Legislature(1993 - 1994)

03/22/1994 01:37 PM Senate L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
              SENATE LABOR AND COMMERCE COMMITTEE                              
                         March 22, 1994                                        
                           1:37 p.m.                                           
  MEMBERS PRESENT                                                              
 Senator Tim Kelly, Chairman                                                   
 Senator Steve Rieger, Vice-Chairman                                           
 Senator Bert Sharp                                                            
 Senator Georgianna Lincoln                                                    
 Senator Judy Salo                                                             
  OTHERS PRESENT                                                               
 Senator Drue Pearce                                                           
 Senator Loren Leman                                                           
 Senator Jay Kerttula                                                          
 Representative Mike Navarre                                                   
  COMMITTEE CALENDAR                                                           
 SENATE BILL NO. 320                                                           
 "An Act relating to occupational licensing boards and commissions;            
 and relating to architects, engineers, and land surveyors."                   
 SENATE BILL NO. 356                                                           
 "An Act excluding certain recreational activities sanctioned by an            
 employer from coverage provided under workers' compensation; and              
 providing for an effective date."                                             
 SENATE BILL NO. 185                                                           
 "An Act relating to the limitations period for assessments for                
 certain state taxes, and for collection, after assessment, of taxes           
 due the state; and providing for an effective date."                          
  PREVIOUS SENATE COMMITTEE ACTION                                             
 SB 320 - NO PREVIOUS ACTION.                                                  
 SB 356 - NO PREVIOUS ACTION.                                                  
 SB 185 - See Judiciary minutes dated 4/20/93, 4/21/93                         
          and 4/23/93.                                                         
  WITNESS REGISTER                                                             
 George Davidson, Chairman                                                     
 Architects, Engineers and Land Surveyors Board                                
 P.O. Box 32317                                                                
 Juneau, Alaska 99803                                                          
   POSITION STATEMENT: Testified on SB 320.                                    
 Robert M. Erickson                                                            
 Teamsters Local 959                                                           
 Technical Engineers Local 959                                                 
 306 Willoughby Ave.                                                           
 Juneau, Alaska 99801                                                          
   POSITION STATEMENT: Testified on SB 320.                                    
 Patrick Kalen                                                                 
 AELS Board                                                                    
 1041 Chena Ridge                                                              
 Fairbanks, Alaska 99701                                                       
   POSITION STATEMENT: Supports SB 320.                                        
 Bill Mendenhall                                                               
 AELS Board                                                                    
 1907 Yankovich Road                                                           
 Fairbanks, Alaska 99709                                                       
   POSITION STATEMENT: Supports SB 320.                                        
 Charles E. Cole, Attorney                                                     
 404.5 Cushman                                                                 
 Fairbanks, Alaska 99701                                                       
   POSITION STATEMENT: Supports SB 185.                                        
 Lawrence Kimball                                                              
 Cook Inlet Region, Inc.                                                       
 2525 C Street, Suite 500                                                      
 Anchorage, Alaska 99501                                                       
   POSITION STATEMENT: Opposes SB 185.                                         
 Commissioner Darrel Rexwinkel                                                 
 Department of Revenue                                                         
 P.O. Box 110400                                                               
 Juneau, Alaska 99811-0400                                                     
   POSITION STATEMENT: Supports SB 185.                                        
 Joe Householder                                                               
 Alaska Oil & Gas Association                                                  
 1201 W. Fifth Street                                                          
 Los Angeles, California 90017                                                 
   POSITION STATEMENT: Opposed SB 185.                                         
  ACTION NARRATIVE                                                             
 TAPE 94-17, SIDE A                                                            
 Number 001                                                                    
  CHAIRMAN TIM KELLY  called the Labor and Commerce Committee meeting     g    
 to order at 1:37 p.m.                                                         
 SENATOR KELLY introduced CSSB 320 (OCCUPATIONAL LICENSING) to                 
 committee and invited the sponsor, SENATOR LOREN LEMAN, to present            
 his bill to committee.                                                        
 SENATOR LEMAN explained SB 320 deals with some revisions to the               
 statutes regarding architects, engineers, and land surveyors, and             
 was brought to his attention by the Board of Registration.  He                
 explained there was a number of issues in the bill, minor, and                
 mostly housekeeping in nature, but he preferred to let the chairman           
 of the board, GEORGE DAVIDSON, testify on the changes.                        
