide who is being the bad
ass and who isn't."
MR. HOSIE: "Mr. Chairman, that is exactly right. It's
really a characterization problem. They say it's a statute
of limitations and if you're going to do it, you've got to
do it all in three years, and we say no, you just have to
start within three years. And then the process has its own
protections and guidelines. And I think the state's right."
REPRESENTATIVE GREEN: "Thank you, Mr. Chairman. In your
closing statement of the few statements you wanted to make
before questions, you said that the oil companies know where
their oil is going and how much it costs and what the value
is, and that's a tremendous step up. When is that
information, in fact, given? Don't they file monthly
reports and information to the state?"
MR. HOSIE: "Mr. Chairman, good question. And I should have
talked about that myself. The monthly filings for both
royalty and tax are extremely abbreviated. They don't tell
you, they tell you, generally, for most of the time, for
most of the taxpayers, which downstream market regions the
oil went to. For example, 32 million barrels went to the
Gulf Coast. It doesn't tell you where in the Gulf Coast or
how they got there or what they did with them once they got
there. That's all information that the defendants maintain
in their accounting and controllers departments. And so the
state, through the tax filings and the royalty filings,
doesn't get even the tip of the iceberg. Not at all. It
has to get that information through formal process. Through
the auditing process or through requests for discovery in
the royalty or through the formal hearing process where the
hearing officer is empowered by statute to call witnesses
and subpoena documents and figure out what actually
happened. So we're always reinventing the world, but we're
always trying to figure it out after the fact and it's a
process of where the state has to go to them and say,
`Please give us your documents that will allow us to know
where you took the oil and what you did with it and how much
you got when you sold it.' It's a little bit like an Easter
egg hunt. It's a slow process. And I know because I was
involved in the Annis (Ph) Royalty case and spent several
years of my life doing that; trying to figure out, from the
company's documents what happened, where the oil went, how
they got it there, what they sold it for. If they exchanged
it away, what they actually received? Those are the kinds
of questions that are just spread throughout these audit
issues."
CHAIRMAN VEZEY: "Representative Gr -- Porter, I'm sorry."
REPRESENTATIVE PORTER: "Thank you, Mr. Chairman. None of
the scenarios, in terms of if this proposed statute passes,
or doesn't, or if the Supreme Court case that is in
existence now is settled in the side of the state or the
taxpayer -- none of that precludes continuation regeneration
in continuation of negotiations over these claims."
MR. HOSIE: "Mr. Chairman, I'm not comfortable speaking to
the settlement negotiations, but you know it's the attorney
general's office call and I'm not privy to those policy
decisions, if I understood the question correctly. And so,
that would be a policy call of how to handle the settlement
negotiations that I think is properly made by the Department
of Law, given the separation of powers doctrine. And I'm
just a foot soldier in that battle."
MR. BOTELHO: "Mr. Chairman, I am available to answer the
questions..."
REPRESENTATIVE PORTER: "I don't wish to delay Mr. Hosie's
plane so..."
CHAIRMAN VEZEY: "We're not going to conclude the hearings
here before lunch. Representative Hudson, do you have a
question of Mr. Hosie?"
Number 311
REPRESENTATIVE HUDSON: "Yes, Mr. Hosie, because I know
you're leaving here, could and should the legislature
consider modifying the laws relating to the data that is
received. This whole tracking case Easter egg hunt type of
a thing, wouldn't that be a constructive thing that the
legislature could do to require this amplified data?"
MR. HOSIE: "Mr. Chairman, yes. I'm not sure it's a matter
that the legislature needs to do, but certainly the
Department of Natural Resources and the Department of
Revenue might want to consider passing regulations that say,
`Please share with us, on an ongoing basis, your information
that relates to the disposition of this crude oil in which
the state has such a pressing interest.' I think it's a
very good idea."
REPRESENTATIVE HUDSON: "Thank you."
CHAIRMAN VEZEY: "Does that concluded the questions? In
that case, we'll stand at ease until -- it's ten minutes
after twelve. We'll come back at 1:45."
MR. HOSIE: "Mr. Chairman and the members, let me thank you
and apologize for leaving. I'm leaving only because I have
to get certain graphics ready for the Supreme Court
argument, and that's important. But I do apologize and I
thank you for your indulgence."
CHAIRMAN VEZEY: "I call the meeting to order at 1:48 p.m.,
May 14, 1994, House State Affairs Committee continuing its
hearing on 377 with the Oil & Gas Committee and the
Judiciary Committee and Commissioner Rexwinkel is continuing
his testimony. Do you have some statements you want to make
to us, Commissioner?"
COMMISSIONER REXWINKEL: "Yes, Mr. Chairman, for the record
I am Darrel Rexwinkel, Commissioner, Department of Revenue,
and if I may, Dick Brewer, Assistant Director for the Oil
and Gas Audit Division, I'd like you to join me at the
table."
CHAIRMAN VEZEY: "Please. State your name."
RICHARD BREWER: "Richard D. Brewer is my name and I am an
Assistant Director with the Oil & Gas Audit Division in
Anchorage."
COMMISSIONER REXWINKEL: "Mr. Brewer has been there since
1985 and he has significant history with the division and
prior to that, he was -- he is a CPA, he was with a
national accounting firm prior to joining the Oil and Gas
Audit Division. Mr. Chairman, quite a few things I would
like to say. We did go over these charts but I'm not sure
everybody went over them. If you'd like, we'll go back over
them or if you think everyone has a good understanding we'll
just ..."
CHAIRMAN VEZEY: "You have to understand that there are
seven new committee people at this meeting -- eight new
committee people at this meeting; this is a joint committee
meeting. So it would be repetitious for those on the State
Affairs Committee but for Oil and Gas and the Judiciary
Committee, it would be new."
Number 353
COMMISSIONER REXWINKEL: "It seems like there has been a lot
of questions with respect to, perhaps, some of the
complexities in the past and maybe why the five-year statute
that's been proposed in the legislation would be suitable
for the future, and I think this (indiscernible--static)
good vehicle to discuss that with and I think here Mr.
Brewer can talk a lot about where the division has been and
where it expects to be and with knowledge of the audit
functions and the taxpayers. And as new members come in,
we'll provide them with copies also.
"This document, the first page is headed, `Department of
Revenue's Appeals Process' and includes more than just...
the first block up there says, `Taxpayer files the return'
and that's the initial part. Normally the taxpayers will
file their return on the due date, so for discussion
purposes, we'll assume that the return is filed on the date
due. Auditor reviews the return and it is either accepted
as filed, and if so there is no further action, or the
return is not accepted and the auditor issues an assessment.
I believe the three year provision that we are looking at is
the period of time between when the taxpayer files the
return and when the auditor issues the assessment. And then
we get into a new process. Once the assessment is issued,
the taxpayer can either pay that assessment, and if they do
not file a claim for refund, that's the end of the case at
that point. The taxpayer may appeal the assessment. They
have a couple of avenues, as have been discussed. The first
avenue, well maybe not the first, but the usual avenue is to
go to informal conference, to request an informal
conference. After that process is concluded and an informal
conference decision is issued by the division, a taxpayer
may appeal that to formal hearing. Or, as indicated on
there, the taxpayer can elect to bypass the informal
conference process and go directly to formal hearing. The
taxpayer may further appeal the formal hearing through the
Alaska Superior Court and it can go on to the Supreme Court
and, in some cases, the U.S. Supreme Court. And probably a
block below that is collection. At some point in time
collection is going to take place and perhaps the six years
might be looked at, depending on how one views the process,
but from the time the assessment is issued until after all
this other process is concluded, and as we've discussed, we
believe that the statute on the six-year collection tolls
once the taxpayer appeals the assessment because it's next
to impossible to make it through all these other blocks
prior to six years being completed. There's a lot of steps
that have to go through and a very long and a rigorous
process.
"The second page talks about the review, protest and
assessment process. This is where there is meetings with
the taxpayer to obtain additional information, meet with the
taxpayer to review information and have arguments, and this
whole process can repeat itself and that's why there's a
circle drawn around it. And then at some point there's a
final conference with the informal conference decision being
issued. And Dick, if you would, you could talk about the
process in the past and how this has taken so long and why
we believe that five years would be suitable for the
future."
MR. BREWER: "Okay. Why can we do in five years what we
haven't been able to do in three years? People ask me that
quite a bit here, of late. 1994 is not 1978, it's not 1980.
The Shah of Iran is not being deposed, he is not being
deported from a country. You don't have the Iran-Iraq war
ongoing. You don't have the windfall profits taxes, you
don't have price controls, you don't have rates of de-
control, you don't have entitlements, you don't have over
charges issues -- 1994 is a whole new world.
"(Indiscernible) first started flowing in Prudhoe Bay, there
was a heck of a learning curve, as far as we were concerned.
We were up against the largest and the most sophisticated
taxpayers in the world. They knew the business, I mean this
was their business. The oil business was their business.
We had a heck of a learning curve. We didn't even know what
to ask for. And we have to ask the right questions in order
to get the right documents. We didn't know what to ask. If
we did ask the right questions, and you got the right
document, you had to analyze the document and figure out
what the document said; what was most telling about the
document? So it has taken us, and I know you've heard this
time and time again, it has taken us a tremendous amount of
time to get a handle on the oil business. I go on the road
quite a bit with auditors and just recently, about a couple
of years ago we were at an auditor's -- at a taxpayer's, and
one of the taxpayers actually asked the auditor a question
about the taxpayer's business. And it just shows you that
over the years we've come to know, in some instances, more
about the taxpayer's business than the taxpayer themselves.
There's just a heck of a learning curve and it's taken us
while to get a handle on what's actually going on. So, can
we do in five what we haven't been able to do in three? Yes
we can. Things have changed. The world is different today
than it was fourteen years ago."
CHAIRMAN VEZEY: "Representative Green."
REPRESENTATIVE GREEN: "Thank you, Mr. Chairman. You've
given us several reason why, in the 80s it would have been
difficult and I would say probably, from what you've said
that five years would have been difficult then. If you have
this all behind you now, does that mean that perhaps three
years would stay as it is and be adequate?"
MR. BREWER: "Three years is pretty close, it's pretty close
-- right now, 94, we are issuing audits through 90 and 91.
We are that close to the three-year provision right now.
Could we do it in three? Possibly. But five is certainly
more adequate."
Number 450
CHAIRMAN VEZEY: "Representative Kott."
REPRESENTATIVE PETE KOTT: "Thank you, Mr. Chairman. If, in
fact all those other variables come into play as far as how
long it takes for an audit to take place for the first three
years an assessment to be made. Can you comment either,
commissioner yourself as to perhaps why, originally back in
1977 we only had one auditor, auditor and the next year we
only had three? And today we have, I think twenty-two? It
seems like we're way behind the power curve and I think
there was a letter of transmittal or a letter sent by the
attorney general that said we're playing catch-up and is
that the reason why we're playing catch-up, is perhaps we
were ill-prepared back in the late 1970s, early 1980s."
Number 461
MR. BREWER: "I don't deny that in that early time frame we
had a -- kind of had a real good handle on what we were up
against. We had price controls ongoing. Taxpayers will
represent to you that, `Hey look, they couldn't sell that
oil or that gas, that oil for any more than was the price
ceiling at the time.' And, I mean, it sounded good to us.
I mean that makes sense. In some instances though, as time
went on, as more documents were submitted, and we examined
more data we found out that was not always the case -- that
price controls, in some instances, did not represent a bar
to a taxpayer realizing more than was the ceiling price.
There's a case like that very similar, ongoing right now in
the appeals system. It's back at the Alaska Supreme Court.
It has to do with ARCO and it involves entitlements. And it
came from that period, that 79-80 period. There was just a
lot going on, there was more than meets the eye and I agree.
I think that we were a little naive at the onset."
Number 475
COMMISSIONER REXWINKEL: "If I may, Mr. Chairman, you know
some people have talked about the adequacy of the audit
function and perhaps that the department or division, at
least, has gotten all the money that the department has
requested for it. Well I have been here now a couple of
years and we've had problems with revenue shortfalls and so
the first order of business is to sell the department's
budget to the governor's office. The governor has been very
supportive, but yet there has been a lot of competing
demands. So it is always a selling process. But just to go
back and review history a little bit. And we went back as
far as 1985. In 1985, the governor's request was cut by the
legislature. In 1986, the governor's request was cut by the
legislature. In 1987, it was cut. In 1988, it was cut. In
1989, it was cut. In 1990, it was cut. In 1991, it was
increased a little bit. 1992, it was increased
substantially and that was at the work that we did in order
to try to get more money in our budget. I remember those
two budget periods. In 1993, we were again cut. In 1994,
we were cut. And 1995, initially we were looking at a $670
thousand reduction in the concluding hours, I believe, that
was reduced to a reduction in program receipt areas which
will either hit the Charitable Gaming Division or a certain
function in the Income and Excise Audit Division for
Unclaimed Property. Those are the two program key areas we
have there. So, the budget has taken reductions in almost
every year, beginning with 1985. I'm not sure what happened
beyond that because I didn't start looking before that. So
it has been a period of time, very difficult to get
necessary (indiscernible.)"
CHAIRMAN VEZEY: "Thank you. Representative Ulmer.
Representative Kott is next."
Number 498
REPRESENTATIVE ULMER: "Just on that point, if I might, very
briefly. Could we receive a copy of that Mr. Commissioner
because we have had a number of people testify that every
auditor that was asked for by the department the legislature
funded and I would just appreciate it ..."
COMMISSIONER REXWINKEL: "Well, if I could just respond to
that before you get this, if you look at this, you'll see
the same number of positions, almost the same number of
positions. But is what happens, you know, the vacancy
factor, you know we are looking at what a seven point
something percent vacancy factor for this year if the budget
(indiscernible) to help take care of the vacancy factor. So
even the position count on here may show the same, that
doesn't mean that we have the funds to fill all those
positions."
Number 502
CHAIRMAN VEZEY: "Representative Kott."
REPRESENTATIVE KOTT: "Thank you, Mr. Chairman. I just
wanted to bring it out because I think it's reasonable to
conclude, at least for a period of time, that the state
really lacks or lacked the sufficient resources to discharge
this auditing and appeals duties. Clearly, I think that's
one of the big problems that we have today and that's part
of the reason why we're here today. (Indiscernible) old
inherited problems is not something that we inherited in the
18th Legislature, it goes well back before us. Thank you,
Mr. Chairman"
CHAIRMAN VEZEY: "Thank you. Representative Gary Davis."
Number 515
REPRESENTATIVE G. DAVIS: "Thank you, Mr. Chairman. I'm not
so sure if I agree exactly with Representative Kott who says
that we lack the resources. If that means number of people,
I'm not so sure that's correct. He indicated that there was
a learning curve, maybe he didn't even know how many people
we needed to properly compute an assessment. But the
learning curve and the indication that we didn't know what
questions to ask in that situation -- did that -- what
effect did that have on the actual assessment as far as
being accurate for those years? I mean, being in a learning
curve and not being completely informed, apparently, of
exactly what to look for and what to indicate or what to
include in an assessment would seem to have an impact on how
accurate that assessment was. So exactly, were you feeling
comfortable with that assessment? Or were there times when
you submitted an assessment and said, `Yikes. You know, we
better be ready for, get blown out of the water on this
one.'"
MR. BREWER: "I understand what you're saying. There was
just a lot going on in the early 80s and the late 70s. I
think that's why we're here today is because the initial
assessments, although they were timely, were not exactly
what they should have been or as accurate as they might be.
Because of that, you have amendments. And the amendments
primarily are to the returns that were filed in the late 70s
and early 80s. Therein lies the problem. 87, 88, 89 --
will there be amendments? There might be amendments but
they're going to be very few and they're going to be
inconsequential, I believe. The major amendments came about
because of the early 1980s and late 1970s, again, not having
a good handle on what actually was going on in the
marketplace. Doing the best you can with what you have,
making sure that the assessments were timely, and then
following up with a long-established division policy
whereby, if necessary, would amend the initial assessments."
Number 547
COMMISSIONER REXWINKEL: "And Mr. Chairman, if I may, the
House introduced House Bill, I think it was 547, and in that
bill it called for retroactive application using your
royalty values to determine the value to be used for
severance tax purposes. We issued a fiscal note on that
bill and, if we include both the tax types we're talking
about here, the 43.55 production tax and 43.21 separate
accounting, the total effects of that going back into
history would have been, retroactive to 1986, would have
been about $3.5 billion reduction in the amount of
outstanding claims including interest that we have. That
backs up Mr. Brewer's statement that most of these
assessments and claims go back into that earlier time frame
when we had some very difficult periods with respect to
value. So that's where the lions share of those claims rest
is back in those earlier years."
Number 565
CHAIRMAN VEZEY: "Representative Jerry Sanders."
REPRESENTATIVE SANDERS: "Thank you Mr. Chairman.
Commissioner, this has got a big, long history and I still
have problems understanding how this revelation came about
in January of 1994. If this problem goes back that far and
all these years we've talked about... Why couldn't this have
been fixed in 92 or 90 or 88 or sometime when someone else
could have had all this fun."
COMMISSIONER REXWINKEL: "Mr. Chairman, as I believe someone
indicated yesterday, or stated yesterday, they were not here
or they don't know why it wasn't fixed, but I can tell you
there has been a process involved and that process resulted
in a decision that was reached in 1989. As the taxpayers
indicated they thought that was the first time that the
department had ever taken a position with respect to the
statute of limitations. You know one taxpayer characterized
it as the department `flip-flopping' on that decision over
that long-standing interpretation. Well there has been no
flip-flop. As was indicated earlier by Mr. Hosie, the
department itself, had to take this to a formal procedure
prior to making the final determination. The division has
had a long-standing interpretation, and it was also
referenced to the Mary Nordale letter that said the
department has no position. Well, that was in response to
litigation (indiscernible) Standard Production Company
saying that it hadn't gone through the administrative
procedure process yet and BP, you need to take it through
the administrative procedure process. And the court agreed
with that position. So, yes, things need to arise through
an administrative procedures process before the department
itself can have a formal opinion. That was in 1989. Why
somebody didn't look at this and say something different
earlier -- well, someone did before 1984 -- SB 185,
addressing the situation, was introduced in the Senate, I
believe April 7, 1993. So it was introduced last year and
there was little action on that last year and there was no
action starting this year. So eventually we thought it was
very important that this legislation get passed.
"There has been a lot of, I guess, questions about this
whole thing, but I mean if we go back to statute -- let's go
back to statute -- it says here `Taxpayers Remedies in
Section 43.05.240. A person aggrieved by the action of the
department in fixing the amount of tax or imposing a penalty
may apply to the department in sixty days giving notice of
the grievance and requesting an informal conference. At the
conference the person aggrieved may present arguments of
evidence relevant to the amount of tax or penalty due the
state. If the department determines that a correction is
warranted, the department shall make the correction. A
person aggrieved by the action of the department in fixing
the amount of a tax or imposing a penalty may apply to the
department and request a formal hearing.' And that's in
place of the informal conference or thirty days after
decision resulting from the informal conference. And then
it goes on to say `At the formal hearing the department may
subpoena witnesses and may administer oaths and make
inquiries necessary to determine the amount of the tax or
penalty due the state.' The amount of tax due the state of
Alaska... That's the charge of the hearing officer through
the commissioner of Revenue to determine the amount of tax
due the state. If the person aggrieved does not care for
that, they can always appeal that decision also.
"And then we come into the three-year statute. Someone says
`well yes but now that's aside, we can only reduce the
amount of tax. We're going to bar the department from
trying to determine the correct amount of tax because of the
three-year statute,' and that's exactly what we're trying to
clarify - how does a three-year statute reconcile itself
with the statute in 43.05.240 that states that the
department is to determine the correct amount of tax during
the formal hearing process. And that's what we're
requesting clarification of, is for the department to make a
determination to the proper amount of tax (indiscernible) to
obtaining and subpoenaing witnesses, administering oaths and
obtaining necessary information upon which to do that, and
the only time we get to do that is at formal hearing. And
the informal conference process is to allow the taxpayer an
opportunity to present additional information and the
department to gain additional information in order to try
to, perhaps, avoid a formal hearing process which is like a
trial which consumes a lot of time and energy and perhaps it
can be resolutioned during that process. And the three-year
statute was basically a statute that says, `Okay, let's get
the audit done within three years so we can move on to this
administrative process of informal conference and formal
hearing.' And this bill 377, I believe, is to clarify that
we do have this provision to determine the correct amount of
tax, and we also have a provision that says let's get the
initial assessment out, get the initial audit done in three
years so we can move on into this process of determining the
correct amount of tax. But that is certainly not how it's
being interpreted by a few taxpayers and that's the reason
for the clarification."
CHAIRMAN VEZEY: "Thank you. Does that conclude your
question Representative Sanders?"
REPRESENTATIVE SANDERS: "Yes, I hope so."
CHAIRMAN VEZEY: "Representative James."
REPRESENTATIVE JAMES: "Thank you, Mr. Chairman. I've heard
from you that it was difficult to get up to speed on all the
things that's happening with the oil industry and I think
that I would kind of agree that that is a new business for
us and that maybe we wouldn't be prepared for that, but it
would seem to me like that the statute that was on the books
that said three years from the time that the tax return is
filed until the assessment needed to be assessed, that it
would be very quickly to determine that that wasn't enough
time. Was there any time in those early years that anyone
asked for an extension of our existing statutes. Because if
three years wasn't enough and you had to consistently be
asking and I am assuming that I am correct in reading that
that you have asked for a lot of extensions over the three
year period, that you might have concluded that three years
wasn't enough and that maybe we ought to change the
statute."
MR. BREWER: "I understand what you're saying and, you know,
it's interesting that the extension of the statute actually
goes both ways. People get the impression that it's the
Department of Revenue who is always asking the taxpayer to
extend because the department wants it. You know in many
instances it's the taxpayer who requests or implies that
they would appreciate it if the department would give them a
consent, and the reason is because taxpayers have to comply
with requests from auditors. Sometimes they are quite
voluminous and they take a lot of time. Some of the
taxpayers, in some instances, will not be able to do their
share of the work, i.e. produce documents, produce records,
or whatever and do it in a timely manner. So in many
instances, I mean it was -- the extension of the statute the
time to make an assessment -- it benefited both parties. It
benefited Revenue and it benefited the taxpayer. It was
almost an implied understanding that extensions benefited
both parties."
REPRESENTATIVE JAMES: "Thank you, Mr. Chairman, but on that
point is, if you consistently have to get an extension of
time to do the job, wouldn't it have been some indication to
you that you needed more time in the statute so that you
don't have to do that. I mean wouldn't it be the rule that
the statute ought to fit the case as opposed to having to
continually extend."
MR. BREWER: "Well, you know, Exxon got up here and told you
that they've extended the statute like thirty-three times
and BP said the same or a similar number. The problem is,
is that once in awhile the taxpayer says `no, I won't do it'
and that has only come about, oh I don't know, probably in
the past four or five years taxpayers have expressed
frustration with the department not being able to get an
assessment on a timely basis, and only recently have some
said `no.' And I think that's the reason why we're here is
because there isn't that interplay or that colloquium
anymore between the taxpayer and the department."
REPRESENTATIVE JAMES: "And then what would be your response
if they said `no.' What would you do next?"
MR. BREWER: "I think we would do what you would do, and we
do do it. Number one, we have to determine the correct
amount of tax. Number two, they're now going to extend the
statute so we do what we believe is our job which is to
protect the interest of the people of the state of Alaska,
which is to say that we issue an assessment based upon the
best information that we have at the time."
REPRESENTATIVE JAMES: "You don't do a jeopardy assessment
because you're not finished. Are you filing an assessment
that's lower than you think it might be just because that's
all the information you have at that time?"
MR. BREWER: "In that instance we would try to have some
basis for the assessment. We might go to some third party
or some other -- some press or some other indicator -- I
mean we have to have a basis for what it is we do. People -
- you hear this terminology of `blue sky.' That's really
not the case, we try to have a basis for what it is we do.
If we don't have enough time, then our role, our goal is to
protect the interest of the people of the state of Alaska.
We do that."
Number 677
COMMISSIONER REXWINKEL: "If I may, Mr. Chairman, you know
on these jeopardy assessments though Mr. Sullivan said,
`well, the department could issue a jeopardy assessment or
the division could and just deny all the deductions.' In
many cases here, we're not talking about deductions, we're
talking about the value, the sales price, the sales price of
the product. In a case of a jeopardy assessment, if we just
deny the deductions and the taxpayer has misreported income,
that's fraud. So I mean that tolls the statute because
you're dealing with under payment or under report of income,
which I believe that fraud could probably be assessed in
that case. So it's probably easily proven. Deductions,
though, are somewhat subject to some perspective and review,
and basically here we're not talking about a lot of
reduction, oh, we have the net back provisions and some of
that is pretty well set like the TAPS tariff, but basically
it's valuation,m it's the sales price - the revenue - that's
the key to the whole thing - the revenue. And the only way
we could jeopardy assess that, is to somehow just tack on
some amount of money in order to try to protect the state
against all the issues out there but that wasn't the goal.
The goal was, in the final analysis, by statute to determine
the correct amount of tax after we've gone through the
appeals process - to get the audit done and that gives us
the starting place to begin the informal conference and/or
the formal hearing process to determine the correct tax."
Number 694
REPRESENTATIVE JAMES: "But, isn't it true that most of the
problems that we have, have been in determining the value of
the oil, and it's been testified here before that fraud has
not ever been an issue. We just now brought that up, but
fraud has never been an issue, so that it's never been
claimed that fraud -- and fraud would toll the statute
anyway -- and that's not been the issue. Is that correct?"
COMMISSIONER REXWINKEL: "Fraud is always very difficult to
prove. Fraud you have to have intent."
Number 700
REPRESENTATIVE JAMES: "Just to go on with -- I've got a few
questions written down here this time so I won't forget one.
Is that if, in fact, that the problem that we are in today
is a result of our not knowing what we were doing, and that
we were ill-prepared to deal with an industry that we
weren't familiar with and so there was a lot of learning
that we had to do and maybe we didn't have enough people.
That's not necessarily questioned at this time. But is that
true then, that the industry has to suffer those
consequences because we're not prepared..."
TAPE 94-66, SIDE A
Number 000
COMMISSIONER REXWINKEL: "...they were amending their own
tax returns. And, you know, we can't talk about some things
because, of course, they're confidential with respect to
taxpayers, but, I mean, as a result of the information we
gained from the Amerada Hess royalty settlement, we've even
gained some new information with respect to certain aspects
of a taxpayer's return, that resulted in the taxpayer's
favor."
REPRESENTATIVE JAMES: "But isn't it true that one of the
reasons that they can't file, they -- in the past, anyway --
haven't been able to file their tax return with accurate
information, that sometimes the sale price and so forth is
out and extended past the prime of the tax returns due date?
Isn't that one of the reasons why -- and currently they have
to do a lot of amendments, because they don't have the
information? And that part of this bill is to solve part of
that problem, that's on the severance taxes, but we're still
talking about income taxes mostly?"
MR. BREWER: "As far as amendments are concerned, you're
quite right. Many taxpayers as a matter of course, every
month file amendments to returns that are filed the previous
month. As far as transportation costs are concerned, many
times the taxpayers themselves don't know, until about a
year later, as to what the accurate amount should be as far
as deductions are concerned when it comes to transportation.
I mean, as a matter of course, they file amendments to tax
returns. In one instance there is a taxpayer who has filed
amendments six years after the returns have been filed.
Again, the audit process has been ongoing, or the appeals
process has been ongoing, but, that amount of time has
lapsed between the time when they last filed a return and
their latest amendment."
Number 044
REPRESENTATIVE JAMES: "Okay, I guess one more question.
I've heard all the testimony yesterday and today, and seems
like even from both sides of the issue here, that the
testimony that we're getting, and the questions that we're
asking, has to do with a awful lot of whether or not we have
a problem today, and what caused that problem, as opposed to
what the issue I believe we should be dealing with today,
is, does the statute say what it looks like it says on the
face, or does it say, what the department's position has
been? And shouldn't that be what we're basing our decision
on? As opposed to whether you took a long time to have the
audit? Whether the oil company asked for extensions, didn't
ask for extensions? Of how much money is at stake? Isn't
it really a philosophy problem that we have, as to whether
or not we the legislature want to say yes, what you've been
interpreting is, what we believe it to be, or not?"
Number 063
COMMISSIONER REXWINKEL: "If I may answer that, Mr.
Chairman. Representative James, that's what I referred to
when I referred to statute here and we talked about at the
formal hearing. The department may subpoena witnesses, may
administer oaths, and make inquiries necessary to determine
the amount of tax or penalty due the state. The person
aggrieved may present arguments and evidence relevant to the
amount of the tax or penalty due the state. And if the
department determines that a correction is warranted, the
department shall make the correction. So, the formal
hearing process is where we get to the correct amount of
tax. Now, was a three-year statute meant to preclude what
is indicated here in the formal hearing process about
determining the correct amount of tax after going through
all the oaths and subpoenas and what have you? And how does
a three-year statute interplay with that? I think what
we're trying to do is clarify that the three-year statute
talked about getting the initial assessment, getting the
audit done, so we can move through this administrative
process, so we can finally determine the amount of tax."
Number 085
REPRESENTATIVE JAMES: "Okay. And I understand that the
difference between the three-year statute and the six-year
statute, because it looks to me like you're totalling both
of them together in one package, and my question to you,
then, and I stated it earlier today, what I believe, that
the three-year statute is giving a period of time when an
audit ought to be finished. And then the audit being
finished, then the six-year statute clicks in, and says you
have six years to resolve this or file a suit to collect.
And so my question is, and your interpretation is, that, you
just have to have the first assessment in within the three-
year period and after that, because of the relationship
back, you can continue to amend the assessment, until you're
to the final resolution through the formal process or
whatever, and you finally get a final assessment and then is
when the six years starts clicking in. And I wanted to
know, why do you need six years from the time the final
assessment is made, and all administrative appeal is over,
to get it into court? Because that's what the six years is
for, is a period of being able to go to collection. And if
you're not going to count any of that time you're making
appeals decisions, and you started after that process, then
why do you need six years there?"
Number 111
COMMISSIONER REXWINKEL: "Mr. Chairman and Representative
James. Number one, it just seems like if we take a look at
the chart, six years from the time the assessment is issued
to go through all these processes, is a very quick period of
time, and one that would be very difficult to maintain if we
had to go through all the processes. It just takes a very
long period of time. And why six years at the end of this?
Because the six years is a time period - and Mr. Hosie
discussed the six-year collection statute, and if you like I
could defer that to the Attorney General."
REPRESENTATIVE JAMES: "You put your picture up here, and
you have - we both have the same three-year period, from the
tax filing to the assessment, but I stop my six-year period
at Alaska Superior Court. You have yours all the way to the
bottom. Are you saying that you think the six years is
still tallying along as we're in court?"
COMMISSIONER REXWINKEL: "I'll defer to the Attorney General
on that, Representative James."
REPRESENTATIVE JAMES: "Because I don't think so, I think
once it's in court, the statute is tolled. That's all I'm
saying."
CHAIRMAN VEZEY: "Thank you, Representative James.
Representative Kott."
REPRESENTATIVE KOTT: "Thank you, Mr. Chairman. I guess
I'll ask one of the questions I have here, to Mr. Brewer. I
think it was either yesterday, or this morning, one of the
members of the industry made a comment, that concerned me a
little bit. I think the comment was along the lines that
maybe alluded to the fact that assessments, as they are
currently being conducted, are unusually or unreasonably
high. Can you comment on that particular aspect? That may
be one of the reasons why we're finding some delays built
into the three-year provision of the statute."
Number 141
MR. BREWER: "I don't, I was here this morning, and I didn't
pick up on that. Certainly not now, not in the current
processes that we're involved in. Prices are much more
transparent. We have a very, very good handle on
transportation costs, we know how exchanges work. We know a
lot about taxpayers, the taxpayers' businesses. We know
what documents to ask for. We know how to analyze
transactions. We look at documents and we are able to see
what the documents tell us. That our current assessments
are high? I don't believe so. I think they are right on."
Number 149
REPRESENTATIVE KOTT: "So you don't believe they are
inflated at all?"
MR. BREWER: "Not in the time frame, not in this current
time frame, I do not believe."
Number 159
REPRESENTATIVE KOTT: "I think we've heard from both of the
members that represented the industry that there seems to be
a little bit of controversy here, that whenever you came to
them, or vice versa, and asked for an extension, written
consent to extend the statute, they were more than willing.
And you kind of alluded to the fact that perhaps in recent
times they were not so willing. Can you further amplify
that comment?"
MR. BREWER: "In some instances they said no, we've had to
issue an assessment based upon the information that we had
at the time. In some instances they put caveats on
extending the statutes, which is to say that we couldn't
bring up specific new issues. Or we had to limit any new
issues to specific parameters. It's just been a more, of
more recent times, there's just been more inclination on
their part to not be so willing to extend the statute of
limitations. I don't know what their motivations are. I
can speculate, but I'm not going to."
REPRESENTATIVE KOTT: "In other words, you're saying then,
it's not just a matter of, all you have to do is ask."
MR. BREWER: "Not recently."
REPRESENTATIVE KOTT: "And finally, Mr. Chairman. If I
might ask the Commissioner, we've heard a lot of speculation
and read the newspapers, that there's a lot of money at
stake. And I think I've seen figures, $6 billion, $3
billion; personally I think it's extremely inflated. Can
you comment, cutting to the chase, actually how much is at
stake here?"
Number 191
COMMISSIONER REXWINKEL: "Mr. Chairman and Representative
Kott, there's been discussion about total claims, penalties,
and interest outstanding that would be taxes, and penalties
and interest of about $5.5 billion. It's hard to keep up
with that number on a daily basis, because interest is
accruing, and sometimes new audit assessments are issued.
But out of the $5.5 billion, I believe around $4.6 billion
represents production and separate accounting tax claims,
taxes, penalties and interest. Out of that $4.6 billion,
about $1.6 is tax; $.3 is penalty; and $2.7 is interest.
We've discussed about $1 billion represents and is related
to the three-year audit statute issue, and about $2 billion
relates to the six-year statute. There's a lot of different
numbers, but it depends on how they're sliced and cut up and
presented."
Number 209
REPRESENTATIVE KOTT: "So basically what I'm hearing is, on
the three-year statute of limitations, we're talking about
$1 billion that is essentially at risk. And that, I am
certain, is based upon the state receiving 100 percent,
which, I'm not sure if that's ever happened nor do I care to
get into it, but, is that correct?"
COMMISSIONER REXWINKEL: "That would be 100 percent of the
amount of the claimed - the amount of the assessment.
(Indiscernible) penalty and interest."
CHAIRMAN VEZEY: "Thank you. Representative Davidson."
Number 218
REPRESENTATIVE DAVIDSON: "Thank you, Mr. Chairman. Mr.
Brewer, what was the year you started with the department,
and how many commissioners have you seen come and go since
that time?"
MR. BREWER: "I began in 1985, specifically with Oil & Gas,
and I've seen a lot of commissioners come and go..."
Number 227
REPRESENTATIVE DAVIDSON: "Are you aware of how many - well,
the question is, how many commissioners that you are aware
of that have been with the department, as well as division
heads, who have now - and I ask this because we are in fact,
we established earlier, that the appeals process is a quasi-
judicial process - and my question is, are you aware of how
many commissioners - former commissioners past, or
currently, how many of those individuals, including division
heads, who now work for the industry?"
MR. BREWER: "Could you repeat the last part of your
question please?"
REPRESENTATIVE DAVIDSON: "Or division heads - "
MR. BREWER: "Had been part of the industry?"
REPRESENTATIVE DAVIDSON: "Yes. Who have in the past or
currently work for the industry?"
MR. BREWER did not respond immediately.
REPRESENTATIVE DAVIDSON: "We could get that information
later, maybe. I don't want to delay - "
CHAIRMAN VEZEY: "No, I don't really want to wait on, that's
kind of extraneous to what we're here for."
MR. BREWER: "I'm sorry, I..."
REPRESENTATIVE DAVIDSON: "Okay. So, then you - another
question I wanted to ask you was, you've been there long
enough to understand the auditing process, certainly, and I
was wondering if, in what advantages would accrue to the
legislature if in fact we had someone attached, say, to
Budget and Audit, to keep up regularly on these kinds of
things. It seems one of the things that happened is that
the legislature kind of got away from it. Couldn't we avoid
that kind of thing if we had a full-time auditor, say,
attached to Budget and Audit to keep us informed about these
kind of things?"
Number 261
MR. BREWER: "I think that in our settlement process, and
our audit process, I think we should be responsive to the
legislature. If we settle with a taxpayer I think we should
be accountable for how we settle with the taxpayer. I think
we should do it on an issue by issue basis. I think we
should have a reasonable standard, and I think we should
have a basis for how it is we come down on settlements. So.
In the past that's happened. We have made reports - I'm not
sure whether it's too late to get (indiscernible) a monitor
(indiscernible), but certainly we've tried to anticipate
that we are accountable for what it is we do. And we have a
pretty good road map for how it is we got to where we did
with the taxpayer (indiscernible.)"
Number 280
REPRESENTATIVE DAVIDSON: "I have a final question, Mr.
Chairman, if I may. You talked about the state now being
able to - you're comfortable with dealing with the five-year
issue. And I'd like to ask what you predicated that on, why
you think we have enough to be able to deal with the issues
now in a different way; and, the second part of that
question is, what, if in fact we have done that, what have
you anticipated as changes to the process? For example,
what happens if we see price controls again? Would that
affect how well we could complete these tasks in five
years?"
MR. BREWER: "What do we know today that we didn't know back
then? We know a lot. The first thing you do when you're an
auditor, and you want to go in to a taxpayer, I mean, you
come up with an audit program, and you get an idea of what
you're going to look for, and why it is you want what it is
you're asking for, and what you're going to do with it once
you get it; we just have a wealth of experience. We've had
just a lot of sharing between us and the taxpayers. And we
have a very good relationship with taxpayers. We really do.
We're on a first-name basis. They know what we're up
against, as do they. We're on different sides of the table,
but we both appreciate where each other's coming from. We
have, for the most part, an excellent rapport with
taxpayers. We really do. Is five years adequate? With
price controls coming back - we know a lot about price
controls. But, again, I don't know what form price controls
might take if they come back. I don't know what would
happen if the West Coast surplus went away. I don't know.
But it's my feeling now that five years is adequate. We can
do the job, and we can get the assessment out, and we can be
capped, within five years. Maybe seven would be better,
obviously. But I think we can do it in five."
REPRESENTATIVE DAVIDSON: "Mr. Chairman, I would ask you,
then, is it your understanding then that if down the trail
we find that five years is not adequate, we could come back
and change that, is that correct? If some new developments
occur that - "
Number 315
CHAIRMAN VEZEY: "Getting a little extraneous,
Representative Davidson. We can't commit future
legislatures."
REPRESENTATIVE DAVIDSON: "I understand that, but I was
wondering about your own judgment (indiscernible.)"
CHAIRMAN VEZEY: "Representative Davidson, it would be my
personal opinion that if we had a good bench mark for
measuring value of a commodity, that it would not be
necessary. Representative Green."
Number 320
REPRESENTATIVE GREEN: "Thank you, Mr. Chairman. We have
heard about a day and half's worth of testimony now about
the problems that are associated with various statutes of
limitations, the various degrees of difficulty it has been
in the past to try and establish value and what's better now
-you've indicated that you know what to ask, the taxpayer
knows what you're going to ask, and so you're on a first-
name basis, and -- I won't continue to debate the amount of
time that that in itself should have shortened -- My
question seems to be that, it's not the net back, as I
understand Mr. Rexwinkel said, it's not the transportation
cost, it's establishing the value. And if that's the case,
would it be possible that either one of you might give us a
word picture as to just what happens with a barrel of, I
don't know, say the biggest producer - BP - has a barrel of
oil, what it goes through and what you do to that barrel to
establish value. And let's go to the Gulf Coast, that's the
furthest away. Just so that we understand the problems that
you keep telling us about."