 SENATOR LEMAN did note that he has proposed three amendments since            
 the bill was originally introduced, which would delete Section 1              
 from the bill, first of all.  This was because of the impact of               
 changing terms from the statute would also inadvertently change               
 some 30 or 40 other boards, which was not intended.                           
 SENATOR LEMAN explained the other change was to remove Section 3 in           
 the original bill, which contained an issue that would create                 
 controversy in a relatively non-controversial bill.  He further               
 explained Section 8 in the original bill changes the definition of            
 the term, "practice of land surveying."  He said it reflected some            
 recent board action, and the new definition reflects the new                  
 definition from the board regarding the practice of land surveying.           
 MR. LEMAN suggested the adoption of the new committee substitute,             
 and said that MR. DAVIDSON would speak to the changes, as well as             
 a land surveyor, PATRICK KALEN from Fairbanks, who suggested some             
 of the changes.                                                               
 Number 053                                                                    
 SENATOR KELLY questioned the educational requirements needed to be            
 a land surveyor.  MR. LEMAN suggested this could best be answered             
 by MR. DAVIDSON, but a surveyor could have no education and eight             
 years of experience to be qualified to take the exam to be a land             
 surveyor.  If you have four years of education, he said you would             
 only need four years of experience to take the exam.  He said there           
 was no minimum amount of education currently required.                        
 SENATOR KELLY asked, in reference to page 2, Section 4 in the                 
 proposed committee substitute, where the amendment is in that                 
 section.  SENATOR RIEGER pointed to an or on line 21, and SENATOR           
 LEMAN explained the change.                                                   
 SENATOR RIEGER expressed curiosity about the definition of                    
 "practice of land surveying" in the last section in the bill, and             
 asked if it triggered oversight by the board.  He thought perhaps             
 it precluded a person from doing certain things unless certified.             
 He was also curious about the first addition of the teaching of              
 land surveying courses at an institution of higher learning, in the     e    
 same section.  He wanted to know what it does in relation to                  
 ability of a person to teach and a university's ability to recruit            
 the person of their choice to teach land surveying courses.                   
 Number 110                                                                    
 SENATOR LEMAN referred to a previous bill regarding the teaching of           
 higher level courses in engineering, to explain it would allow the            
 people who teach to count that work experience toward the work                
 which would permit them to qualify to take the exam.  He gave an              
 example to explain the inclusion.                                             
 SENATOR KELLY then called on GEORGE DAVIDSON, who indicated he had            
 brought a letter on behalf of the Architects, Engineers and Land              
 Surveyor Board, which outlines the board's position.                          
 MR. DAVIDSON reviewed the bill as previously submitted, and then              
 explained the board is experiencing difficulty with longevity, or             
 continuity.  He also explained the board represented about 5,000              
 architects, engineers, and land surveyors throughout the State, and           
 although he is the senior member on the board, he has been on the             
 board less than four years.                                                   
 Number 160                                                                    
 MR. DAVIDSON expressed concern the lack of historic memory in                 
 dealing with the membership, and he explained it was further                  
 compounded by only having one state employee.  He further explained           
 this position has changed regularly in the last year, and the board           
 was currently working with their fourth staff person.  He indicated           
 a desire by the board to provide additional continuity by reducing            
 the frequency found in changing board membership, and he gave an              
 example of replacing members who have resigned.  Under this bill,             
 the term of a board member would still be under ten years, which he           
 didn't think was excessive.                                                   
 MR. DAVIDSON explained the remainder of concerns were housekeeping            
 in nature, and he offered to review the proposed changes.                     
 SENATOR SALO asked which part of the bill changed the time limit of           
 board member terms.  SENATOR KELLY explained the provision was not            
 in the proposed committee substitute, and he said MR. DAVIDSON has            
 suggested a different approach.                                               
 Number 199                                                                    
 MR. DAVIDSON proposed that a board member, who has served less than           
 two years of a four year term, is not be considered to have served            
 a full term, and he explained how it would work.  He described the            
 makeup of the board as requiring one of the engineers appointed               
 would be a mining engineer.                                                   
 MR. DAVIDSON said the board has had difficulty in filling that                
 position, which is presently filled by PHIL HOLDSWORTH, a long time           
 mining engineer.  He reviewed the board discussion on appointing              
 engineers, and it was decided to request three engineers on the               
 board to give the governor more flexibility on the position, such             
 as a need for a petroleum engineer.                                           
 MR. DAVIDSON, in reference to Section 3, included the word only to     o    
 indicate that board members would be removed only for misconduct,             
 in an effort to allow the board to build up some historic memory.             
 MR. DAVIDSON explained that changes in Section 4, with the deletion           
 of lines 13 through 16 of the original bill, will allow for similar           
 education and work experience for registration of a land surveyor             
 as is required for engineers.                                                 
 He further explained there would be a need for a regulation change            
 which would require 12 years of experience for registration as a              
 land surveyor, and was requested by the land surveyors in the                 
 interest of consistency with engineers.  He gave some examples of             
 the impact of the changes.                                                    
 Number 240                                                                    
 In Section 5, MR. DAVIDSON proposed the deletion of some language             
 on lines 22 to 26, which was put in years ago when the Council of             
 Engineering Examiners was proposing another method of registration,           
 but the alternate form of registration never took place.                      
 MR. DAVIDSON, in reference to Section 6, EVIDENCE OF PRACTICE, said           
 the only change there was the addition of the word or between               
 paragraph (2) and (3), which comes at the request of the attorney             
 general's office.  Without the or they are finding that people are     e    
 able to sneak through because they don't meet all of the terms of             
 both paragraphs.  It was felt that both paragraphs were separate              
 criteria for evaluating evidence of practice.                                 
 MR. DAVIDSON explained, in reference to Section 7, paragraph (9),             
 line 14, it came at the request of the surveyors and land survey              
 professors, and it removes the licensure exemption for land survey            
 professors at postsecondary educational institutions.  He said it             
 would also increase the requirements and the quality of service               
 from the school, while allowing the professors to get credit for              
 their education to apply towards their license.                               
 SENATOR KELLY asked how they could be teaching if they were                   
 MR. DAVIDSON answered that a professor is allowed to work under the           
 direction of other registered people.                                         
 SENATOR SHARP asked if it was related to a problem several years              
 ago when land surveyors were brought in from other places, who were           
 not registered and couldn't teach until they were licensed.                   
 MR. DAVIDSON explained the proposal was for all professors in                 
 engineering, architecture, and land surveying, but was opposed by             
 the University of Alaska as a restriction to recruiting.  He said             
 the change would only apply to the land surveyors at the request of           
 the survey department at the University, and approved by the board.           
 SENATOR KELLY asked about the language that allows land surveyors             
 to go underground, as to why it was necessary.  MR. DAVIDSON                  
 explained the circumstances under which it would be necessary such            
 as for sewer lines.  SENATOR KELLY asked who did the underground              
 work before, and did they have to be a certified mining engineer.             
 MR. DAVIDSON answered it was done by both civil engineers and land            
 Number 296                                                                    
 MR. DAVIDSON explained it had resulted from some of the boroughs              
 beginning to enforce the exact letter rather than the customary               
 practice, and he cited examples from Fairbanks.  He thought PAT               
 KALEN, a land surveyor from Fairbanks and instrumental in dealing             
 with the court in this, would be able to respond more specifically.           
 SENATOR RIEGER was bothered by Section 6, because although adding             
 new descriptions to the practice of land surveying might broaden              
 the scope of practice, he thought the flip side is that anyone who            
 is not registered as a land surveyor is prohibited from doing any             
 of the things in Section 6, unless they fall into the exceptions.             
 He felt the legislation would force registration.                             