MR. BREWER: "Maybe Mr. Wessells would like to come up here
and join me. For different taxpayers or different - ?"
REPRESENTATIVE GREEN: "No, I'm saying we take a BP barrel."
MR. BREWER: "Okay, a BP barrel. Well, BP can't really
refine ANS, because it's a very sour crude. And BP's
refineries are configured so that they run light sweet
crude. And so, when BP has a barrel of ANS, which they
can't utilize in their refinery, what are they going to do?
Well, they're going to try to trade it away and get a
lighter quality crude that they can use in their refinery.
They might deliver that barrel of crude to a refiner on the
West Coast, a barrel of ANS, and in return, that refiner of
ANS on the West Coast might give to BP a barrel of West
Texas Intermediate at some place on the Gulf Coast. Well,
what are you going to do as far as valuation is concerned?
Money may or may not change hands. Certainly a differential
usually changes hands. But what are you going to do as far
as valuing that barrel of ANS?"
REPRESENTATIVE GREEN: "I'm not establishing a value. I'm
asking you, what do you do in that scenario?"
Number 359
MR. BREWER: "Well, we figure that the value of what you
gave up is best indicated by what it is you received. So we
would look at that barrel of WTI that they might have
received and say, okay, what is the current market value of
that barrel of WTI that they received in the Gulf Coast? We
would attach to it a differential. Money may or may not
change hands; usually it does in that type of a situation.
And we would usually subtract the differentials from the
value of the WTI that was received, and that would be the
value of the ANS that was landed on the West Coast."
Number 367
REPRESENTATIVE GREEN: "And so light barrels then would be
treated in that same manner if there was another tanker full
that went to the West Coast and was treated after West Texas
Intermediate?"
Number 370
MR. BREWER: "Or, BP could have, rather than deliver the ANS
on the West Coast, they could have delivered the ANS on the
Gulf Coast. How do they get to the Gulf Coast? Well,
through the Panama Canal, possibly. Through pipelines
across the United States, possibly. I mean, there's any
number of ways that they could get that ANS to a purchaser
and then receipt the WPI. There's just a myriad of
different ways that that can happen."
Number 376
REPRESENTATIVE GREEN: "Okay, and let me rephrase the
question if I may, Mr. Chairman. They may put it on the
West Coast and trade it; they may take it to the Gulf Coast.
There are a myriad, you say, at least there are several,
different ways that they might trade that oil out to get
their refinery or refineries taken care of. That number
would be a finite number. I mean, in other words, if there
were replications of the West Coast, or replications of the
Panama pipeline to lighter ships on the Gulf Coast, and so
on, those would be handled in similar manners, I would
presume? For the given year that you are talking about?
And you know, and they know, what you're going to ask for
about those barrels. And now, if that establishes a value
for those various scenarios for tax purpose, or for royalty
purpose, would you assign because of the market basket
concept that we've heard about over the last day and a half,
would you see that it would simplify things in your
accounting if you could say that the barrel that reaches,
for example, the one you just talked about, hitting the West
Coast, being traded out for West Texas Intermediate, that
barrel could have the same value for tax and for royalty?
Okay, now you've got taxes applied to that, but as far as a
number to start with?"
Number 397
MR. BREWER: "Two concepts we're working with here. The
first concept is full consideration, what did the taxpayer
actually get for the barrel of ANS that is delivered to the
West Coast? That's the first concept: What did he get?
The second concept is, what is the value that is prevailing?
What is the value of the ANS that is being given up on the
West Coast? I mean, there's two very different concepts.
The market basket would establish what is the prevailing
value of ANS. (Indiscernible) to the West Coast, or to the
Gulf Coast. We'd say, `hey, look this is the minimum
standard to which you people must adhere.' You must come up
at least to this standard which is called prevailing value,
which is the market basket. A mix of different crudes, and
they're all weighted differently. That's prevailing value,
that's the market basket. That's concept number one.
Concept number two is, what did you actually get for the
crude, you see? Because in this instance, let's say that
BP, we determine that BP actually got $20 for the crude.
But let's also say that the prevailing value of crude was
$19. We would say that we wished to share in that extra
dollar that BP received. If you received it, then we wish
to share in those proceeds. So there's two concepts.
There's full consideration with BP, and there's also a
prevailing value standard to which they must adhere."
Number 417
REPRESENTATIVE GREEN: "In order to reduce your problem,
though, would it not be better to establish that value, say,
if it's $20 they actually got, that establishes even better
than the market basket approach, the true value of the oil?
That's what they got for it?"
Number 421
MR. BREWER: "Well, the full consideration is going to be,
for example, the exception. One of the big problems that
we've had in the past, is establishing prevailing value.
And how we've established prevailing value is by reference
to all these ANS deals in a specific market. You know, we'd
say that every month there were 50 ANS transactions on the
West Coast. And we would look at a representative sample of
those transactions and say, we think these three
transactions best represent prevailing value of ANS. It's
taken us a long time to build those databases. In fact,
what we did is, in the ANS royalty litigation, we used a lot
of the information that they recovered and assembled and put
into databases. They listed all the contracts. They listed
all the deals and specific markets and specific months. And
we'd say, okay, based upon all these deals that were going
on, we can either simple average them or the royalty people
would weight average them, they'd say, this is the
prevailing value in this market. It took a long time to
establish prevailing value. In a lot of instances we'd
begin an audit, and we wouldn't even know what prevailing
value is, but we had to get out there fast, because the
statute was about to expire. What the market basket concept
does is, it gives us prevailing value quickly on a timely
basis, so that when we walk up to a taxpayer to begin an
audit, we know what prevailing value is. Taxpayers know,
right off the bat, what the minimum standard is to which
they must adhere. There is none of this coming back four or
five or six or ten years later and saying, ah, we think
prevailing value back in 1984 should have been X, based upon
new information that has come to date. That's not
anticipated in this bill. We would know prevailing value up
front, and we would get to the gist of what prevailing value
is by virtue of regulation. We would establish a basket,
establish crudes, establish weightings, and that type of
thing."
Number 446
REPRESENTATIVE GREEN: "Okay, and again, this is in the
question mode, if I may, Mr. Chairman. So I hear you, if I
think I hear you correctly, that you get a ballpark figure
with the prevailing value, but then you actually can
determine the precise amount that they got for tax purposes,
you actually can determine that later perhaps, but, at some
time then, you're going to have a prevailing value of say,
$19, but they actually sold it for $20, and you have that
expertise, that you can determine that, within what, a
month, or six months, or something?"
MR. BREWER: "What we intend to do as far as prevailing
value is concerned is, it is going to be on a quarterly type
of a basis."
COMMISSIONER REXWINKEL: "(Indiscernible) just resell it for
consideration."
MR. BREWER: "You're talking about full consideration?"
REPRESENTATIVE GREEN: "You mentioned the word prevailing
value that was the market basket approach to get an
approximation but then you can come back and say, if they
sold it for $20, the precise amount, then you want, the
state wants, the tax on that extra dollar?"
MR. BREWER: "That's right."
REPRESENTATIVE GREEN: "Okay. My question then, still, is,
that if that's the case, why can't that value once and for
all - rather than establish a completely different market
basket, and repeat this whole complex process for a royalty
value - why not use the same value and apply whatever
taxation you have to, but, in other words, cut your job way,
way down by establishing a method to determine a value, and
if it needs to be adjusted, adjust a value. But not two
different values."
MR. BREWER: "So, is it that you're saying that in reference
to prevailing value, we should use the royalty methodology?"
REPRESENTATIVE GREEN: "I'm just asking. I'm just wondering
if that wouldn't be a way to simplify. We keep hearing that
the reason you need five years, is, even though you've got a
much more streamlined process, now, you need to extend the
statute of limitations because, Oh, my stars, look at all
the things that we have to do. And I'm saying, knock out a
few of those stars."
MR. BREWER: "It's a good question, and we hear it a lot.
Should I go first, Darrel? The royalty people did a heck of
a job. I mean, they had all the taxpayers together. There
were eight or nine or ten taxpayers. In fact, the
litigation is still ongoing. Valuation of gas, as far as
royalty purposes is concerned, is still being litigated.
Oil is pretty much over, although there were a number of
taxpayers who were not parties to the royalty litigation.
Why is royalty different than tax? I guess that's your
question. As far as royalties are concerned, it's a
contract type of an arrangement. You and I walk into the
room, we sit on opposite sides of the table, I have no
presumption, you have no presumption, we're equal parties.
And we sit down. My impression of the royalty folks was
that they wanted to be the fairest, the most reasonable,
that they could. I mean, because they had equal standing.
They had no deference afforded them. When they went in to a
judge, or before a jury, it's a case of who has the best
case, and who appears to be the most fair. That's the rules
of - my impression of what contract negotiation is all
about. As far as the tax law is concerned, that's not the
case. You have a sovereign out there. You have a sovereign
who is given deference. A sovereign who is given deference
when they administer their statutes and regulations. The
sovereign, when he administers those statutes and
regulations, doesn't have to -- I mean, there may be two or
three different avenues down which to go. The sovereign
only has to be reasonable. I mean that's the only standard
which he has. He is afforded deference. And if his basis
for his decision is reasonable, then he wins. I mean that's
the long and the short of it. To impose the royalty
provisions on the tax side would essentially take away the
deference that's afforded an agency who administers its
regulations and statutes.
"There's other reasons why royalty does not equal tax. If
you look at the royalty provisions, the DL1 form, the lease
form, there's a couple of paragraphs in there, paragraph 15
and paragraph 16, that talk about value. There's four or
five sentences, total. And that's all it says about value
in the lease form. As far as the tax side is concerned, we
have statutes that are that thick, we have regulations that
are that thick, we have a body of law, we have case law. I
believe we have more of a road map as to where it is we want
to go and what we want to do. In many respects, royalty
settlements are based on something other than market value.
Our goal, as far as tax is concerned, is, what's the value
of the crude in the market place at the time? What's the
market value of ANS when it's delivered to the West Coast or
the Gulf Coast? I believe that's royalty's goal, too.
However, a lot of times, there's other considerations in the
royalty settlement. There might be political
considerations. Again, there might be social
considerations. There might be economic considerations.
You read some of the royalty settlements in Cook Inlet, and
it will say right in those settlements that paramount to
reaching agreement between the lessee and the lessor, is the
maintenance of 300 jobs in the Inlet. I mean, something
along that line. So, there are different standards when you
talk about a royalty settlement than there may be in a tax
(indiscernible.)
"Why doesn't our royalty equal tax? For example, in the
early years, in 1979 and 1980, the state on the royalty side
signed a producer intention agreement. And I've seen
letters from the Speaker regarding this. The state, on the
royalty side, decided to forego any, quote "value over
ceiling" if in fact it was out there. And in return for
that, taxpayers assumed that their crude, the ANS reached
the ceiling price at a time earlier than they think it
actually happened, but they actually paid ceiling price.
And in return they got to keep the crude because crude was a
very valuable commodity in the early 80s, and the late 70s.
On the tax side, we don't believe we are so bound. Our role
is to say, hey look, if you got it, if the price ceiling
rules in effect at that time, did not act as a bar to you
receiving greater than, and we can prove it, we can show you
that you actually got that crude, the value in excess of
ceiling, then we think that the people of the state of
Alaska deserve a portion of your good fortune. I don't
know. There's probably other reasons out there that
royalty does not equal tax, but those are the ones that come
to my mind right now."
REPRESENTATIVE GREEN: "This is just a one-shot answer.
Does the contract price fluctuate with relationship whether
it's above or below the tax value? Or is tax value always
higher?"
MR. BREWER: "Are you asking me, have we compared ANS spot
on the West Coast for 1992 versus the royalty settlement
numbers?"
REPRESENTATIVE GREEN: "No. The tax value that you apply to
crude versus the agreed, the contract price you mentioned,
as far as royalty is concerned on that crude."
Number 547
MR. BREWER: "Could you please repeat that?"
REPRESENTATIVE GREEN: "Okay. You say a contract price,
you've got a contract agreement, that this is going to be
the way that we figure the price, and you're willing to
forego that that might not be exactly what they got for it.
But in a tax value, you want the specific value that they
got. And your example was 19, maybe, in one case, and 20 as
far as what it was sold for. Does that flip-flop?"
MR. BREWER: "I understand, I believe, what it is you're
saying; which is to say, that if they receive less than
prevailing value - is that what you're saying? - for
example, if prevailing value is $19, and they don't receive
$20, they actually receive $18, what would we do in that
situation? The statute is quite clear. It says that, or,
my reading of the statute is quite clear, I think the
taxpayers might disagree. But the reading of the statute
says, that in no event may the value of the crude be below
prevailing value. Which is to say that under O20(f),
prevailing value sets the floor. If the taxpayer receives
less than prevailing value, they still have to report and
pay based upon prevailing value. They are brought up to the
minimum. If in fact they receive more than that, then it's
our belief that we should approach that increment and get
our fair share."
Number 564
COMMISSIONER REXWINKEL: (Sound quality for Mr. Rexwinkel's
is quite poor.) "But, if I may, I think there may be some
confusion between the consideration, full consideration, or
sales price and value. In the royalty side, I think is what
some of you were saying, is that, on the royalty side there
was a value method, a method of determining value that was
reached, that could be used for tax purposes also, and that
would be what we're talking about as prevailing value. (Loud
mechanical noise from outside interrupts, some text
indiscernible.) The royalty contract was a method, the
agreement there, that was reached, was a method for
determining value, for applying the royalty provisions. In
the tax side we have this prevailing value feature and those
are somewhat equal in today's consideration. But then
there's also what we call full consideration. I think when
we've heard a contract we have to be careful we're not
referring to the royalty contract, because contractually we
are referring to the sales price where BP could have a
contract to exchange oil or just sell oil, or whatever the
case may be. And then we have to look at the contractual
sales price, so to speak, what the taxpayer got versus what
the prevailing value was. And if the contractual amount was
less than prevailing value, then we would, as Mr. Brewer
said, want to share in the prevailing value, what they
should have received, or what they could have received for
the oil. Is that a fair way of saying it? On the other
hand, if they received more than the prevailing value, then
we'd like to take a part of that also. There's been a
little degree of contention in that, because it's really
what's called the higher of provision. But the prevailing
value, and what we have in the proposed SB 377, is a method
somewhat similar, on the same principles, as royalty, a
method to arrive at prevailing value, without having to
start looking at a lot of foreign oils and other
considerations to arriving at a prevailing value amount, and
one that we could, and the taxpayer could compute almost
immediately. Now, some of the taxpayers do not have, really
not burdened, shall we say, by the higher up provisions,
because a lot of the oil is internally refined, if not all
of their oil, is internally refined. And in that case,
there is no sale, there is no consideration as prevailing
value."
CHAIRMAN VEZEY: "Thank you. Representative Brice."
Number 596
REPRESENTATIVE BRICE: "Thank you, Mr. Chair. Question back
to process. You'd made the statement, I believe the
statement was made or implied, that extensions aren't
automatic. That the state comes in, and asks for an
extension. That doesn't necessarily happen. Or industry
comes in and asks the state for an extension. That doesn't
necessarily happen. Is that correct? How much notice needs
to be given, say, at hearings scheduled for Wednesday
afternoon at 3:00? How much notice must be given, say, by
the industry to have that hearing put off? Is there any
notice, necessary notice requirements?"
Number 608
COMMISSIONER REXWINKEL: "Mr. Chairman, if I could -
Representative Brice, I believe (indiscernible) the audit
process, in which the auditor makes a request to go visit
the taxpayer's place of business. That's one situation.
But the taxpayer may say, no, we've got the IRS in, we've
got other (indiscernible), we're going to be out, and
there's a lot of different reasons why that may not be
convenient for the taxpayer. So in that case we try to work
out a mutually convenient time. And sometimes that results
in an extension, a need for extension, because there is no
mutually convenient time, for one reason or another. And
once the audit is complete, and an informal conference or
the assessment is issued, the taxpayer can appeal. At that
point, they can request an informal conference or a formal
hearing. During the informal conference process, there are
meetings that are set up. We agree to meet with the
taxpayer. The taxpayer agrees to meet with us. And that
may be in Cleveland, Ohio; Seattle; Juneau, Alaska;
Anchorage, Alaska; someplace, by mutual agreement, of
course, or if one party just doesn't show up, there's no
meeting that takes place. Whereas in the formal hearing
setting, yes, I mean then there's a definite schedule, the
schedule is set up, and then there is a request if a change
is made, or ask for an extension. But it depends on what
stage it's in."
Number 624
REPRESENTATIVE BRICE: "Okay, I would probably - the
scenario that was brought to my attention was, say, under a
formal hearing. The state had requested extension,
possibly, - at which point in time I would have thought that
it would have been automatic, considering the state runs the
formal hearing process. But, say, a situation arises - what
happens, or, what's the latest the state can introduce an
amendment, say, on an assessment. Assessment gets to formal
hearing, it's all on appeal, everything else. The night
before, or, for that matter, the week before the scheduled
formal hearing, the state plops down a new amended
assessment, 200 pages of documents, that kind of stuff. Is
there any protocol to insure that doesn't happen? Or how
that is handled?"
Number 636
COMMISSIONER REXWINKEL: (Extremely poor sound quality.) "I
believe that was brought up earlier this morning, and a
taxpayer indicated that the day or the evening before the
hearing was to take place, the division came in with an
amended assessment, and the taxpayer requested an extension,
and the apparently the department at that time said no,
that's (indiscernible) the hearing process. And it's up to
the commissioner, and the commissioner (indiscernible)
determine whether extensions are going to be granted. In
many cases they are, because the whole formal hearing
process is to allow sufficient information and evidence to
be entered into the record to make a final determination on
the tax. But that's a long involved process, and it's hard
to say where in that whole process this last amendment came
about. (Indiscernible) in the beginning of the process,
probably didn't make a great deal of difference, because
there is a long time to go before the formal hearing would
be concluded in this case (indiscernible) courtroom
setting."
CHAIRMAN VEZEY: "Thank you. Representative Porter."
REPRESENTATIVE PORTER: "Thank you, Mr. Chairman. Setting
aside for a moment the question of whether there is or isn't
a three-year statute of limitations, the process that you've
described, is one that is supposed to get at the best value.
Not the best for the state, or the best for the taxpayer,
but the most accurate, the most fair value of the oil. Is
that...?"
COMMISSIONER REXWINKEL: "Well, the prevailing value, yes.
(Indisc. - another voice talks over.)
Number 655
REPRESENTATIVE PORTER: "Well, okay, that's what I'm kind of
questioning. If I understand your testimony, set on
whatever standard, the new standard, or your current
standard, of prevailing value of oil, if somehow the
taxpayer finds a way to sell that barrel above, you want to
share in that profit. But if he somehow doesn't get that
break, and sells below, he doesn't share the loss with the
state."
Number 660
COMMISSIONER REXWINKEL: "Mr. Chairman, and Representative
Porter, we're not talking about the corporate net income
tax. The corporate net income tax is based on your net
income, or net loss, as the case may be. Of course there's
no tax under net loss. But, in an income tax setting, it's
what you actually earned in your business, or lost in your
business. Here, we're talking about the severance tax
provisions of the statute. And I guess if a taxpayer
desires to sell its oil for less than value, that's a
taxpayer's business, but the state would like to get its
severance tax based on the value of the oil at hand."
Number 667
REPRESENTATIVE PORTER: "You don't think that selling it
below value, assuming an arms-length transaction, is a
better reflection of value than...?"