 MR. DAVIDSON pointed to the prior list of exemptions in Section 5             
 of the committee substitute as intended to protect those normal               
 practices done by contractors, and he didn't believe the new                  
 language encompasses more work than currently being done by the               
 surveyors, but makes them legal.                                              
 SENATOR RIEGER and MR. DAVIDSON discussed the provisions in Section           
 6 in relation to both civil engineers and land surveyors.  SENATOR            
 RIEGER quoted the bill as saying a land surveyor may not practice             
 land surveying in the state unless that person is registered.                 
 SENATOR KELLY suggested the committee return to his question, and             
 asked to hear from ROBERT ERICKSON.                                           
 Number 351                                                                    
 MR. ERICKSON presented some comments dealing only with Section 4,             
 which SENATOR KELLY explained was Section 2 of the committee                  
 substitute, entitled GENERAL REQUIREMENTS AND QUALIFICATIONS FOR              
 MR. ERICKSON read: "This testimony addresses concerns we have for             
 Senate Bill 320, in particular AS 08.48.171, page 2, lines 13                 
 through 16. (of the original bill.)  The deletion of these four               
 lines in the current statute will negatively affect some of our               
 technical engineers, our term for surveyors, not land surveyors,              
 but construction type surveyors.                                              
 I would first like to introduce myself and our organizations, then            
 to specify the damage that maybe done.                                        
 I am the business representative for Technical Engineers Alaska               
 affiliated with Teamsters Local 959, and represent approximately              
 150 construction surveyors statewide, 23 members are registered               
 land surveyors in the State of Alaska.  Throughout the years, our             
 members have enjoyed employment on projects throughout the state.             
 The nature of the majority of these projects require working away             
 from home.                                                                    
 If a technical engineer wishes to test for a license, meaning a               
 land surveyor, he must be able to submit evidence of more than                
 eight years of any combination of education, experience, or                   
 training.  Three years must be in responsible control of an                   
 operation related to land surveying.  Operations of a construction            
 survey nature do not count towards this three years requirement.              
 In essence a technical engineer must leave the construction survey            
 projects and spend at least three years land surveying.                       
 Historically, five years of land surveying on construction projects           
 have given our applicants enough technical experience to pass the             
 non legal parts of the examination.  Most have had to utilize                 
 courses from the University to help them pass the legal questions             
 put forth in the exam.  While it would be acceptable to substitute            
 a four year degree for the experience, this is often an unsuitable            
 choice due to reasons of finance with tuition, supporting families            
 and location.  Quite often our work takes us away from computing              
 distance to campus.  We are of the understanding that if the eight            
 years is struck from the statute, then regulations requiring 12               
 years will be promulgated.                                                    
 We're convinced that adding four more years of experience in order            
 to take the examination, is unreasonable, and acts as a restraint             
 on our members who wish to become licensed.  If five years                    
 experience in the construction surveying does not enable you to               
 have minimum qualifications, which all passing the examination                
 purports to guarantee, it is unlikely that nine years would improve           
 your qualifications.  You can grasp the fundamental technical                 
 aspects of surveying, or you cannot, and surely it can be found               
 within the current eight year requirement.  Three years responsible           
 control and 5 years of other experience.  We ask this statute to              
 remain as currently written."                                                 
 MR. ERICKSON concluded by offering to answer questions.                       
 SENATOR RIEGER referred to the first page of MR. ERICKSON'S                   
 testimony to ask about his remarks on "then regulations requiring             
 12 years will be promulgated."                                                
 MR. ERICKSON referred to testimony from MR. DAVIDSON, but he                  
 explained that MIKE KENNY had talked to PATRICK KALEN, an                     
 instructor at the University of Alaska, and other people in the               
 field on the board.  MR. KENNY was told this was what was probably            
 going to happen, to go from eight years to 12 years.  It was                  
 clarified that MR. KALEN is a past board member.                              
 Number 403                                                                    
 SENATOR KELLY asked MR. DAVIDSON if he indicated there is an idea             
 afloat to promulgate regulations requiring 12 years experience                
 instead of eight.                                                             
 MR. DAVIDSON said that was the proposed amendment, and he reviewed            
 the chart of requirements before registration in the regulations.             
 SENATOR KELLY asked if this would limit membership in their                   
 profession, and MR. DAVIDSON said it would if they don't have the             
 SENATOR KELLY next turned the network to Fairbanks, to hear                   
 testimony from PATRICK KALEN.                                                 
 MR. KALEN addressed two issues, beginning with the definition of              
 land surveying as to conflict between the land surveyors and                  
 engineers.  He explained it had been raised as an issue, and how it           
 was resolved.  The end results was to make it clear the board can             
 certify as to the accuracy to the measurements that we take.  We              
 don't think it would limit anyone from taking those kinds of                  
 measurements for their own use, but they are not admissible in a              
 court hearing.                                                                
 MR. KALEN explained it came from the MatSu Valley, and proposed by            
 a land surveyor who had difficulty in testifying as to the accuracy           
 of measurements.  He further explained equal weight was given to              
 the testimony of a realtor for different measurements.                        
 MR. KALEN, in his second issue about the eight year limitation in             
 statute, said this had been requested by the land surveyors,                  
 because some things are different today than when the land                    
 surveyors were separated from engineering as a practice.  He said             
 they now have a four degree program available in Alaska, while at             
 the same time surveying has become a great deal more complicated              
 than previously.  He gave some history on the four year degree                
 programs in a dozen states, and he reviewed the results.                      
 MR. KALEN recognized there should be a route for those who are                
 unable to get the degree and use the same rules as the civil                  
 engineers with 12 years of experience.                                        
 SENATOR KELLY interrupted to ask if a person needs a degree in                
 order to be a land surveyor.                                                  
 Number 453                                                                    
 MR. KALEN explained this was not correct, but there was a degree              
 program available, and the board was interested in moving in the              
 direction of legitimizing that degree to make it part of the                  
 requirement toward becoming a land surveyor.  He further explained            
 how this was hampered by the limitation in statute which makes it             
 impossible for the Board of Registration to formally recognize                
 SENATOR KELLY asked if this was being requested, and MR. KALEN                
 explained why it wasn't presently counted toward land surveying               
 experience.  He explained this made it difficult for the board to             
 evaluate applicants because construction surveying is not land                
 surveying, but he thought the education component would broaden the           
 options of getting a degree to count towards registration.  He also           
 thought they were providing a better route, and he outlined the               
 complications in surveying since the eight year limitation was put            
 into statute.  He hoped the committee could adopt the changes.                
 SENATOR KELLY asked it it was in regulation.  MR. KALEN said he was           
 correct and explained how it was directed in regulation.  They                
 clarified the provision.                                                      
 SENATOR RIEGER wondered why, by regulation, the board can count               
 education towards the experience necessary, but can't count                   
 teaching of surveying courses at an institution of higher learning            
 as experience towards the required time.                                      
 MR. KALEN opined it was a hold over from a time when land surveying           
 was split from engineering, and wasn't really considered, but he              
 referred to the definition of architects and engineers which                  
 considers teaching as experience.                                             
 Also from Fairbanks, SENATOR KELLY invited BILL MENDENHALL to                 
 MR. MENDENHALL introduced himself as the current land surveyor                
 member of the Board of Architects, Engineers, and Land Surveyors,             
 and recently replaced MR. KALEN.  He supported the testimony from             
 MR. KALEN, and explained they had both worked closely with the                
 Alaska Society of Professional Land Surveyors, all of whom felt               
 there should be a greater emphasis on formal education.  He said              
 this followed the national trend, and he cited some states as                 
 recently requiring a four year surveying degree.                              
 MR. MENDENHALL explained the board had urged people to get more               
 formal education, and he reviewed the information from the Alaska             
 Administrative Code which would allow someone with four years of              
 education and four years of experience to take the exam.  If a                
 person had a two year surveying degree, such as an associates arts            
 degree, and eight years of experience for a total of ten, that                
 person could take the exam.                                                   
 MR. MENDENHALL explained, for a person with no formal education,              
 that person would need 12 years of experience to take the exam.               
 The present law would not allow, since about 10 years ago, for land           
 surveyors only, but it would permit a land surveyor to eight years            
 total experience and education.  He felt this should be upgraded to           
 give a higher status for requirements for surveying, and he claimed           
 it had been reviewed by many people, and endorsed by the Society of           
 Professional Land Surveyors.  He reminded the committee that a                
 person with no formal education still has the option to take the              
 exam, but just requires more experience.                                      