Number 670
COMMISSIONER REXWINKEL: "Mr. Chairman, Representative
Porter, sometimes it's kind of difficult to determine what
the full consideration, or what the consideration is. I
mean, there's a lot of different contractual relationships
that are taking place within the industry, and we don't know
if a straight transaction between A and B is the total
transaction. I mean, B could have an agreement with C and C
in turn could have an agreement with A, and unless you look
at A, B, C and A and look at the whole circle, one may not
know exactly what all the full consideration, or what all
considerations may have taken place."
Number 676
REPRESENTATIVE PORTER: "That was my other question. I
think you just answered it. That is the reason why there is
a prevailing value and an actual sales value, because you
just don't feel that you can be confident that a pure arms-
length transaction has occurred in every sale. Is that what
I hear you saying?"
Number 680
COMMISSIONER REXWINKEL: "And the other reason, really, Mr.
Chairman, Representative Porter, is that the severance tax
is not a net income tax. It's a tax on the value of the
oil. (Indiscernible) one consideration that the statute
says, or a consideration, whichever is higher. But the
minimum, the bottom line, is the value of the oil. What was
the prevailing value?"
Number 685
REPRESENTATIVE PORTER: "And you'd have a concern that there
are sales that wouldn't reflect the highest value that it
should?"
Number 686
COMMISSIONER REXWINKEL: "We would be concerned, for the
state, if the state did not receive at least at minimum the
prevailing value for the oil under the severance tax
statutes. I guess that's..."
Number 689
MR. BREWER: "May I? Our approach to determining what
prevailing value is, getting to your question, my read on
the situation? Very, very conservative. Because of the
situation that you just brought up. The regulations are,
some people say specific, and some say not, as far as we're
concerned right now. But it says, look at three contracts
in a market, during a month, whatever, three high volume
contracts, not just a one time deal, look at something
that's high volume of long term in duration, and pick three
contracts, (indiscernible) three contracts, simple average
those contracts, I mean, these are actual ANS deals on the
market place, take a simple average of up to three, and that
is prevailing value. In the back of our mind we've always
been concerned that we want to make sure that while
prevailing value gives to the people of the state of Alaska
their fair due, we're also concerned that it be a
conservative and a realistic number. And when you pick
high-volume contracts -this is my experience - they're the
nominal value. You're not picking the highs, you're not
picking the lows. When you pick the high volume, the
contracts that are substantial in duration, you're picking
the contracts that are right about here in the middle. And
so, we're very concerned when we do approach prevailing
value because of the question that you raised."
Number 705
REPRESENTATIVE PORTER: "Is this, basically, the philosophy
that you would see in applying the provisions evaluation
of..."
TAPE 94-66, SIDE B
Number 008
MR. BREWER: " - well, taxpayers, what we want to do, is, we
want to address taxpayers' concerns in one instance. And
one of their concerns has been that, as far as prevailing
value is concerned, it's taken the department sometimes two,
three, ten years, whatever, to come up with a final
prevailing value. Because it is based upon, you know,
analyzing contracts (indiscernible) full value as far as
contracts are concerned. What we would do in this bill is,
we would come up with a prevailing value on a very current
basis. The goal is, as far as prevailing value is
concerned, is to come as close to the market value of ANS as
possible; i.e., if you have spot values of ANS on the West
Coast, or spot values of ANS on the Gulf Coast, that's where
we think we should be at. And that's our goal. That's
where we want to be. And so, in the basket that we're
proposing, there's going to be a preponderance of reliance
on ANS. In both instances - again, we're going to do this
by regulation, and we've been - our discussions have been
ongoing with the taxpayers since April of 93. Well, we have
been deliberating within the department, okay, as far as
regulations are concerned since April of 93. We have been
talking with the industry probably within the past four or
five months. But in the basket we have a heavy reliance on
ANS. For example, 50 percent. And then we have six other
crudes that are all solid crudes that look a lot like ANS,
which may or may not be domestic crudes, which may be
foreign crudes, and they are all weighted currently about 10
percent. And we've been having discussions with the
taxpayers about, what do they feel about the basket; the
different weightings; the inclusions of the different
crudes, and, again, the goal is, we want to get as close to
the market value of ANS as possible. That's fair. And
that's where we want to go."
Number 041
REPRESENTATIVE PORTER: "This is the system that would be
put into place under 377?"
Number 042
MR. BREWER: "That's correct."
REPRESENTATIVE PORTER: "Thank you, Mr. Chairman."
CHAIRMAN VEZEY: "Representative Gary Davis."
Number 043
REPRESENTATIVE DAVIS: "Thank you, Mr. Chairman. Mr.
Brewer, what - when an extension is requested by either
party, it must be, I understand it's just an informal
letter, and in that letter it details what's needed by the
department, say, if it's at the request of the department,
like, haven't had time to properly analyze the paperwork and
the documents, so in there you, well, maybe you can go over
that. It's my understanding that it's quite, pretty much
detailed as to what you still need to pursue to adequately
assess. And if it is requested by the taxpayer, is it as
detailed again. So where it seems to me that that could be,
that's really a vital link here, as to problems. Of course,
you have to have a working relationship, you have to
understand that nobody's trying to hide anything, or
nobody's trying to look for something that may not be there,
or which - maybe if you would go over that process, and what
might be included as far as the details in the extension
requesting letter."
Number 073
MR. BREWER: "I don't want to give you the impression that
the taxpayer overtly or openly requests that we file an
extension. It's kind of like an implied thing. They call
up and say, hey, look, we're not really sure that we can
comply with your requests in a timely fashion. And we know
that not being able to do so, we might need to extend the
period of time. And so, I mean, it's kind of a coming
together. What does an extension look like? It's, you
know, it's a piece of legal paper, and it just says that the
taxpayer agrees to extend the period of time during which
the Department of Revenue may file an assessment. And then
it lists the tax periods that are covered. And these tax
returns are filed on a monthly basis. So if you want to
extend three years, let's say you're doing a three-year
audit, and you want to extend it for one more year, you'd
list every month that's of issue, and then you'll say that
the period of time within which to file an assessment is
extended for X amount of time. We would sign it, the
taxpayer would sign it, and it's binding. As far as
document requests are concerned, they're not a part of the
extension per se. I mean, they're kind of, they're not part
and parcel, I mean, you would get a request over here for
documents, and then an extension would be wholly separate.
The two would not be together."
Number 105
REPRESENTATIVE DAVIS: "Mr. Chairman, if I might. The
reason for asking is it seems like one of the key issues is,
an amended assessment that increases the tax, you've found
some additional information that says, oops, we missed this,
and here is another $10 million that we can amend. It seems
to me like in the letter you could detail or even let them
know, say, that we don't have enough documentation here, in
this area, whatever it might be. So, apparently I'm on the
wrong track, because it isn't as detailed as I'm led to
believe. In other words, when you get a letter indicating,
hey, we need these documents because we want to check this
out a little closer, that could click and say, that may, you
know, indicate that an amended assessment later on might be
increased, if they can prove this, and ratchet down, a
little bit, exactly, where this barrel went or whatever. So
apparently it's not as detailed as I'm..."
MR. BREWER: "Mr. Chairman, Representative Davis, the
extension of time within which to file an assessment has to
do with the initial assessment. The three-year period is
about to end. We can't make the assessment, we want you to
extend the time within which we can file an assessment.
That's for the initial filing. Amendments occur most often
after the expiration of this time frame. You've made the
initial assessment, you've been timely, later on, a year or
two years, three years, down the road, you might be auditing
another taxpayer. You might get a document that involves
another taxpayer that you might have issued an assessment on
a couple of years ago. It's that type of a process. So,
amendments usually occur after the expiration of the three-
year plus the time (indiscernible.)"
CHAIRMAN VEZEY: "Did that conclude your questions?"
Number 147
REPRESENTATIVE DAVIS: "I do have one - I think,
Commissioner Rexwinkel might be able to answer this: Of
the, we've gone back to the $1 billion, $2 billion again -
the $1 billion based on the three years - if that, of the
suspected $1 billion based on the three years, is a bulk of
that protected by an agreed extension?"
COMMISSIONER REXWINKEL: "No, those Mr. Chairman, those
would be unprotected (indiscernible.)"
CHAIRMAN VEZEY: "Representative Sanders."
Number 158
REPRESENTATIVE SANDERS: "Thank you, Mr. Chairman.
Commissioner, going back to the conversation between
Representative Kott and yourself quite a while ago, there's
a question that's always plagued me, and I've never been
able to get a satisfactory answer. In order to better
understand what's at stake here for the state, without
getting into any of these secrets or any negotiations, or
any individual taxpayers' problems, when you were talking
about the figures of $5.5 million, $4.6 million, $3 million,
$1.6 million, or billion, $1 billion, when I hear that
someone settles for 50 cents on the dollar, or 10 cents on
the dollar, or 15 cents, what dollar are we talking about at
that point? Are we talking about the $5.5 billion figure?
The $1 billion figure?"
Number 177
COMMISSIONER REXWINKEL: "Mr. Chairman and Representative
Sanders, well, conceivably it's kind of all related, shall
we say. It's the $5.5 billion, are the total outstanding
plain taxes, penalties and interest. And then we break it
down into these other components. And, let's say if you
referenced the settlement at 50 cents on the dollar, it
would basically be 50 percent of those dollars that we
talked about, and it would be kind of hard to say if the $1
billion is worth 60 cents, or 40 cents, or 100 cents on the
dollar. I mean, it's in relation to the total amount. So
in other words, if we had $5.5 billion, and somebody would
say that we've settled for 50 cents on the dollar, I guess
then you might try to say, okay, the state will eventually
get then, 50 percent of the $5.5 billion. If you wanted to
carry it along in that line of thinking."
Number 197
CHAIRMAN VEZEY: "Thank you. It's 3:15. Why don't we take
a break and come back at 3:30."
CHAIRMAN VEZEY: "We'll call the meeting to order at 3:33.
Continuing in our questions here, the next person on our
list, Representative Sitton passed, Representative Davies."
Number 204
REPRESENTATIVE DAVIES: "Thank you, Mr. Chair. I just had a
couple of questions on the information sheet that you handed
out."
MR. BREWER: "Yes."
REPRESENTATIVE DAVIES: "I guess I'll just - they're in no
particular order, so I'll just go down, in row 2, which is
the tax dollars collected, there was a substantial change
between 82 and 83. Could you tell me what the reason for
that was?"
MR. BREWER: "Substantial change between 82 and 83. It went
from, looks like $2,404,000,000. to $1,223,000,000. (AS)
43.21 was called separate accounting. It was in effect from
1978 through 1981. The legislature amended, or repealed
43.21 - there are a number of circumstances why that
happened, but in order to replace that tax type, it was
replaced by what is called modified apportionment, which was
a different means of apportioning income to Alaska, if you
were an oil and gas producer or a pipeline transporter. So,
the difference, and I'm not sure how much, but certainly the
drop there is because of the cessation of (AS) 43.21."
REPRESENTATIVE DAVIES: "Thank you. And row 3, comparing
the number of audits issued compared to the number of
taxpayers in the time periods between 82 and 86, there seems
to be uniformly more audits issued than taxpayers, but for
78 and 80 and 81, there are fewer. Does that mean that
there are still audits for those years that remain to be
issued?"
MR. BREWER: "Mr. Chairman, Representative Davies, are you
talking about line #3?"
REPRESENTATIVE DAVIES: "Line #3, right. Comparing that to
line number #1. I presume that there should be at least
one audit per taxpayer. Is that a wrong assumption?"
MR. BREWER: "In some respects, a tax type might not be
audited. Are you saying that number 1, you have more
taxpayers than the number of audits that were issued?"
REPRESENTATIVE DAVIES: "For those early - yeah. Just
looking at the middle years, where I presume that, you know
from 82 to about 86, there are uniformly more audits than
taxpayers. And then I notice just for those - for 81, 80
and 78, there are fewer audits than taxpayers. I'm just
wondering what the reason for that is."
UNIDENTIFIED SPEAKER: "If they just paid, there wouldn't be
an audit."
REPRESENTATIVE DAVIES: "No, there'd always be an audit, I
think (indiscernible). Maybe they paid, and they liked it."
UNIDENTIFIED SPEAKER: "You could have more than one audit."
MR. BREWER: "I understand the discrepancy, and I'm not able
to address that right now, but I'll certainly take a look at
it, and I can get back to you."
REPRESENTATIVE DAVIES: "Okay, thank you. And then, Mr.
Chair, if I might, one further question on this. On row 4,
the number of amended assessments. Would you just tell me
what the definition of that means. Does that mean that - is
this the number of assessments that have been amended, or
the number of amendments to assessments that have been
issued."
MR. BREWER: "Mr. Chairman, Representative Davies, they are
- you would issue an assessment within a specific time frame
so they would not be time barred, and then these are
amendments to those assessments."
REPRESENTATIVE DAVIES: "So one assessment might be amended
more than once?"
MR. BREWER: "That's correct."
REPRESENTATIVE DAVIES: "And that would be included in this
number?"
MR. BREWER: "That's correct."
REPRESENTATIVE DAVIES: "Thank you."
CHAIRMAN VEZEY: "Thank you. Representative Finkelstein."
Number 275
REPRESENTATIVE FINKELSTEIN: "Thank you, Mr. Chairman. The
one thing that came out earlier from the two companies that
are taxpayers, in their testimony, is that somehow it's not
fair, or improper, for the state to correct these taxes
through amendments after three years. But there's a
comment, you made earlier, in your testimony, which was that
these companies themselves have come in and amended their
tax returns at some point, but it wasn't clear in your
testimony whether that was, in some of those cases, after
the three year period. Are there situations where these
companies, themselves, have come in to amend their tax
returns after the three year periods with information, I
assume, that's intended to lower their taxes."
MR. BREWER: "Mr. Chairman, Representative Finkelstein,
you're correct."
REPRESENTATIVE FINKELSTEIN: "That has occurred. Okay.
Thank you."
CHAIRMAN VEZEY: "Thank you. Representative James."
Number 288
REPRESENTATIVE JAMES: "On that point, Mr. Chairman, thank
you. If they have come in, following up on Representative
Davies' question, if they come in and want to make a change,
what would be your position if they filed for a refund
after, while I assume that your position was, that the
statute hadn't run yet. If you're still doing assessments,
you wouldn't mind if they filed an application for a refund
of either something they have filed in this case or for some
of the assessments."
MR. BREWER: "Mr. Chairman, Representative James, if in fact
they did file a claim for refund and if they were under
audit, we would combine that claim for refund with our
determination of what we believe the correct tax liability
to be. And so, there would be a final assessment issued
which would incorporate, or consider, take into account
their claim for refund."
REPRESENTATIVE JAMES: "The reason I'm asking that question,
I guess, and maybe I didn't really ask it clearly enough in
the first place is that, the way the - and you've made lots
and lots of correlation between the way that you determine
that this statute of limitation works is similar to Internal
Service's statute of limitations. But I know that if you
file an amended return after the due date of filing the
return, if there was tax due, you must pay it, if you have a
refund, you can't get it. And the same would be true if you
amended - you filed a return and the time for the three-year
statute on the filing a return passed on by, and you amended
your return to owe some tax, you have to pay it. If you
amend it for refund, you can't get it, because the statute
of limitations has passed. And so I would assume that it
would be the same in this case."
MR. BREWER: "Mr. Chairman, Representative James, I think it
depends upon what forum you're in, as far as the federal
government is concerned. You're aware that if you pay the
tax and file a claim for refund, then you'll find yourself
in district court and you have the possibility of a jury
trial. You're also probably aware that if you contest your
liability, do not wish to pay the tax, appeal, you'll find
yourself in Seattle in tax court. One of the consequences
of appealing an assessment, not paying, and going to tax
court, is that the tax court can determine your liability
either up or down, and so, I would believe, I don't have a
lot of (indiscernible) with what goes on in tax court, but I
believe that you would be able - if you are due a - pay a
lesser amount of tax and you're in a tax court forum, then I
don't know why your refund claim or your lessening of the
liability - I don't why that wouldn't be entertained.
Because in tax court, the amounts can go down and they can
also go up."
REPRESENTATIVE JAMES: "Thank you. It doesn't work that
way."
CHAIRMAN VEZEY: "Thank you, but Representative James it
really - we're getting out of the property tax area and into
another area, so I don't want to spend a lot of
time...Representative Davidson."
Number 342
REPRESENTATIVE DAVIDSON: "Thank you, Mr. Chairman. Mr.
Brewer on the calendar year basis document that you passed
out, I look at number 3 and then I go down to number 7, and
in each of these years I subtract the closed audits, for
example, in 78, 32 from 35, that means there were three
audits that were not closed, right? Then as we go along,
starting in 1980 there are seven audits that were not closed
and then you have for the next five years - or four years
rather - you have five. Are these the same five audits, is
it - do you understand my question? Are these ongoing
audits and we finally got to 1991 and we still had five, and
then 92 we only had one, and now we have none. So, what I'm
asking is, these are audits on appeal (inaudible due to
noise on tape) tend to be the same audits, is that why we
see the number five, at least five carry all the way
throughout to 91?"
MR. BREWER: "Mr. Chairman, Representative Davidson, for
sure in the early part of the period, there are very few
taxpayers that we have not yet settled with and so, why the
number would be static, I think that's a correct assumption
that you're making - we're talking about the same two or
three or four taxpayers. I don't know that I can say that
about the later period."
REPRESENTATIVE DAVIDSON: "Oh, I see. Thank you, Mr.
Chairman."
CHAIRMAN VEZEY: "Thank you and seeing no further questions
-Representative Ulmer."
Number 368
REPRESENTATIVE ULMER: "One quick question. Commissioner,
the last time you testified before State Affairs, you
indicated that the taxpayers have filed many amended
returns, and I think the number you gave us was 69 percent
of 3,393 returns, they've amended 2,739. That's the number
that I wrote down. But I don't know what period of time
that is and I don't know whether those were beyond the three
years."
COMMISSIONER REXWINKEL: "Mr. Chairman, Representative
Ulmer, that was Mr. Pilkerton that made that statement and I
have no knowledge, I have no specific knowledge - maybe Mr.
Brewer does."
REPRESENTATIVE ULMER: "I'll follow-up with him. Thank
you."
CHAIRMAN VEZEY: "Thank you. Representative Gary Davis."
REPRESENTATIVE DAVIS: "Thank you, Mr. Chairman. Mr.
Brewer, I think this was Exxon's testimony that indicated
they were, in relation to the shoe on the other foot, I
think they indicated that they were denied a refund because
the statute of limitations had run out. Was that, I can't
remember if that the insinuation - maybe not - maybe I heard
it wrong. You don't recall that - okay. I may have
interpreted it wrong."
CHAIRMAN VEZEY: "Thank you. Seeing no further questions,
Commissioner, I want to thank you and I'm sorry, I've
already forgot the gentleman.."
COMMISSIONER REXWINKEL: "Mr. Brewer."
CHAIRMAN VEZEY: "Brewer - I should maybe write it down. I
want to thank you both very much for your testimony and we
do have two other people that have indicated they'd like to
testify. I hope you'll stick around, feel free and if you'd
like to make some comments, let us know."
COMMISSIONER REXWINKEL: "Thank you, Mr. Chairman."
CHAIRMAN VEZEY: "Mr. Walt Furnace with the Alliance. Mr.
Furnace has left? Okay. Let me skip then - Mr. Jim Palmer,
do you have some testimony you'd like to give."
JIM PALMER, ALASKA OIL AND GAS ASSOCIATION: "Mr. Chairman,
in the interest of time, I was going to testify on behalf of
AOGA, but I think the State Affairs Committee has already
heard that testimony, and there was nothing new, so I'll
pass out that written testimony..."
CHAIRMAN VEZEY: "Okay, you submitted your written testimony
for the record? Mr. Sullivan, did you have some comments
that you'd like to make? "
MR. SULLIVAN: "I'd like the opportunity just to - again,
I'm Paul Sullivan, General Tax Counsel, Exxon Company, USA.