 MR. MENDENHALL said this was patterned exactly after the                      
 requirements for professional engineers.  In the State of Alaska,             
 a person with a four year degree in surveying and four years of               
 experience may sit for the exam.  A person with five years of                 
 education or more, a master's degree, and three years experience              
 may sit for the exam.  A person with mo formal education in                   
 engineering must have 12 years of experience to sit for the exam.             
 He claimed they were just trying to apply the same rules to the               
 land surveyors as has long been applied to the professional                   
 engineer category.                                                            
 SENATOR LINCOLN expressed some confusion over Section 2 of the                
 committee substitute which deletes the requirement of eight years             
 of experience with any combination, but leaving in the submission             
 of evidence satisfactory to the board on education, experience, or            
 training.  In the previous testimony, she questioned whether eight            
 years of experience was being substituted for 12 years.                       
 Number 543                                                                    
 MR. MENDENHALL explained, before that could be done, there would              
 have to be hearings on the administrative regulations, and he                 
 didn't know what would happen beyond this.  He reiterated the                 
 present Alaska statute says that surveyors can't be required to               
 have more than eight years combination of education and experience.           
 He said they would like to have that provision removed to allow the           
 board to strengthen the requirements in the future.  He claimed the           
 proposed legislation would not accomplish this, but would just make           
 it possible to be done through the administrative code after a                
 proper hearing.                                                               
 SENATOR LINCOLN thought it seemed ambiguous to leave it to the                
 satisfaction of the board, but does not speak to exactly to the               
 number of years, the degree, or experience.  She felt it was left             
 in limbo.                                                                     
 MR. MENDENHALL quoted the regulation regarding the engineers and              
 architects are also right now in limbo.  He suggested nothing could           
 be done because of the current wording in statute.                            
 There being no further testimony on SB 320, SENATOR KELLY said                
 staff would work on the legislation for a future date.                        
 SENATOR KELLY brought a proposed committee substitute for SB 356              
 committee, and asked his committee aide, JOSH FINK, to review the             
 changes in the committee substitute.                                          
 MR. FINK explained the committee substitute would do two things.              
 Section 1 would exempt amateur sports officials employed on a                 
 contractual basis from workers compensation coverage.  Section 2              
 would remove employers from workers compensation liability for                
 their employees if their employees are voluntarily participating in           
 a recreational activity sponsored by the employer.                            
 MR. FINK stated this legislation was combined with two bills from             
 the House side.  Section 1 was HB 290 (EXEMPT SPORTS OFFICIALS FROM           
 offered to address Section 2 until REPRESENTATIVE NAVARRE arrived.            
 MR. FINK explained that Section 1 arose out of a situation in                 
 Anchorage, when prior to 1992, the Anchorage Sports Association               
 considered its umpires, referees, time keeps, etc., not as                    
 employees, but hired on a contractual basis to provide services               
 during the summer.  In the fall of 1992, the insurance carrier for            
 the Anchorage Sports Association did an audit, and claimed these              
 were employees of the association, .....                                      
 TAPE 94-17, SIDE B                                                            
 Number 001                                                                    
 ... and you've got to pay the workers compensation premiums.  The             
 Anchorage Sports Association contested their ruling, and it went to           
 the Division of Insurance which supported the insurance carrier               
 contention they were employees.                                               
 MR. FINK explained the National Council on Compensation Insurance             
 (NCCI) sets the rates, then gave a classification of these amateur            
 sports officials of extremely high risk, the same as a professional           
 athlete.  The end results would mean a compensation rate of 15 to             
 54% of their compensation to these sports officials in workers                
 compensation.  This was appealed to the NCCI to take another look             
 and to reclassify, but all appeals were denied.  A decision is                
 currently pending from the attorney general's office, but there               
 does not seem to be an optimistic result from this request.                   
 SENATOR KELLY explained the bill talks about people who are moon-             
 lighting from daytime employment, and the remuneration for these              
 jobs is minimal.                                                              
 MR. FINK explained the bill would exempt these amateur sports                 
 officials if they are performing their services if a team does not            
 receive compensation.  He said the bill would keep these sports               
 associations in business, and he reviewed letters of support from             
 sports associations from across the state.                                    
 REPRESENTATIVE NAVARRE explained Section 2 was from his bill on the           
 House side, and would change the definition section of the workers            
 compensation statutes.  He gave an example of Arbys, a family owned           
 business in his district to defend his proposed changes.                      
 SENATOR KELLY asked if employees from Arbys were allowed to play on           
 the team, and REPRESENTATIVE NAVARRE explained the sponsorship of             
 a team.                                                                       
 Number 043                                                                    
 SENATOR SALO asked REPRESENTATIVE NAVARRE for clarification on the            
 playing fields and the court's interpretation.                                
 SENATOR LINCOLN expressed interest in the remote job site aspect of           
 the legislation, and she used a construction crew as an example to            
 ask about liability.  REPRESENTATIVE NAVARRE explained they would             
 be eligible for workers compensation claims, because recreation is            
 provided as part of the job activity.                                         
 SENATOR KELLY clarified there was no objections from the labor                
 SENATOR RIEGER moved to adopt the new CS for SB 356, 8-LS1812\E.              
 Without objections, so ordered.                                               
 SENATOR RIEGER moved to pass CS FOR SENATE BILL NO. 356(L&C)                  
 with individual recommendations.  Without objections, so ordered.             
 TAPE 94-18, SIDE A                                                            
 Number 001                                                                    
 SENATOR KELLY introduced SB 185 (LIMITATIONS PERIOD FOR TAX                   
 ASSESSMENTS) introduced by SENATORS TAYLOR and KERTTULA by request,           
 and invited former attorney general, CHARLIE COLE, to testify.                
 MR. COLE - "I am here today to speak as passionately and as                   
 fervently as my sanguine personality permits in support of SB 185.            
 First, let me relate to you some of history behind this proposed              
 legislation.  In March of 1993, last year, all of the lawyers in              
 the Department of Law, members of the Department of Revenue, and              
 expert witnesses retained in support of the prosecution of tax                
 assessment against major oil companies met in the Seattle area to             
 review the prosecution of the tax claims.                                     
 After we concluded two days of review, we began to evaluate the               
 various claims from the stand point of their settlement value.  As            
 we did, and as the lawyers gave their views on the value of the               
 claims, they frequently commented, in their evaluation analysis,              
 about statute of limitations problems involved in the various tax             
 Number 056                                                                    
 As we concluded the discussion on that issue, I asked them as the             
 presiding person at this conference to furnish me with the amount             
 at risk, and the issues involving the statute of limitations.  They           
 gave me a number which would knock your sox off, and I said, 'Wait            
 a minute.  We need to discuss this further.' And I reasoned since             
 limitations had been imposed by legislative enactment, that perhaps           
 the problems inherent in this issue could be addressed or                     
 ameliorated by a amendatory legislation.  Legislation which was               
 designed to be retroactive as well as prospective, and so when we             
 concluded the conference, and returned to Juneau, I asked the                 
 lawyers in the Department of Law to furnish me with an opinion as             
 to whether the statute of limitations involved in these issues                
 could be amended retroactively.                                               
 Around March 23, 1993, I received a very fine legal opinion which             
 concluded there were no constitutional problems, essentially,                 
 involved in the enactment of statutes of limitations which could be           
 applied retroactively to clarify those statutes, because the                  
 statutes certainly, at that juncture, had not been conceded by the            
 Department of law to bar these claims.                                        
 Number 103                                                                    
 The position of the lawyers in the Department of Law prosecuting              
 these claims, at the time, was there was litigation, heavy                    
 litigation, if you will, then on going with respect to both the six           
 year collection statute and the three year assessment statute.                
 And, indeed a superior court judge in Anchorage had ruled the three           
 assessment statuted barred certain claims assessed against the                
 Exxon Corporation, and the case was being appealed by the State to            
 the Alaska Supreme Court. So much for the history.                            