I thank you for this opportunity to speak to the three
committees joint session. Mr. Chairman, I'd like to speak
to some of the comments that have been made here this
morning and just clarify, I think, a little bit to the
extent that I can help this group. Mr. Hosie indicated that
it was the position of the attorney general that the case
would go forward under any circumstances this coming
Wednesday. Now when I spoke with you folks, I was
speculating and I'll admit that I was speculating, on
exactly what was going to happen next Wednesday, and I
speculated that they would take 377 up and I've not sat in
on their strategy sessions. The point I'd like to make is
that Mr. Hosie also indicated that the 78 case was a test
case. And that's exactly what it was. There's been over
the last two days, a lot of discussion about delay and the
need to move the process forward. And it happened that we
received our 78 income tax assessment, and there was a
series of about eight of them, first. And it was the first
year in which the opportunity arose to raise the question as
to the interpretation of the three-year statute. And we did
so. And, we then moved that through informal conference and
I think I mentioned yesterday, that the case was bifurcated
so that we could accelerate the resolution of the issue with
respect to the interpretation of the statute of limitations.
And it was a test case and the intent was to get it into the
court system and get an answer on the interpretation of that
statute of limitations on assessments question for the
period from 1978 to as long as that law stayed on the books.
Mr. Hosie says that it will go forward, but I would submit
to you that it's no longer a test case. First, there will
be arguments before the Supreme Court and then there will,
if 377 is passed, likely be litigation with respect to the
constitutionality of this bill. If this law were found to
be constitutional, it would become the law of the land and
I'm not sure exactly what the status of our 78 case would
be, but I do know that it would not be a test case. That
bill 377 -SB 377 - would be the law of the land from, at
least 1979 forward. Therefore, it's a case that I would
consider winning a small skirmish, but losing the war
because what I might get, at best, would be a resolution of
78 and the statute of limitations, because I am in the court
house. But it would not form a precedent for any year after
1978. So, the least you would be doing is enacting
retroactive legislation to 1979 and possibly to 1978. There
was a question, I think, that Paul Wessells responded to -
excuse me, I'm (indiscernible) through my notes from the
order of the testimony this morning - about a line between
when does audit stop and assessment begin, and I want to
clarify that you file your return, and there's a three-year
statute and there's an ongoing audit during that period and
you might get an assessment. And under the rules, I must
appeal or protest that assessment within 60 days. And
during that 60 days - or after that 60 days - I may get
another assessment and I must within 60 days appeal that
assessment. So there is no fine line. It's an ongoing
process of an audit continuing, assessments being issued,
protests being filed. As we approach the third year, I get
a request for an extension and I extend. And let's just
assume that I extend for another three years. I continue
the audit and I continue to receive assessments and I
protest those assessments. All of that interaction with the
Department of Revenue is perfectly legal and acceptable and
not one of those assessments is at risk under 377. It's
only in my example, an assessment received after the three-
year statutory period and in my example the three year
extension that I gave - a total of six years of audit - any
assessment received after that six year period that we are
claiming is time barred under the current statute. There
was a question to Mr. Wessells about whether BP would comply
with the law if this law was passed. And I just want to
reiterate the same answer that he gave you. The answer for
Exxon Corporation is we comply with the laws of all the
jurisdictions in which we act - we do business. I would
also like to point out, as I did yesterday, that while we
comply with the law, what you do here today or with this
bill, is going to impact how Exxon Corporation assesses
future investments in this or any other jurisdiction, based
upon what they do with their laws. And one of the things
you're talking about doing here is making a retroactive
change for a period of 17 to 18 years and that gives us
great pause.
"Mr. Hosie said, who better to say what the legislature
meant than the legislature and I'm sure you all appreciate
that in 1976 the composition of this legislature was
significantly different. And I believe that the job of this
legislature is to pass laws. The role of the judiciary is
to interpret the laws that you and others have passed. And
I continue to believe that the proper forum for the question
of the three-year assessment statute is the Supreme Court of
the State of Alaska. The irony of that is that if I lose in
the Supreme Court next Wednesday, or when the decision is
issued, you will get SB 377 with respect to the assessment
statute without ever having legislated a thing. If I win,
then the Court will interpret the law that was passed in
1976 and if there's something you want to do in 377 to amend
the statute prospectively, well, that's fine.
"I would point out that Mr. Brewer about five years and the
question of whether it's sufficient and his answer was yes.
Neither the three-year statute that exists on the books
today, nor the five-year statute is a end of the line,
because extensions are still provided for. Mr. Brewer said
he thought that companies in the future might not grant
them, I'll go back to my jeopardy assessment example and
I'll admit that in the example, and purely for purposes of
the example, I said that the department could disallow all
of our deductions. They could likewise determine a high
side of reasonable or maybe a little bit higher, just to be
sure, value of ANS and put it into the assessment to
protect, as his job is to do, the revenues of the state of
Alaska. So, this risk - I just don't see it. It's
interesting in our Supreme Court case, the question was why
does it take so long to get there. While the Standard case,
now BP, was before the court on a declaratory judgment,
Exxon was requested by the Department of Revenue to not move
our formal conference on the issue of the statute of
limitations interpretation forward at the formal conference.
And I agreed with the then Commissioner of Revenue, Mr.
Malone, to suspend action at his request, while the Standard
case was heard in court. And that caused some delay so,
it's not one-sided on these delays.
"Mr. Hosie explained about the details in formal conference
of depositions and discovery and witnesses and all that, and
I testified about that yesterday, too, as a reason why
taxpayers go to informal conference. It's attempting to
solve and resolve issues or as many of the issues as you can
in that forum which is a more, as the name says, informal
atmosphere. It still makes sense to me to go that route.
"Mr. Hosie said that, meaning the state, we've got to do
something about the uncertainty of this situation. And I
think he meant so that we could get on with settlements, and
I'm speculating. He then went on to say that a
constitutional challenge to SB 377 would add years to get
the answer on the constitutionality of this bill. And, I
can't reconcile those two. We are months away from a
resolution of what the existing statute means, and SB 377
can only add to the time period that it's going to take to
get a final resolution of where we are. You people have had
some recent experience in that, in the Governor's
proclamation and whether we had a constitutional special
session, and you moved real fast. You got two days and you
got it resolved. That's not going to happen if we have to
have the courts involved in the constitutionality of this
bill. Talked about extensions in the future, I could tell
you that I cannot understand why Exxon would not give one in
the future when the equivalent to a jeopardy assessment is
the alternative.
"Mr. Hosie went back into the relation back theory and
again, as I said yesterday, he's making his argument before
the Supreme Court to you. And all I'm asking for is allow
him to make that argument to the Supreme Court and allow
that argument to rise or fall for what the statute means
from 1978 until today. Don't limit it to a little skirmish
that a taxpayer wins 78, and this bill takes away the
precedential value of that decision to any other year.
"Number of auditors: Back in 78 and 79 when there was
discussion by Mr. Brewer about limitations within the
Department of Revenue. In looking at our 78 case, starting
in August of 1979, the division started a detailed audit.
Six auditors spent two weeks and then three auditors spent
an additional month auditing Exxon's records in Houston and
all for the full period and some for an additional period
returned on several occasions to complete the audit. I
don't recall or know how many auditors they said they had,
but we had six of them at one time and three at another time
in our offices in Houston reviewing the records. Mr. Brewer
said that now amended assessments outside of the three year
or the proposed five year, wouldn't happen. Well, year end
1993, dated December 31, 1993, and received on January 4,
1994, I got a revised assessment for the 1986 oil production
tax. It was after the extensions given on that return.
There are outstanding, at least in Exxon's case, in all
instances, timely assessments on the crude value issue that
exceed, and in many instances, significantly exceed, the
royalty settlement values. I only mention that because
there's been questions around how much money is at stake on
the untimely assessments - that 2.9 or 3 or whatever it is
number - that I don't have enough information to be able to
tell you what that number is, but the timely assessments in
the Exxon case significantly exceed royalty settlement
values. The commissioner mentioned that in the formal
conference setting, the job of the hearing officer is to
determine the correct amount of tax. And I agree with that,
but I'd add some words - It's the correct amount of tax,
based on the outstanding timely assessments. Maybe I owe
all of them, maybe I owe less and it's his job to determine
what I owe, but only with respect to the amounts for which I
have been assessed in a timely fashion.
"There's been a lot of discussion about amended returns and
I'd like to just do a little scene set for you on that. The
production tax, as you know, is a monthly return. I need
Dick's help on this, but I believe that the return is due
either on 20th or the 25th day of the month following the
month in which the transaction occurred. And I would hope
this committee could appreciate that these are large
corporations with significant volumes of crude oil moving -
ANS crude moving - under a multitude of contacts, and we do
file a return and use our best efforts to get - well, we
file that return on time first - but the information flow,
if you take the transactions that occurred on the maybe
29th, 30th, or 31st of the month, you have a period of 20 or
25 - and I just cannot remember which it is, but you get
that information in and incorporate it in the return, and
yes, a normal procedure is that in the following month, we
don't just put that return down and leave it, we continue to
do everything that we can to get it as totally accurate as
possible. So yes, there is probably an amended return many,
many times in the second month, following the month in which
the transactions took place.
"Representative Kott asked if the assessments were high.
Mr. Brewer said not in the current time frame. I drew an
implication from that that in the earlier periods, they
might have been. I believe that to be true. Both the
commissioner and Mr. Brewer talked about prevailing value,
and prevailing value is not the issue before us today. The
issue before us is retroactive tax legislation, but let me
talk a little bit about prevailing value. I heard that
prevailing value is a concept where the (indiscernible)
calculated prevailing value exceeds the taxpayer's actual
selling price, the department will bring the selling price
up to the prevailing value, but if the taxpayer's actual
selling price was higher, the state wants to share in that.
Prevailing value is also used with respect to internally
transferred oil. That's the oil that Exxon takes to its own
refineries. There is no sale in that instance. Yet we try
to calculate what is the market value for that oil because
the production tax is based on that market value. And we do
the best we can. Now after the fact, in many months, the
fact of the matter is, that the state's calculated
prevailing value is a number that is less than the number
that we put on the return for that internal oil. The
commissioner said that the higher of does not apply with
respect internal transferred oil. He also said that the
higher of did not apply to the income tax. I'm very pleased
to hear that because my assessments say otherwise. Mr.
Brewer said that market value is the goal. I agree with
him. I also agree with the Chairman's comments earlier
about this is a commodity and I do not see how oil moving to
the same destination, on the same vessel, on the same day
can have values for royalty, income tax and production tax
that differ significantly. There may be some difference
under the statutes of royalty, the arms-length bargaining
versus the sovereign, with respect to statutory tax laws.
But I submit it is still a commodity, and that commodity
should have about the same value. That is not the case with
our assessments. I cannot remember which representative -
Representative Brice, I just remembered - asked about 200
pages of - a new assessment with 200 pages of supporting
documents. Mr. Brewer said, well if that happened early on
in the process, he could understand that, but, well that's
all he said. That assessment received at 4:00 p.m. on the
afternoon before a formal conference scheduled for 9:00 a.m.
in the morning came on June 14, 1988. It was with respect
to our 1978 income tax, so we're talking about a period of
nine to ten years.
"Representative Davies asked about extensions, that they're
a very short document. All it says is the taxpayer and the
state agree to extend a specified statute for a specified
period. They are all-encompassing. It is for the complete
audit of the return and any issue that might come up. I
have not limited them, other than I indicated to you
yesterday, that in December of last year, I was told
specifically that the Department of Revenue needed some more
time on a single issue and I said, then I will extend the
statute for the reason that you need it, and that was
rejected by the Department of Revenue.
"Taxpayer amendment after the statute of limitation has run:
Mr. Brewer said that the DOR (Department of Revenue) would
put it in with the other assessments. I'm not sure exactly
what that meant. I do know that we had a case where we had
an issue - we had a right to claim a credit on our return,
and we calculated the credit. And I don't know whether
we're being conservative or what, but we under-calculated
it. We left a bunch of dollars on the table. The statute
had run, and we indicated to the Department of Revenue that
we had made an error - and it was an error in the state's
favor, and we were told that the statute had run and
therefore, amending was barred.
"We talked a little bit about the federal rules, about the
only thing I can say (indiscernible) and it's something you
may remember. Very recently the President paid up some
taxes on something called Whitewater, and it wasn't a lot of
money, but it was a reasonable amount of money, and he
indicated that he was making that payment as a voluntary
payment, because the statute of limitations had ran; meaning
that the Internal Revenue Service could not collect that
money from him. Yet, because of his position, he was going
to pay the tax and it was a voluntary payment to the federal
government. I notice on the table back (tape ends
abruptly.)
TAPE 94-67, SIDE A
Number 001
MR. SULLIVAN: "...in that footnote, it begins by saying
`alternatively, Exxon argues that.' The court never had to
address the issue because our main argument was the statute
is clear on its face. There is no ambiguity. The court
agreed with us and we had argued in the alternative on
constitutional issues.
"Let me go back to my lawn mower yesterday. Ella claims his
neighbor borrowed the lawn mower and returned it broken.
The neighbor in his reply in the suit says `One, I didn't
borrow it; two, if I did, it was broken when I got it; and
three, alternatively when I gave it back it wasn't broken.
If the court finds he never borrowed it, the court need not
address the other two alternative arguments. Basically,
that's what happened in our 78 case. The court found the
statute clear on its face. A court doesn't like to issue
decisions that it doesn't have to issue, and once it found
that, it need not find anything else.
"I think I've just about covered everything other than the
fact that the commissioner or Mr. Brewer, I think it was the
commissioner, handed out the appropriation history. The
history goes from 1985 to 1995, without the authorization
for 95. I'd be interested in seeing 78 to 84. I would also
submit to you that if you compare the Department of
Revenue's request versus authorization, the authorization is
a percentage of the request. I think you'll find, it is in
almost every instance, the highest percentage of any
department. I just don't have the earlier numbers with me.
I'll take any questions that anyone has."
CHAIRMAN VEZEY: "Representative Bunde."
REPRESENTATIVE BUNDE: "Thank you, Mr. Chairman. I'm
tempted to ask what all these lawyers are doing in church
with us farmers but I'll save that question. We've heard a
lot of relatively complex testimony and I have a - maybe a
failing of wanting to simplify or perhaps over simply, but
I'd like to ask Mr. Sullivan if my simplification is
relatively accurate, that if SB 377 passes and the state
wins the court suit, the state wins. Is that correct?"
MR. SULLIVAN: "I need to know which court suit you're
talking about."
REPRESENTATIVE BUNDE: "Supreme Court suit that we're --
you're going to address."
MR. SULLIVAN: "Mr. Chairman, if SB 377 in its current form
passes, and Exxon prevails in the Supreme Court next
Wednesday..."
REPRESENTATIVE BUNDE: "No, I'm sorry. Perhaps I wasn't
clear. If SB 377 passes and then the state prevails in the
Supreme Court, the state has essentially won."
MR. SULLIVAN: "Yes, but the state would not have needed SB
377."
REPRESENTATIVE BUNDE: "If SB 377 passes and the state
loses, the state still wins."
MR. SULLIVAN: "Mr. Chairman, that is correct."
REPRESENTATIVE BUNDE: "And so what we're looking at is
trial insurance here."
MR. SULLIVAN: "Mr. Chairman, that is correct,
Representative Bunde, assuming, and I'm making one
assumption and that is that SB 377 is found to be
constitutional"
REPRESENTATIVE BUNDE: "Thank you."
MR. SULLIVAN: "Yes, you're correct."
CHAIRMAN VEZEY: "Representative Davidson."
REPRESENTATIVE DAVIDSON: "Thank you, Mr. Chairman. Mr.
Sullivan, it is my understanding that your company is the
one that suggested deferral until after the ARCO litigation.
That is to say that this case which the ARCO litigation
which was resolved not until 1986 is the constitutional
delay that we've had to deal with to deal with these tax
questions from that period of 1978 to 1981, the period of
separate accounting. Now if, in fact, that was your
suggestion, it seemed that you set up another fork in the
constitutional road to finality and I think you addressed
that briefly when you talked about the word `alternatively.'
Is that, in fact, correct?"
MR. SULLIVAN: "Mr. Chairman and Representative Davidson, we
did request a stay in those assessments and our reason was,
as I said yesterday, that to address them and begin the
process while the underlying legislation was being
challenged didn't make sense to me as a good use of my
people's time or the state's people's time. Therefore, we
suggested let's see whether the law is found to be
constitutional or unconstitutional. While I did make that
request, not I but Exxon, the state's position was to
continue the process of assessments, excuse me, audits and
assessments, so that my request in no way slowed the
Department of Revenue. The request was, in essence,
rejected. Would it had sped up the process if the
underlying law was found constitutional? I think so, we all
would have saved some time. The underlying law was not
found to be unconstitutional so the process continued. Were
extensions granted? Yes. Was money at risk? Was I trying
to play a game in order to get the statutes to run to avoid
a liability. Absolutely not. That was not done.
Extensions were granted."
REPRESENTATIVE DAVIDSON: "But my point is that the
suggestion for deferral of your extensions for -- somebody's
extensions for assessment, it was suggested by your company
that we defer this until after the ARCO litigation was
resolved and that was not resolved until 1986."
MR. SULLIVAN: "Our request, Mr. Chairman, Representative
Davidson, was for not an extension, it was we had received
an assessment and we were required under the regulations to
answer within 60 days, that is protest the assessment. We
complied with that requirement. We protested the
assessment. What you were talking about is a cover letter
that went with that protest that said, `here is the protest,
you now know where we, Exxon the taxpayer, stand on your
assessment. But we, Exxon, suggest that rather than
beginning resolution, we wait and see what happens to the
statute.' It is no different than the point that Mr. Hosie
made this morning that as long as this conflict over the
meaning of the statute exists, it will be very difficult for
the companies and the Department of Revenue and the
Department of Law to get together and resolve these. We
were saying the same thing back then. There is a case on
the constitutionality of the underlying law. How can we and
the state resolve the issues when we don't even know whether
the assessment relates to a tax that is constitutional.
That's all that we were doing."
Number 181
REPRESENTATIVE DAVIDSON: "So we did not know -- we did not
know -- we did not come to resolution on the statute though
until 1986. Is that correct?"
MR. SULLIVAN: "And I would submit that with respect to SB
377 we may not come to resolution on its constitutionality,
this is according to Mr. Hosie this morning, for another
three to five years. And I further submit that if this
legislation is not enacted, we will come to resolution on
the meaning of the three-year statute in the next six
months."
REPRESENTATIVE DAVIDSON: "That leads to my other question,
Mr. Sullivan. You talked about the constitutional issues
and would you please identify them and then would you also
comment as to whether or not the point of continuing in the
lawsuit, does that -- does that continuation begin at that
point. In this same lawsuit where Judge Cranston said these
constitutional arguments have no merit."
MR. SULLIVAN: "Constitutional arguments are as enumerated,
Mr. Chairman, Representative Davidson, in the footnote
three. They were that the DOR's interpretation of the
statute of limitations violated the federal and state
constitutional protections of equal protection, due process,
and the right to petition for redress. He said there was no
merit in these constitutional arguments because, in part,
they found that our interpretation of the statute that it
was plain and unambiguous on its face and that three years
meant what it said. Three years, unless the parties
extended, so there was no constitutional issue."
Number 215
REPRESENTATIVE DAVIDSON: "So you have confused me, it
regards the constitutional issues. You said that you will
go back, in fact, and pursue those constitutional issues.
My question then is what point do you start at? Back in
which court and...."
MR. SULLIVAN: "Excuse me. Constitutional issues of which I
am talking about are not yet even filed. They are
constitutional issues that are likely to be raised by
taxpayers with respect to this legislation, SB 377, if it
passes. There will be a question as to the
constitutionality (indiscernible) SB 377, including the
retroactive Section 1. Now, that's going to take a long
time to resolve. It is obviously not filed in any court yet
because we don't know what is going to happen to SB 377."
Number 230
REPRESENTATIVE DAVIDSON: "Mr. Sullivan, I would remind you
I think my understanding is correct. What the argument will
be before the Supreme Court is whether or not 260 is
amendable. It will not have, in fact, ruled on that?"
MR. SULLIVAN: "The question, Mr. Chairman and
Representative Davidson, before the Supreme Court next
Wednesday will be whether Judge Cranston, in his decision in
the Superior Court, correctly interpreted the statute.
There will not be a constitutional issue. There will be a
question as to whether Judge Cranston is correct. We will
then have a decision from the highest court in the state of
Alaska on whether three years means three years or, as Mr.
Hosie talked to you about yesterday, whether there is a
relation back theory that allows an assessment which comes
after the three years including any taxpayer in the state
agreed extension thereof is a valid assessment. Judge
Cranston said `no.' The Supreme Court may say otherwise."
REPRESENTATIVE DAVIDSON: "Mr. Chairman, I have one other
question, if I may."
CHAIRMAN VEZEY: "Please."
REPRESENTATIVE DAVIDSON: "Mr. Sullivan, you talked about
the cooperation or the cooperative appeals extension process
that both the state and your company has, in fact, engaged
in the past practice. And you talked about, I believe, the
point that well maybe they just won't be as forthcoming in
the future to extend these appeals."
MR. SULLIVAN: "I did not say that, Mr. Chairman."
REPRESENTATIVE DAVIDSON: "Well how did I get...."
MR. SULLIVAN: "I indicated, Mr. Chairman, Representative
Davidson, that I did not see a circumstance in the future
where Exxon would not grant an extension because the option
is, and continues to be, the right of the Department of
Revenue to collect the revenues of the state of Alaska by
issuing an assessment based on the best information
available if I am not cooperating (indiscernible) consider
to be. And they would then, as I said yesterday, maybe
disallow my deductions on the basis that I had not
(indiscernible) and they would value ANS crude at the high
end of reasonable (indiscernible) and that is something
which the Department of Revenue would have the right to do
under the laws that exist today. So, now tell my why
wouldn't I grant an extension. My option isn't that great
and (indiscernible)."
Number 283
REPRESENTATIVE DAVIDSON: "So, the high balling comment you
had in your written statement yesterday was then that refers
to the fact that, well it is really in your interest to
grant appeals."
MR. SULLIVAN: "Mr. Chairman, Representative Davidson, I'm
scratching my head. I'm not sure whether it is or not. The
reason being that having granted extensions in every
instance, it's resulted in an increase in assessment. Mr.
Brewer indicated that there were instances where there were
amended assessments that went down. I have seen the
department issue an assessment and then after we filed a
protest, they have retracted the assessment recognizing
(indiscernible) case to have issued the assessment in the
first place. But in terms of new or amended assessments
other than the revocation of one, it's always gone up. It
is almost like as you get into the process and make your
case it's pay us or get another assessment."
CHAIRMAN VEZEY: "Thank you. Representative Davidson, you
have a comment?"
REPRESENTATIVE DAVIDSON: "Yes Mr. Chairman, I'm still
confused and perplexed and I was wondering how you
understood the idea of amending 260 before the Supreme
Court. I did not quite -- could not understand Mr.
Sullivan's response. If we're not, in fact, arguing that in
the Supreme Court or the way he presented it, the way he
talked about it, was he saying the same thing that I said or
am I just lacking legal training?"
CHAIRMAN VEZEY: "I believe Mr. Sullivan's testimony has
been very consistent. I'm having difficulty understanding
your question."
REPRESENTATIVE DAVIDSON: "Well, my question was it's my
understanding the constitutional question, the statutory
construction of 260 has already been decided. It was
decided that it was in favor of the industry or, in this
instance, Exxon. And, yet, before the Supreme Court we have
a constitutional issue. Isn't that correct?"
MR. SULLIVAN: "No, Mr. Chairman, I think I understand
Representative Davidson's question. The issue that was
before the Superior Court was the interpretation, not a
constitutional issue, but the interpretation of the statute.
And in our complaint, we had an alternative argument and the
alternative argument was more or less, if the state is right
we're concerned about due process. And so constitutional
issues were raised. Judge Cranston found not that the state
was right, but that Exxon was right. Therefore, he need not
address the constitutional arguments that existed in our
alternative arguments. So now when we go to the Supreme
Court next Wednesday, there is no constitutional issue per
se that's being addressed by the Supreme Court. What is
being addressed is whether a Superior Court Judge, Judge
Cranston, correctly interpreted a statute. So this is just
a higher court reviewing the interpretation by a lower court
judge of the meaning of words in a statute."
REPRESENTATIVE DAVIDSON: "That is helpful and that means
that they will rule then whether or not the statute can be
amended which is a statutory construction issue. Is that
correct?"
MR. SULLIVAN: "Mr. Chairman and Representative Davidson,
the question of the amendment, you see, the statute can be
amended, what we're talking about here today. Is that
correct?"
REPRESENTATIVE DAVIDSON: "No."
MR. SULLIVAN: "Whether the assessment can be amended after
the statute has run. That is correct. That is exactly what
they're going to be asked to do is review an opinion that
says that it can't, and the Supreme Court will decide either
that opinion is right or that opinion is wrong. If they
decide that that opinion is wrong, Judge Cranston's opinion,
then in that event, you get SB 377 without passing a single
bit of legislation. In the event they say that Exxon and
the Superior Court Judge Cranston's opinion is correct, then
we know what the law was. Is the situation of the Supreme
Court upholding Judge Cranston's decision and the
legislature passing SB 377, and in that event, the decision
of the Supreme Court upholding Judge Cranston's decision is
essentially mooted, if, subsequently SB 377 is found to be
constitutional."
REPRESENTATIVE DAVIDSON: "Thank you, Mr. Chairman, I
appreciate the time you've allowed me."
CHAIRMAN VEZEY: "Thank you, Representative Davidson.
Representative Davies."
Number 370
REPRESENTATIVE DAVIES: "Thank you, Mr. Chair. Mr.
Sullivan, Commissioner Rexwinkel talked about the statute
that relates to the formal hearing process and you commented
on that. And when the commissioner read that statute with
respect to determining, loosely put, the correct tax - I
don't remember the exact language - I didn't hear any
limitation on that to timely assessment which you asserted.
Can you tell me how you come to that conclusion or give me
the citation where the linkage is there?"
MR. SULLIVAN: "Let's skip the informal conference, please,
if we can, Mr. Chairman, and just assume we are now in
formal conference..."
REPRESENTATIVE DAVIES: "It's just the formal -- the
language as I recall was just for the formal conference,
right?"
MR. SULLIVAN: "Question number one is what is before the
hearing officer?"
REPRESENTATIVE DAVIES: "Right."
MR. SULLIVAN: "What is before the hearing officer is a
notice and demand for payment, otherwise known as an
assessment. Also before the hearing officer is a protest
filed by the particular taxpayer in question. That is the
issue that has been joined. A notice and demand for payment
and a protest that says, `I don't owe it or I only owe part
of it.' He then calls for depositions and witnesses,
discovery. Both sides hire lawyers, both sides hire experts
and we all spend a lot of money. That's why I don't like to
forget about the informal conference being submitted because
sometimes that saves both of us a lot of money. But his
charge is to look at what the Department of Revenue, Oil and
Gas Audit Division - in the case of the production tax - has
assessed, and what the taxpayer says in his protest, and
decide what the correct tax on that documentation is.
That's what's before him."
CHAIRMAN VEZEY: "Thank you. Representative Finkelstein."
MR. SULLIVAN: "Excuse me, could I follow-up on that."
CHAIRMAN VEZEY: "One more."
REPRESENTATIVE DAVIES: "Just on that.... But the
assessment that he has in his hand may well be an amended
assessment that was amended post the three-year statute."
MR. SULLIVAN: "Mr. Chairman, it could be in an assessment
that was issued eight years after the return was filed,
assuming that there have been extensions as the next
(indiscernible) case there have been. He may have before
him six assessments. There might have been an assessment,
protest, assessment, protest, extension, assessment,
protest. Sometimes an assessment later in time negates an
earlier one or incorporates it. Sometimes an assessment
later in time is on an entirely new issue so the earlier one
(indiscernible). So he can have a portfolio in front of him
- two, three, four, five different assessments all of which
now have worked their way up to formal conference. And
basically at that point, forget about the assessments, you
now have the issues and the various assessments. That's the
portfolio that's before him and nobody references back to a
particular assessment. It's just these are what are before
you, which are to be decided by the hearing officer. That
whole package."
CHAIRMAN VEZEY: "Thank you. Representative Finkelstein."
Number 423
REPRESENTATIVE FINKELSTEIN: "Thank you, Mr. Chairman. The
question I had is on the analogy made earlier to the
President and his taxes which, you know, of course, on the
face of it, is appealing but as you look at it the
difference is, is the President doesn't have any outstanding
assessments against him. And it seems to me that, and I
guess I'm trying to see -- doesn't your analogy only work if
you'd actually settle - paid your taxes just as most of
these other Alaskan oil companies have done."
MR. SULLIVAN: "Mr. Chairman, Representative Finkelstein,
it's an interesting question. The fact of the matter is I
don't know whether the President's return was audited for
that year."
REPRESENTATIVE FINKELSTEIN: "But he has no outstanding
assessments is the issue. We know that to be the case."
MR. SULLIVAN: "As far as I know he had no outstanding
assessments because of the statute of limitation have run.
All I'm saying is there is an analogy there. It may not be
perfect but what I perceive any payment that I might make on
an assessment which is contrary to Judge Cranston's opinion
is essentially equivalent to a voluntary payment, because
Judge Cranston says it's not legally due."
Number 441
REPRESENTATIVE FINKELSTEIN: "Right and just to make clear,
none of this would be before us if, you know, if this case
is settled. I mean it's only here because there is an
outstanding assessment. They aren't trying to go back on
something that was settled. It is one of the two cases that
are left on this subject."
MR. SULLIVAN: "Mr. Chairman, the Department of Revenue and
the Department of Law are trying to increase the scope and
dollar value of the issues from those that exist in the
timely assessed assessments -- time received assessments.
That's correct. I am not in any way indicating that the
multitude of assessments received within the three-year
statute, as extended, are at risk. They are not. They are
valid and will be resolved."
REPRESENTATIVE FINKELSTEIN: "Thank you, Mr. Chairman."
CHAIRMAN VEZEY: "Thank you. Seeing no further questions -
- I'm sorry, Representative Ulmer, you had a question."
REPRESENTATIVE ULMER: "I'll pass, thank you."
Number 454
CHAIRMAN VEZEY: "Okay, seeing no further questions, thank
you very much Mr. Sullivan."
MR. SULLIVAN: "Thank you."
CHAIRMAN VEZEY: "Thanks for your time. What is the
pleasure of the committee. Mr. Furnace, you'd indicated
that you would sign in to speak. Would you -- do you care
to pass or...."
MR. FURNACE: "Mr. Chairman, I will submit my presentation
to the committee later."
CHAIRMAN VEZEY: "Thank you. What's the pleasure of the
committee? Representative Davidson."
Number 459
REPRESENTATIVE DAVIDSON: "Mr. Chairman, I have some
pleasure and that would be to ask a couple of questions of
Mr. Palmer and to the opportunity to hurriedly go through
here, just a couple of short questions I'd like to ask if I
could."
CHAIRMAN VEZEY: "Mr. Palmer, are you agreeable to that?"
JIM PALMER: (Indiscernible.)
CHAIRMAN VEZEY: "Please, Representative Davidson."
Number 469
REPRESENTATIVE DAVIDSON: "Thank you, Mr. Chairman. Good
afternoon, Mr. Palmer. Say, Mr. Palmer, on page two, you
talk about not one of those states have ever retroactively
amended their statute of limitations. Has any one of those
states ever had a separate accounting litigation issue such
as we're talking about here for the last forty-eight hours
or eighteen years?"
MR. PALMER: "Mr. Chairman, Representative Davidson, I can't
answer that with any authority. I know that there has been
litigation about methods of income taxes throughout the
United States, but I can't answer that with any authority."
REPRESENTATIVE DAVIDSON: "Thank you."
REPRESENTATIVE DAVIDSON: "Just one other question then, Mr.
Chairman, if I might."
CHAIRMAN VEZEY: "Please."
REPRESENTATIVE DAVIDSON: "On page one you talked -- it said
`it would set a terrible precedence which provoking more
litigation.' Could you please expand on what kind of
litigation you're talking about and whether or not we're
talking about the constitutional, I don't want to put any
words there, what kind of more litigation would it provoke
in your judgment?"
MR. PALMER: "Mr. Chairman, Representative Davidson, I think
much more eloquently than I, Mr. Sullivan has answered that
question. I think if 377 gets passed, when you have
legislation that reaches back 18 years there is a question
of `is that a constitutional thing to do.' And I would
think that the companies will look at that and decide to
take action in -- exercise their legal rights."
REPRESENTATIVE DAVIDSON: "Thank you, Mr. Chairman."
MR. PALMER: "Thank you, Mr...."
CHAIRMAN VEZEY: "Representative Nordlund."
Number 490
REPRESENTATIVE NORDLUND: "Mr. Palmer you a -- you're an
employee of BP, is that correct?"
MR. PALMER: "That's correct."
REPRESENTATIVE NORDLUND: "And you're a member of the Board
of AOGA or what's your position with AOGA?"
MR. PALMER: "My company is a member of AOGA."
REPRESENTATIVE NORDLUND: "And your the representative from
BP on AOGA's Board...."
MR. PALMER: "No, Mr. Chairman, Mr. John Morgan, President
of the company is our member on the board."
REPRESENTATIVE NORDLUND: "Okay. And how many organizations
are there in AOGA, how many different companies?"
MR. PALMER: "It was in my testimony, which I don't have
before me, but it's a number of oil and gas producers and
marketers in Alaska."
REPRESENTATIVE NORDLUND: "Okay. And your position --
AOGA's position is against this bill as I understand it."
MR. PALMER: "Mr. Chairman, AOGA's position is opposed to
Sections one and two of Senate Bill 377. They have had a
formal position opposing retroactivity."
REPRESENTATIVE NORDLUND: "Okay, and there are other
companies in AOGA that have paid taxes under the existing
scheme and under the way the state's interpreting the
statute right know. Is that correct?" Unocal and Marathon,
Mobil...."
MR. PALMER: "All the companies have paid taxes under the
current scheme."
REPRESENTATIVE NORDLUND: "And it would seem to me that
those companies, and we haven't heard that here yesterday or
today, but is seemed to me those companies who have paid
under the existing scheme -- assumedly paying more taxes
than BP would have to pay or Exxon would have to pay if this
bill, if this bill passes. It would seem to me that they
would be at least neutral if not opposed to this bill, and
I'm just wondering if you say -- you say you represented the
position of AOGA, how did AOGA come to that position given
the varying interests in the company, members of AOGA."
MR. PALMER: "Mr. Chairman, Mr. Chairman, the way that AOGA
works is the committee makes a proposal on a position, then
it goes to, usually the board if necessary, and the board
approves that position. The AOGA board did approve this
position of opposing the retroactive aspects of Senate Bill
377. The AOGA board has not taken a position on the other
elements included within Senate Bill 377. So there is no
position -- formal position of AOGA."
REPRESENTATIVE NORDLUND: "Okay, and when you arrive at
those positions, they are not necessarily unanimous. Are
they voted on? Because some members may have voted `no' and
some might have voted `yes,' a majority voting `yes' and
that's you're position?"
MR. PALMER: "I'm not, Mr. Chairman, I'm not familiar with
the facts surrounding that position of whether what
companies voted how."
REPRESENTATIVE NORDLUND: "Thank you."
Number 514
CHAIRMAN VEZEY: "Thank you. If there aren't any further
questions at this time -- I'm sorry one more...."
UNIDENTIFIED SPEAKER: "No."
Number 524
CHAIRMAN VEZEY: "Thank you very much, Mr. Palmer. At this
time I'd like to ask the committee aide to distribute a
committee substitute we've prepared based on the comments on
the technical aspects of the bill. If it's the committee's
pleasure, we can review it know or we can take a short break
and come back and review it. Representative Davidson."
REPRESENTATIVE DAVIDSON: "Explain it first. Mr. Chairman
is this essentially the bill that we've been discussing? Is
this the same one or have there been changes to this?"
CHAIRMAN VEZEY: "We will go over the changes. There have
been changes based on the comments that we made primarily
yesterday. Representative Ulmer."
REPRESENTATIVE ULMER: "Mr. Chairman, I think it would make
sense to just go through the changes."
CHAIRMAN VEZEY: "Okay, we can do that at this time or
people want to take a break? We've been at it about an hour
and a half. Let's take a break and come back at 5:00 p.m."
A break was taken at 4:42 p.m. The meeting was called back
to order at 5:01 p.m.
CHAIRMAN VEZEY: "Come back to order. It's 5:01. We have
before us a proposed committee substitute for Senate Bill
think, are fairly simple to explain. On page 2, line 31,
the word `prospective' has been inserted before the word
`adjustment.' On page 3..."
REPRESENTATIVE DAVIES: "Mr. Chair."
CHAIRMAN VEZEY: "Yes."
REPRESENTATIVE DAVIES: "Aren't there changes up on line 2?"
CHAIRMAN VEZEY: "On line 2?"
UNIDENTIFIED SPEAKER: "Yes."
CHAIRMAN VEZEY: "4 and 5. Okay."
REPRESENTATIVE DAVIES: "Line 2, `decreases' was eliminated
then..."
CHAIRMAN VEZEY: "Okay, I'm sorry, that is correct
`decrease' was removed and that was taken down to the last
sentence. I'll have to look at the other wording
(indiscernible)."
REPRESENTATIVE DAVIES: "Yeah, there was a new clause
entered on line 5 for the decrease."
CHAIRMAN VEZEY: "I... I think the intent hasn't changed,
it's different wording to express concerns that were
expressed here. And then the word `prospective' inserted on
line 31. In paragraph (c) on page 3, line 10, the word
`may' was changed to `shall.' And in response to
Representative Davies comments, the word `percentage' was
inserted before`weights' to clarify that we're talking about
a percentage weights. And then on line 11, the word `may'
was changed to `shall.'"
REPRESENTATIVE DAVIES: "And `different' was omitted also,
which was good."
CHAIRMAN VEZEY: "And I'm sorry, I don't have the deletion.
What was deleted?"
REPRESENTATIVE DAVIES: "Different."
REPRESENTATIVE GAIL PHILLIPS: "Different weeks."
REPRESENTATIVE DAVIES: "Which is the main point of my
comment, so I appreciate that change."
CHAIRMAN VEZEY: "Okay. Then on line 14, the word `market'
was inserted before `assessments.' Page 4, line 9, `$1' was
changed to `$2.' We added a phrase `adjusted annually for
inflation in accordance with the Consumer Price Index.'
Same change on line 22 through 24. A comparable change is
found on page 5 on line 19 and 20. And a comparable change
is found on page 6, line 1, 2, and 3. Those constitute the
changes. `Section 10' now becomes `Section 7.' We deleted
all of the sections of the Senate Bill that was before us
that did not pertain to oil and gas or to the proration of
payments. All the other matter in the bill has been
deleted. Section 10 and 11 were adjusted to reflect the
content of the current committee substitute. Representative
Phillips."
REPRESENTATIVE PHILLIPS: "Mr. Chairman, we forgot one
amendment and that was on old page 5, Section (d) so it
would be...."
CHAIRMAN VEZEY: "No, that was not forgotten. Leg Legal
maintains that the paragraph is the correct word."
REPRESENTATIVE PHILLIPS: "Okay."
CHAIRMAN VEZEY: "So I got it corrected and...."
REPRESENTATIVE PHILLIPS: "Okay - thank you."
Number 582
COMMISSIONER REXWINKEL: "Can I ask a question."
CHAIRMAN VEZEY: "Please if you join us at the table so the
microphone picks up your voice."
COMMISSIONER REXWINKEL: "I was just going to ask on the
retroactive provision on the one -- the $1 to $2 in the CPI
this is retroactive to 1985 so that means the CPI would be
begin to (indiscernible) in 1985?"
CHAIRMAN VEZEY: "Well, that really wasn't our intent but
the testimony we got was that the figure was somewhat
arbitrary. It was a figure between 56 cents and $5 and so
we didn't really -- $2 was just another fairly arbitrary
number. It was our intent that the CPI would start on the
effective date of the bill. I'd have to go back. We may
not have effected that. The effective date of Section 4 is
retroactive to January 1, 1985. So I think that would --
you would be correct in your interpretation. It wasn't
really our intent when we made that amendment."
Number 594
REPRESENTATIVE ULMER: "Mr. Chairman."
CHAIRMAN VEZEY: "Representative Ulmer."
REPRESENTATIVE ULMER: "On that point, does in fact
inflation affect the processing costs or the transportation
costs or do those tend...."
CHAIRMAN VEZEY: "This is not a automatic inflation. The
statute says it may not exceed a figure and since we're
putting a number in statute, I felt that rather than have to
come back every five years and address the statute, we
should allow the ceiling number to escalate. It could still
be 56 cents."
REPRESENTATIVE ULMER: "How will that be determined?"
CHAIRMAN VEZEY: "Well, we weren't told that in our
testimony. We assumed it would be through the audit process
that we have heard. Representative Nordlund."
Number 603
REPRESENTATIVE NORDLUND: "Thank you, Mr. Chairman. If I
remember the testimony based on the $1 per barrel, it was a
loss to the state of $100 million prospectively as well as a
loss of $100 million retroactively for a total of $200
million."
CHAIRMAN VEZEY: "I don't believe it was tied to the dollar
per barrel for the cost of processing. I believe that was
the state's contention of the value of giving up gas liquids
as a oil in assessing it for tax values of the gas. That
hasn't changed."
REPRESENTATIVE NORDLUND: "But the impact of that would have
been something near those sums, is that co -- I mean..."
CHAIRMAN VEZEY: "No, I don't believe that's changed in this
committee substitute because we're not talking -- the $1 was
not -- contributed to that figure that you talked about that
could be as high as $250 million. That was (indiscernible-
coughing) state felt was at risk (indiscernible) agreed it
would not assess gas liquids as oil as opposed to assessing
gas liquids as gas."
REPRESENTATIVE NORDLUND: "I wonder if we could hear from
some of the folks from the Department of Revenue on this
because I'd be concerned that we -- if before we were giving
away $100 million or $200 million if under this change we're
giving away $400 million."
CHAIRMAN VEZEY: "Commissioner Rexwinkel."
COMMISSIONER REXWINKEL: "Mr. Brewer will try to give a shot
at that."
Number 618
MR. BREWER: "Very roughly, Mr. Chairman, the impact of the
increase from $1 to $2 the processing fee. When we took
into account the numbers that we were talking about 100
retroactively, 100 prospectively, that did take into account
not only the change from oil to gas, but it also took into
account the fact that they got a processing fee of $1."
CHAIRMAN VEZEY: "The testimony that we got would not exceed
$1."
MR. BREWER: "Right, but our - our fiscal impact computation
took into account the fact that not only does the tax rate
change, it goes from a nominal rate of 15 percent to 10
percent, but it also took into account the fact that they
get $1 processing fee."
CHAIRMAN VEZEY: "But you weren't conceding the dollar, you
were just using that for your calculations."
MR. BREWER: "Right."
Number 628
MR. BREWER: "Very roughly what does it mean when you go
from giving a processing fee of $1 to $2. These are real
rough numbers, but I just assumed that you're going to be
producing sixty thousand barrels a day of NGLs. I assume
that it's the same time frame we were talking about a couple
of days ago which is an eighteen year time frame. It goes
through the year 2004. I multiplied the sixty thousand
barrels, per day, times $1. So it's worth $60,000 per day.
The nominal tax rate is 10 percent, 10 percent of $60,000 is
$6,000 a day. Multiply it by the number days in a year,
365. Multiply those days -- multiply that by the time frame
we're talking about which is eighteen years. I don't have
the ability to... Representative Green is..."
CHAIRMAN VEZEY: "It sounds like we're talking somewhere in
the order of $50, $60 million."
MR. BREWER: "Yes, sir, we are talking $40 million, not
adjusted for interest and not adjusted for the time value of
money."
CHAIRMAN VEZEY: "But that's assuming that you'd grant the
$2 processing fee."
MR. BREWER: "The increase from the $1 processing to $2.
That's right."
REPRESENTATIVE GREEN: "That's how much again, I'm sorry."
MR. BREWER: "I calculated, again, no interest component.
You know, I'm not increasing it for interest in the past,
and by the same token, I'm not discounting it for the
future. It just so happens that 94 is kind of almost in the
middle of between 87 and the year 2004 so maybe they wasH.
But I get $39,420,000."
CHAIRMAN VEZEY: "Representative Phillips."
Number 647
REPRESENTATIVE PHILLIPS: "Thank you, Mr. Chairman. The
language that's in here `may not exceed' is the same problem
we had with the $1 figure. It could be 25 cents as long as
it didn't exceed $2. So I'm not arguing the $2 versus $1.
I'm arguing that phrase `may not exceed,' and I think that
should be rewritten in some way. I substituted the words
`will be' earlier but I don't know if that's correct or
not."
CHAIRMAN VEZEY: "I'm sorry if you've made that
recommendation, I didn't write it down."
REPRESENTATIVE PHILLIPS: "No, I'm -- in my mentally. I was
starting to get away from -- and you do read my mind, Mr.
Chairman. I was trying to get rid of the ambiguity in `may
not exceed.'"
CHAIRMAN VEZEY: "Representative Porter."
Number 654
REPRESENTATIVE PORTER: "Mr. Chairman, I don't have any
ambiguity in this unless I'm misunderstanding something.
There is no firm figure on this allowance now. You are
trying to establish what it really is and you have the
authority to make that determination. Is that correct?"
MR. BREWER: "Mr. Chairman, Representative Porter, my idea
of the theory behind capping it at $1 or $2 is that that
facility up there is a very unique facility. It's the only
one like it, possibly in the world, but for sure in the
entire United States you will not find a facility like that.
It does a number of things. I mean it does a lot of things.
It dries the gas, it makes residue gas. And so I mean there
is a lot of components of that facility and you can get --
every taxpayer here in the room to look at that facility and
try to determine what component parts of that facility are
allocable to NGLs so that they can get a deduction, and I
can say some certain that each taxpayer will come up with a
different number. My thought was that the inclusion of this
bill in here and just at a $1 or whatever it is, is going to
take away our experts, our hiring of experts coming in and
saying, you know, you should allocate part of the scrubber
and 20 percent of the scrubber or 50 percent of the
stabilizers. I mean, we would get out of that type of a
point, counterpoint type of a conversation and just say
`this is the number,' and then we would -- and I understand
what you're talking about up to and those types of
problems."
REPRESENTATIVE PORTER: "As I understand it, this wording
was provided by the division and the wording is `may not
exceed' not `$1.' So aren't you kind of getting two bites
out of the apple there. You set it at a dollar but you
can't go lower. The testimony was that the dispute was
something between 56 cents and $3 to $5. Trying to seek a
balance."
MR. BREWER: "Mr. Chairman, Representative Porter, that
dollar was pretty much the number that we were willing to
live with. That way we wouldn't have a battle of the
experts as to what parts of the facility are allocable to MI
and what parts of the facility are allocable to gas liquids
and those types of things."
REPRESENTATIVE PORTER: "But your wording is `may not
exceed' not `we'll live with a dollar.'"
MR. BREWER: "I understand."
CHAIRMAN VEZEY: "Representative Green."
Number 684
REPRESENTATIVE GREEN: "Thank you, Mr. Chairman. You're
assuming, I think, that if it goes from a possibility that
it would not exceed $1 to not exceeding $2 automatically
that that extra dollar will go in. Isn't that a deduction,
in fact, and so what you're doing that you're -- if it, in
fact, went to $2 that would be a less taxable amount. Not a
straight dollar loss."
MR. BREWER: "Mr. Chairman, Representative Green, this would
be the amount of money (indiscernible-coughing) right now
that we would be foreclosed from assessing. I mean we have
a position which says that those liquids are oil."
REPRESENTATIVE GREEN: "I understand."
MR. BREWER: "And that's the number, and the effect of
increasing it from $1 to $2, if in fact, we do give or allow
a $2 processing fee is to reduce the amount of our
assessment that's out there right know by that amount of
money."
REPRESENTATIVE GREEN: "Taxable on that dollar, not the
straight dollar."
MR. BREWER: "Right, the tax..."
REPRESENTATIVE GREEN: "And I think that's a very important
point, that you're not losing a dollar for every barrel that
may be produced..."
TAPE 94-67, SIDE B
Number 001
REPRESENTATIVE GREEN: "...the maximum it could cost would
be the taxation on the extra dollar."
MR. BREWER: "That's correct."
REPRESENTATIVE GREEN: "Okay."
MR. BREWER: "Which is $40 million."
Number 009
MR. BOTELHO: "Mr. Chairman, could I comment on this section
just very briefly."
CHAIRMAN VEZEY: "Please, just -- please state your name
clearly for the record."
MR. BOTELHO: "Mr. Chairman my name is Bruce Botelho,
Attorney General. The ambiguity, if there is one in this
section or in this paragraph actually, is whether we have
created another audit dispute with industry or whether we're
trying to set a specific amount that should be the ceiling
and I think that gets to Representative Porter's question
earlier and it comes in two places. One is `the not to
exceed.' Should we read this to say `the department must
accept any number up to $2 without question, or is it number
two, `the taxpayer may claim up to $2 but the department may
now go back and determine whether it is a reasonable
allowance. Or a third alternative which I think, again,
Representative Porter alluded to simply fixing an amount.
It's not less than, but it's also not more than. The
language creates at least the ambiguity that the department
may still go back in, try to determine whether the amount
claimed, if it's at the maximum $2, was a reasonable
allowance. Then it becomes a policy call whether that's
where you want your division to be (indiscernible)."
REPRESENTATIVE GREEN: "If I might, thank you Mr. Chairman.
There was testimony given yesterday that because of the
wording, which is identical to what it was, except for the
$1 and $2, there was testimony yesterday that this, in fact,
did allow it to be 56 cents because of the way it's written
which says that it will not exceed but could be lower than."
MR. BOTELHO: "Mr. Chairman, if -- again, I only point out
the latents, I think ambiguity. Certainly, this committee's
perception, as Chairman Green has expressed it, I think
removes some of that. But, again I know that any bill we
deal with, that deals with oil and gas is going to be
litigated at some point so it's important to make sure that
right now you're not operating on the misapprehension that
the department might not challenge a tax (indiscernible) who
claims $2 or $1.95 about whether it's reasonable or not. As
I understand it, Representative Green understands that the
department should have that ability, but that a taxpayer may
well claim the full $2. And to the extent, it can justify
that it will be entitled to that $2 amount."
CHAIRMAN VEZEY: "Representative Porter."
Number 083
REPRESENTATIVE PORTER: "I think you just answered my
question, but to the extent that he can justify it he should
be entitled to $2 and we're setting a..."
MR. BOTELHO: "... statute is drafted, that is correct."
REPRESENTATIVE PORTER: "...we're setting an absolute that
the extent that he could justify $3, he won't be entitled
to."
MR. BOTELHO: "That's also correct, Mr. Chairman."
CHAIRMAN VEZEY: "Representative Davies."
Number 092
REPRESENTATIVE DAVIES: "Mr. Chair, just to see if I can get
this right and sort of taking off from Representative
Green's question, it seems to me that what the attorney
general is saying is that there are - there are at least two
ways that we could arrive at a tax that was 56 cents. One
would be that the industry would come in and would only
claim that amount. You know, when it says `may not exceed,'
the industry would look at it (indiscernible) and they would
say `I'm only claiming 56 cents.' The other way is that the
industry could go in and claim some amount in excess of
that, up to $1 or $2 or whatever we had this limit in there.
And then the department would audit that and say, `no, we -
we're not going to allow that and we're going to only allow
56 cents.' Is that really what you're saying that's the
ambiguities that could be read those two different ways."
MR. BOTELHO: "Mr. Chairman, I have to admit that I have
lost it at some point. I believe that it's because of
Representative Davies' explanations."
REPRESENTATIVE DAVIES: "I'm getting a little ambiguous
myself, maybe."
CHAIRMAN VEZEY: "Representative Phillips."
Number 131
REPRESENTATIVE PHILLIPS: "Mr. Chairman, would it be
possible to put a basement and a ceiling in this paragraph
both? Would that clarify things or help matters any?"
CHAIRMAN VEZEY: "I don't know. I would ask the
department."
MR. BOTELHO: "Mr. Chairman, if it would be possible perhaps
to take a ten minute recess to look at the question more
fully and outside the pressure of sitting up here, we might
be able to resolve that very question. Let me identify one
other, I think, inadvertent (indiscernible.) It existed
also in the earlier versions and that is Section 10, which
deals with the effective date, refers only to Section 4,
(indiscernible) retroactive to January 1, 1985. My sense is
that it should read Sections 4 and 6 of the (indiscernible)
retroactive to January 1, 1985."
CHAIRMAN VEZEY: "Before we take a break, and I -- you had
me fooled, you look very relaxed sitting there at the table
so I wouldn't have accused you of being under pressure
but...."
UNIDENTIFIED SPEAKER: "Go through and finish the rest of
it."
Number 151
REPRESENTATIVE PHILLIPS: "Mr. Chairman, maybe while they
go, we could do the pro rata part."
CHAIRMAN VEZEY: "Let's finish the oil and gas. I think
we're almost done, if we're not done, then we can certainly,
we can go on to pro rata and you folks can come back and we
can set a time to have you come back. And we're certainly -
- you know it's not fixed, we certainly can amend that
phrase in those four locations. I believe we've addressed
all the changes in the oil and gas issues except, obviously
Section 10 and 11 which were adjusted for the new bill.
It's been suggested that we modify Section 10, amend it to
read Section 4 and 6. And that puts us back to Section 7
which is proration of payments. And with that, we would
excuse you gentlemen and... do you want to set a time to
come back and get with us?"
MR. BOTELHO: "We certainly would. Mr. Chairman, do you
have any staff person you would like to work with us as we
review this issue."
CHAIRMAN VEZEY: "Who's available. Mr. Ryan, you got time
to a...."
UNIDENTIFIED SPEAKER: "Representative Green."
CHAIRMAN VEZEY: "Pardon."
UNIDENTIFIED SPEAKER: "Maybe Joe Green?"
CHAIRMAN VEZEY: "He said staff."
MR. BOTELHO: "Or any member of your committee."
CHAIRMAN VEZEY: "We cannot do any legal drafting this
afternoon. I allowed the Leg Legal to let their people go
home about 2:00 this afternoon when they finished this CS.
So it would be tomorrow before we could take any changes..."
MR. BOTELHO: "Whatever we come back with will not be
anything that would make the bill anymore complicated than
it is."
CHAIRMAN VEZEY: "Good. And so that takes us down to
Section 7 which is proration of payments. Representative
Ulmer, you had indicated that you'd like to take testimony
from the agencies. I would submit that it's -- I think we
understand the issue (indiscernible) the technical aspects
of this issue that we really have questions about, it's more
less the effect of what this would do."
Number 187
REPRESENTATIVE ULMER: "Mr. Chairman, I think the problem
is, it is not clear on its face, exactly which programs
would be impacted by it. I believe that there is some
question, for example, as to whether or not it would apply
to AFDC or any other program that has federal dollars
attached to it, and because it is my understanding this
section has not ever had the benefit of a public hearing at
which people from the agencies that know these programs
could explain how it might actually work, that there is a
lot of confusion about how it would work and, I would like
to get something on the record about that."
CHAIRMAN VEZEY: "Okay."
REPRESENTATIVE ULMER: "...something that has this kind of
impact. I do not want to delay the hearing. I'd be just as
happy if we wanted to jettison this section and save it for
another year, but if people don't want to do that, if they
really, you know, want to go forward with it, I think it
deserves some sort of comment on the record."
CHAIRMAN VEZEY: "I certainly have no problem taking
testimony. If you're through, Representative Davies would
like to ask a question. Representative Davies."
REPRESENTATIVE DAVIES: "Well Mr. Chair, my question is
contingent on what you decide to do, so I'll just wait."
CHAIRMAN VEZEY: "It would be my desire that we take action
on this section. I would prefer to see it go to the floor.
I'd like to see the whole body address this issue. I have
no problem taking testimony. Please continue."
REPRESENTATIVE DAVIES: "I guess that -- I'm -- having this
section go to the floor and taking testimony are two
different things because we can't take testimony on the
floor so...."
CHAIRMAN VEZEY: "Take testimony at this meeting, yes."
REPRESENTATIVE DAVIES: "You mean right now or do you mean
tomorrow or when do you mean?"
CHAIRMAN VEZEY: "I'd like to continue this evening."
REPRESENTATIVE DAVIES: "Mr. Chair, do you think that we can
get the departments here this evening?"
CHAIRMAN VEZEY: "Do you think the administration could get
the legislature here today? All I'm saying is we were not
consulted on the administration's schedule for the special
session, so I'm not really concerned about their schedule.
We'll get them here."
REPRESENTATIVE DAVIES: "Well, I guess -- I, you know -- if
they're here and we can get the testimony, then I would be
satisfied. If, for some reason because of the hour, we
can't get them here, then, you know, I really would like to
have an opportunity to hear from them before we go to the
floor with this (indiscernible)."
CHAIRMAN VEZEY: "Representative Phillips."
Number 231
REPRESENTATIVE PHILLIPS: "Mr. Chairman, another - another
possibility, too, would be to have statements from the
different agencies for -- when we bring it to the floor -
possibility."
CHAIRMAN VEZEY: "Well, I would like to bring the proration
issue forward to the body. So why don't we take an at ease
for fifteen minutes. Come back at a quarter to five, I'm
sorry quarter to six. I'm sorry. Representative Bettye
Davis."
REPRESENTATIVE B. DAVIS: "Mr. Chairman, before you do that,
would you like to know who would be interested in having
them come. Actually, I would like to put you in charge of
getting those people, Representative Davis."
REPRESENTATIVE B. DAVIS: "Oh, you would? I was going to
give you a list of.... You have the influence to get em
here. You said they would be here, so I will give you the
list."
CHAIRMAN VEZEY: "I don't have your charming personality,
Representative Davis. Why don't we stand at ease until
quarter to six and Representative Davis and Representative
Ulmer, if you would help, we can find out when we can expect
the administration folks to show up."
An at ease was taken.
Number 255
CHAIRMAN VEZEY: "Call the meeting back to order at 6:03
p.m., May 14. I have before me a proposed amendment
proposed by the administration. I will read it. I think
it's simple enough that if people like, we can copy it and
have it distributed but -- there are four places in the bill
where the $2 per barrel of plant liquids is discussed. In
each of those four places we would delete the words "for
inflation in accordance with' and substitute the words `at
one quarter of,' so that it would read `adjusted annually at
one quarter of the Consumer Price Index.' Is there any
objection or is there any discussion? First, is there any
discussion on that proposed amendment?"
Number 273
COMMISSIONER REXWINKEL: "Mr. Chairman, the reason for the
one quarter is that, a substantial portion of the cost that
the facilities represent (indiscernible) costs that are not
subject to ongoing inflationary adjustments. And the 25
percent would be a recognition (indiscernible)."
CHAIRMAN VEZEY: "Representative Sanders."
REPRESENTATIVE SANDERS: "Mr. Chair, have we adopted this
CS?"
CHAIRMAN VEZEY: "Actually, that's a very good point. We
have not adopted this CS, so we can't amend it. Could you
make a motion to that effect for the State Affairs Committee
folks?"
Number 285
REPRESENTATIVE SANDERS: "I certain would sir. So moved."
CHAIRMAN VEZEY: "Would the committee aide call the roll."
JOSEPH EASAW: "Representative Al Vezey."
CHAIRMAN VEZEY: "Yes."
JOSEPH EASAW: "Representative Harley Olberg."
REPRESENTATIVE OLBERG: "Yes."
JOSEPH EASAW: "Representative Fran Ulmer."
REPRESENTATIVE ULMER: "Yes."
JOSEPH EASAW: "Representative Bettye Davis."
REPRESENTATIVE B. DAVIS: "Yes."
JOSEPH EASAW: "Representative Gary Davis."
REPRESENTATIVE GARY DAVIS: "Yes."
JOSEPH EASAW: "Representative Jerry Sanders."
REPRESENTATIVE SANDERS: "Yes."
JOSEPH EASAW: "And Representative Pete Kott."
REPRESENTATIVE KOTT: "Yes."
CHAIRMAN VEZEY: "So we have adopted `Version I' of House
committee substitute for committee substitute for Senate
Bill #377 (State Affairs). And I will continue at the
amendment that I just proposed to the body for discussion
before we bring it to the State Affairs Committee for
adoption. Is there discussion? Seeing none, is there
objection from the members of the State Affairs Committee to
the adoption of that amendment? Seeing none, we will - will
adjust the - we will make those amendments and prepare a new
committee substitute."
Number 298
MR. BOTELHO: "Mr. Chairman, can I call to your attention
again Section 10 that needs to include (indiscernible.)"
Number 303
CHAIRMAN VEZEY: "I will move that Section 10 be amended to
read, `Section 4 and 6 of this Act is retroactive to January
1, 1985. Is there discussion? Is there any objection from
the members of the State Affairs Committee to - that
amendment. Seeing none, it is adopted.
"Further discussion on the oil and gas issues which would be
everything except, I believe, virtually Section 7 of this
committee substitute."
REPRESENTATIVE NORDLUND: "Mr. Chairman."
CHAIRMAN VEZEY: "I'm sorry, Representative Nordlund."
REPRESENTATIVE NORDLUND: "(Indiscernible) we get the
opinion or the position of both departments on the change
going from the one to two."
MR. BOTELHO: "Mr. Chairman, to the extent that... and I
believe that it has been confirmed by various members of the
body commenting on the bill that there is a recognition.
The department may put individual companies to
(indiscernible) cost. (Indiscernible) agreement with the
language that this committee has put forth which is now
included in (indiscernible) the latest amendment to the
committee substitute."
Number 323
COMMISSIONER REXWINKEL: "Mr. Chairman, I would agree with
that."
CHAIRMAN VEZEY: "Thank you, sir. Further questions? If
there aren't any more questions or comments about the oil
and gas issues, I don't see any reason why we can't move on
and discuss proration pending the arrival of one of our
witnesses. I'm sorry, is there a comment there?"
RAGA ELIM, Legislative Liaison, Office of the Governor:
"I'll be speaking to that."
CHAIRMAN VEZEY: "Oh please, come forward and state your
name for the record, if you would."
Number 329
MR. ELIM: "Thank you, Mr. Chairman. My name is Raga Elim,
Legislative Liaison for the Governor. I am available to
speak to the issue of proration to the best of my ability.
I'm familiar with it, we've had discussions within the
administration over the last couple of days on this, so I
feel adequate to speak to it at some level. I apologize, I
sought -- attempted to reach commissioners and some other
folks a few minutes ago, but didn't have any luck."
CHAIRMAN VEZEY: "Would you care to comment on the section
of the bill before us or do you just want to take
questions?"
MR. ELIM: "Let me make some introductory remarks and then
try to answer any questions."
CHAIRMAN VEZEY: "Mr. Raga, I realize you probably were not
planning on testifying. Would you like some time to work on
some remarks?"
MR. ELIM: "No, I'm comfortable with that."
CHAIRMAN VEZEY: "Mr. Raga, wait a minute, I apologize."
MR. ELIM: "It's okay. To begin with one of the first
analysis was to identify what programs we thought would be
affected by this proration language, and it was determined
that the following would be covered: Longevity bonus, aid
to families with dependent children, adult public
assistance, general relief program, day care assistance, and
burial assistance. I'll also speak to Medicaid and general
relief medical, in terms of how those may be affected by
this. Beyond that, there are some formula programs which
exist but are already covered by proration language, most
notably the foundation formula for education. In general
terms, the feeling within the administration is that on the
one hand, the effect of the proration would be to mitigate
the situation of short funding of a program and having
individuals cut off of some program for a specified period
of time at the end of the fiscal year, absent adequate
funding. So by prorating downwards it sort of mitigates the
effect to the individual over the course of the year. On
the other hand, it also, in some respects, shifts the burden
from the legislature to the administration with respect to
those programs and those served by it, and there is some
concern about whether that is appropriate or perhaps fair,
for lack of a better word.
"Let me speak to some of the programs that may arguably be
impacted by proration but in which arguments can be made
that they would not be affected by it. And I am also having
two memos that were prepared by the Department of Health and
Social Services reproduced right now that we'll provide to
you. But with respect to Medicaid and general relief
medical, the feeling is that the proration language would
not impact those programs because the statute already
provides a list of services that are offered to the extent
that there is adequate funding, and if there is not adequate
funding, services are taken off the list to accommodate the
actual level of funding. So in some respects there is
already a mechanism in place to deal with the funding - the
different funding levels for Medicaid. With respect to the
facilities side of the Medicaid program, it is governed by
federal law. There is a per day rate that is subject to
federal law that assures efficient operation of the
facilities. So again, the belief is that proration
language, as provided in Senate Bill 377 would not affect
that program as well. One of the two memos that I am
getting for you speaks to that part of the -- and provided
by Kim Busch who is in charge of that program in HESS.
"The other area within HESS is a little more problematic and
it deals with public assistance, both adult public
assistance and Families with Dependent Children Program.
The belief is that this change would not affect those
programs either, again, because of federal law. However,
part of the challenge may be the fact that there are federal
floors that govern those programs. So to the extent that we
are providing money in excess of that federal floor, it
could be argued that we could prorate downward to the
federal floor. However, the difficulty is that there is a
variance among recipients of how much is being received.
Allow me to use a hypothetical and then allow me to remind
you that I'm speaking to the best of my knowledge, but, for
example, if the floor was $1 and there were recipients
receiving anywhere from $1.05 up to $2, if the proration
were 10 cents, for instance, the person at $1.05 is only
going to drop to $1 because that's the floor, whereas other
who are at $1.10 or higher would lose 10 cents. So then you
run into some potentially equal protection problems. So, as
I thought through it, and perhaps the most you could do,
would be the minimum -- the proration that of the minimum
amount available. So, if in that example, if it was short
funded, the maximum extent to which we could lower payments
would be the 5 cents. I'm not -- I can't tell you that I've
captured this entirely for you but we also have a memo that
will speak to the public assistance point. But, again, the
position seems to be that given that federal law is
applicable may not be impacted by this legislation.
"Another point that emerged over the last couple of days is
more of an administrative and implementation problem. The
way the statute is written, the administration needs to make
an analysis of how much -- how many recipients there are,
what the level of the payments should be and whether we have
adequate funds and to the extent that we determine it would
be short, we would prorate. Situation could arise that at
the end of the first six months, we find out that we
actually have some money left over, argument -- a the
feeling is that on the one hand you could merely roll that
money forward and in your analysis for the next six month
window, or the argument might be made that you need to
actually refund or provide a bonus to the recipients from
that first six months. I suspect that we'd probably have to
do the latter because it's not -- those who are receiving
during the first six months wouldn't necessarily also be
receiving in the next six months. So, if our calculations
were wrong at the outset and there was money left over that
suggests that everyone during that six month period should
have been receiving more, we probably need to provide a
check to those folks. Again, we're sort of work --
wrestling through this. I apologize that Shelby Stastny or
some of the -- thank you -- some of the commissioners from
the appropriate departments weren't reachable on this short
of notice, but I hope I have answered the question to your
satisfaction. I'll be happy to answer any questions that
you have. These are the two memos that I referred to. As I
said one relates to public assistance and the other to
medical assistance. I'll distribute those."
CHAIRMAN VEZEY: "Thank you, Mr. Elim."
REPRESENTATIVE B. DAVIS: "Mr. Chairman."
CHAIRMAN VEZEY: "Representative Davis, I'm sorry."
Number 470
REPRESENTATIVE B. DAVIS: "That was a concern that you did
not address. I know you talked about the foundation
formula. There was concern about transportation, pupil
transportation, food, and some other areas that would be
prorated and how it would be done. There was some
information to come to us pertaining to the regulations
that's been used. Do you have any information from DOE on
how they handled that when there was a shortfall of money?"
MR. ELIM: "Mr. Chair, Representative Davis, I did reach
Commissioner Covey moments ago and he had indicated that it
was his understanding that their programs are already
governed by proration language. I know specifically there
is a section AS 14.17.225 provides that for some of the
programs administered by Department of Education. The
question that you have asked I'm not entirely certain of,
because they run a number of different programs within the
department, but the commissioner was of the mind that all
their pro -- that they would not be affected by this
provision. He was going to be checking with Duane Guiley
who would be more intimately familiar with it and try to get
back to me and I will share that with you as soon as I know
the answer."
REPRESENTATIVE B. DAVIS: "Alright, thank you."
CHAIRMAN VEZEY: "Thank you, Mr. Elim. I would comment that
this meeting has been noticed for more than forty-eight
hours and the fact that the agency people haven't chosen to
be here is their own choice. Are there questions of Mr.
Elim? Representative Ulmer."
Number 494
REPRESENTATIVE ULMER: "Mr. Chairman, the memo that we just
received dated May 5, 1994, from (indiscernible) complicated
questions which we cannot answer today regarding how this
would actually work, but the very bottom of the first page,
Mr. Chairman, talks about -- let's see the last sentence `in
no case could reductions be imposed in the July 1st
effective date of the bill.' As I read the version of the
bill that we have in front of us, it has an immediate
effective date which makes the situation actually even worse
for the questions that need to be answered. So what's
coming to my mind, I guess what I'm thinking about is a
delayed effective date for Section 7 that would give the
agencies time to not only figure out the federal
implications, but also give them time to implement
regulations -- to adopt the regulations which will govern
how they're going to do this. So what I'm thinking about is
another effective date section that we would add to our CS
that would give an effective date to Section 7 to say, I
don't know, like September 1, 1994, instead of immediate
like the rest of the bill. I would ask Raga to comment on
that, if he cares to."
MR. ELIM: "Thank you, Mr. Chairman, Representative Ulmer.
In our discussions, the issue which you've highlighted has
emerged as a source of genuine concern by the department
about their ability to implement this in such short notice.
So the administration would welcome such a change."
Number 521
REPRESENTATIVE ULMER: "Mr. Chairman, I'll move that we add
a specific effective date for this section. So we'd add a
new Section 12 on page 8, and it would be `Section 7 takes
effect September 1, 1994."
CHAIRMAN VEZEY: "Couldn't hear the date."
REPRESENTATIVE ULMER: "September 1, 1994, or I guess
October 1 is the date that Curtis Lomas memo references
so... My motion is, add a new Section 12 on page 8 on line
10 that would say, `Section 7 takes effect October 1,
1994.'"
CHAIRMAN VEZEY: "Does everybody understand the proposed
amendment? I would read it back as saying, `Section 7 of
this Act takes effect October 1, 1994.' That'll necessitate
modifying Section 11. Representative Phillips."
Number 533
REPRESENTATIVE PHILLIPS: "Mr. Chairman probably that should
be Section 11 and Section 12 should be the last..."
CHAIRMAN VEZEY: "I think we can let Leg Legal take care of
that. Are there any questions about the amendment? Any
discussion? Is there any opposition to the amendment from
the State Affairs Committee? Hearing no opposition, it's
adopted. Two amendments now I've got to incorporate.
Further discussion? Do you have additional comments?"
MR. ELIM: "No thank you, Mr. Chairman."
CHAIRMAN VEZEY: "Questions of Mr. Elim. Thank you very
much for your time."
REPRESENTATIVE DAVIDSON: "Mr. Chairman."
CHAIRMAN VEZEY: "Representative Davidson."
REPRESENTATIVE DAVIDSON: "Thank you, Mr. Chairman. I just
would raise the issue of the legislature giving any --
giving up any power of appropriation by this inclusion in
the bill. I don't know who I would ask in that regard, but
I think it was a question that the legislature should, in
fact, examine. But I don't know who you have that could
answer that kind of question."
CHAIRMAN VEZEY: "Okay. Additional questions?
Representative Bettye Davis."
Number 549
REPRESENTATIVE B. DAVIS: "I don't have a question but since
you've taken amendments, I am interested in another
amendment to add a new subsection in this bill to say that
this proration would not pertain to the longevity bonus."
CHAIRMAN VEZEY: "You have suggested wording for that?"
REPRESENTATIVE B. DAVIS: "Actually, that's what it would
say and I don't have it written down, but it's very simple.
It would just be a subsection F if you wanted to put it
under (indiscernible) then it would not apply. I would let
legal come up with the wording."
CHAIRMAN VEZEY: "(Indiscernible) any objection? This
section does not apply to the Longevity Bonus Program and
they'll have a statute quote. Discussion? Seeing none
would the -- is there more discussion here? Representative
Davies."
Number 564
REPRESENTATIVE DAVIES: "Just a comment that - that, you
know, we have, last year put into effect a sequence of steps
that will lead to the phasing out of the longevity bonus.
And it seems to me that that already looks to eliminating
that program. So I suggest that maybe that this would be
sort of double jeopardy if it were -- is it were on that
program, so maybe it makes sense to eliminate the proration
effect on the Longevity Bonus Program."
REPRESENTATIVE KOTT: "Mr. Chairman."
CHAIRMAN VEZEY: "Representative Kott."
REPRESENTATIVE KOTT: "Mr. Chairman, I might just add that
we're not really reducing -- we didn't reduce anybody's
longevity bonus checks last year, phase in or phase out
depending on how you look at it. This would be, in essence,
reducing individual checks which would be a first.
(Indiscernible) continued, who got their $250 last year
would fall under the category there as well anybody that
were new entering into the program. So last year's phasing
out of the program was really not a reduction. Those who
currently got $250 still got $250 under the reduced phasing
out of the program, whereby this is a little bit different
(indiscernible) proposed the amendment. I don't feel that
we can single out one of those programs and place it on a
higher priority than any of the others that are listed here
that could be possibly affected and will be."
CHAIRMAN VEZEY: "Thank you. Further discussion? Seeing
none, would the committee secretary call the roll?"
JOSEPH EASAW: "Representative Fran Ulmer."
REPRESENTATIVE ULMER: "Yes."
JOSEPH EASAW: "Representative Bettye Davis."
REPRESENTATIVE B. DAVIS: "Yes."
JOSEPH EASAW: "Representative Harley Olberg."
REPRESENTATIVE OLBERG: "No."
JOSEPH EASAW: "Representative Pete Kott."
REPRESENTATIVE KOTT: "No."
JOSEPH EASAW: "Representative Jerry Sanders."
REPRESENTATIVE SANDERS: "No."
JOSEPH EASAW: "Representative Gary Davis."
REPRESENTATIVE G. DAVIS: "No."
JOSEPH EASAW: "Representative Al Vezey."
CHAIRMAN VEZEY: "No, and the amendment fails. Further
discussion on the pro rata? Representative John Davies."
REPRESENTATIVE DAVIES: "Do we know -- we had some - a
little bit of testimony with respect to AFDC and APA being
federal programs. Could we get some testimony -- is there
anybody in the room that can tell us at what point or how
much the proration would have to reduce those programs
before the, some kind of a federal floor would kick in?"
CHAIRMAN VEZEY: "I certainly can't answer. It has been my
experience with the health and social services folks that
they could not answer that without considerable research.
(Indiscernible) discussion? What is the pleasure of the
committee? Would we like to stand at ease while we wait on
some administration personnel to arrive? I'm sorry, Mr.
Elim."
MR. ELIM: "I don't believe is going to be any
(indiscernible)."
UNIDENTIFIED SPEAKER: "Could we perhaps have a motion and
then we could all go beat up on Raga or something."
CHAIRMAN VEZEY: "Yes, we most certainly could."
Number 607
REPRESENTATIVE G. DAVIS: "Mr. Chairman."
CHAIRMAN VEZEY: "Representative Gary Davis."
REPRESENTATIVE G. DAVIS: "If we might, I might -- I noticed
on some of this, I think from the note of some Department of
Health and Social Services, or maybe it's not, anyway in one
of these it seems that I read that the attorney general had
an opinion on this section, if we might get a comment from
him."
CHAIRMAN VEZEY: "He can't stay out of the seat can he.
Attorney General Botelho do you care to comment."
Number 612
MR. BOTELHO: "I'll probably have opinions on a lot of
things. (Indiscernible) board (indiscernible) drafted one,
I've not had a chance to review it and so..."
CHAIRMAN VEZEY: "Representative Ulmer."
REPRESENTATIVE ULMER: "Well, Mr. Chairman, I don't want to
delay the committee anymore. I think we've all spent as
much time in this room as we probably can. Between now and
when this bill may be debated on the floor I will try to get
some additional answers. I am concerned about everything
from pupil trans and school debt to a variety of other
things and I don't think we quite have the answer to and, I
guess, it's all of those questions that lead me to feel
pretty strongly that this bill should not contain this
section because of... However, this section should stand on
its own as a separate piece of legislation. I think it's
very confusing to people to have it be part of the oil and
gas bill. I understand that at this point you were a --
feel as though it needs to stay in the committee substitute.
I'm sure there will be a motion to take it off on the floor
and, as I said, I will try to get some additional answers
between now and then."
CHAIRMAN VEZEY: "We'd appreciate that. Is there a motion
from the State Affairs Committee? Representative Olberg."
REPRESENTATIVE OLBERG: "Mr. Chairman, I'd move that we move
Senate Bill 377, House Committee Substitute, Version I, as
amended with individual recommendations."
CHAIRMAN VEZEY: "And could we add the caveat with the
attached zero fiscal note."
REPRESENTATIVE OLBERG: "Yes, certainly."
CHAIRMAN VEZEY: "Discussion? Would the committee secretary
please call the roll?"
JOSEPH EASAW: "Representative Al Vezey."
CHAIRMAN VEZEY: "Yes."
JOSEPH EASAW: "Representative Gary Davis."
REPRESENTATIVE G. DAVIS: "Yes."
JOSEPH EASAW: "Representative Jerry Sanders."
REPRESENTATIVE SANDERS: "Yes."
JOSEPH EASAW: "Representative Fran Ulmer."
REPRESENTATIVE ULMER: "Yes."
JOSEPH EASAW: "Representative Bettye Davis."
REPRESENTATIVE B. DAVIS: "Yes."
JOSEPH EASAW: "Representative Harley Olberg."
REPRESENTATIVE OLBERG: "Yes."
JOSEPH EASAW: "And Representative Pete Kott."
REPRESENTATIVE KOTT: "I've always wanted to be a `no' by
myself. No."
Number 637
CHAIRMAN VEZEY: "And House Committee Substitute for
Committee Substitute for Senate Bill #377 (State Affairs) as
amended has passed out of the House State Affairs Committee.
Is there further business to come before this committee this
evening? Representative Davidson."
REPRESENTATIVE DAVIDSON: "Thank you. I understood you to
say there was a zero fiscal note attached to this. Is that
correct?"
CHAIRMAN VEZEY: "Yes."
REPRESENTATIVE DAVIDSON: "After having the discussion of
giving up perhaps tens of millions of state revenue, how
could we have a zero fiscal note?"
Number 644
CHAIRMAN VEZEY: "I can't answer that. That's what came
over with it. If there is no further business to come
before the House State Affairs Committee, we'll stand
adjourned."
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