 After we returned and received the opinion on the constitutionality           
 on the retroactive legislation, we in the Department of Law, with             
 assistance of representatives from the Department of Revenue                  
 drafted proposed amendatory legislation, introduced as SB 185,                
 which you have before you today.                                              
 Let me now say a word about the purpose of the statute of                     
 limitations.  I will keep it very brief.  I am sure you know about            
 it, but just let me say this, I quote from a opinion of the Alaska            
 Supreme Court in which the court said that statutes of limitations            
 are intended to encourage prompt prosecution of claims, and thus              
 avoid injustices which may result from lost evidence, faded                   
 memories, and disappearing witnesses.  However, the court went on             
 to say this, 'Actions like the present one involving economic loss            
 are often faced largely on documentary evidence, not unaided                  
 recollections, which quickly grow stale.'                                     
 Obviously, I think that is what we have here.  These claims are               
 based largely on documentary evidence, and therefore, we are                  
 dealing with the application of the statutes here, which are                  
 primarily based upon documentary evidence.  What two statutes do we           
 seek to amendment by SB 185?                                                  
 There are two, as I say.  One is AS 43.05.270 entitled Collection             
 after Assessment.  Subsection (a) reads thus, 'When the assessment            
 of a tax imposed by this title has been made within the period of             
 limitations under AS 43.05.260, the tax may be collected by levy or           
 by a proceeding in court, but only is the levy is made or the                 
 proceeding is begun: Subsection (a) within six years after the                
 assessment of the tax.'  The key words there is 'the assessment of            
 the tax.'                                                                     
 Number 151                                                                    
 The assessment of the tax is governed by Section 43.05.260 entitled           
 LIMITATION ON ASSESSMENT.  Subsection (a) reads thus,' except as              
 provided in Subsection (c) in AS 43.02.200 (b) the amount of a tax            
 imposed by this title must be assessed within three years after the           
 return was filed, whether or not a return was filed on or after the           
 date prescribed by law.  If the tax is not assessed before the                
 expiration of the three year period, proceeding may not be                    
 instituted in court for collection of the tax.'  And, thus we have            
 two statutes which I refer to as the six year collection statute              
 and the three year assessment statute.                                        
 How do we wish to amend those two statutes.  We do so by the                  
 proposed SB 185.  Let me say that this senate bill contains lengthy           
 recitals of findings of fact.  I am not going to talk about those             
 today.  They may or may not be the subject of some controversy, but           
 if you don't like the proposed findings, eliminate the ones you               
 don't like.  If you don't like any of them, eliminate all of them,            
 but nevertheless, I urge you to enact this proposed statute in                
 And what do we propose to do by this statute?  Well, what the                 
 amendment does, in substance, is provides the Department of Revenue           
 may increase or decrease the amount of the tax due by issuing or              
 amending (a) an assessment at any time during the administrative              
 consideration of a taxpayer grievance on an assessment filed by the           
 taxpayer under AS 43.05.240 or another Subsection (b) dealing with            
 a claim for credit or refund of a tax filed by the taxpayer.                  
 Subsection (a) only deals with the three year assessment statute,             
 and let me say what, in substance or in layman's language, it                 
 proposes to do is to permit an assessment to be increased or                  
 decreased if the taxpayer files an appeal, requests for an informal           
 conference, or requests for a formal hearing.                                 
 Number 201                                                                    
 If that process is activated at any time prior to the conclusion of           
 that process, either by way of an informal conference or by way of            
 a formal conference, then the assessment may be increased or                  
 decreased.  It's not locked in.                                               
 There is also the amendment to the proposed collection statute, the           
 six year collection statute under .270 (a) which provides the tax             
 may be collected by a levy if the levy is made within six years               
 after the latest of any of the following: (a) the assessment of the           
 tax, (b) the final administrative determination of the grievance,             
 if the taxpayer files a grievance, or (c) the final judicial                  
 resolution of an appeal if the taxpayer appeals from the                      
 administrative proceeding.                                                    
 Paragraph (4) provides that these two subsections, which I have               
 just mentioned to you, become retroactive to January 1, 1976.  The            
 issue is thus before you; should this proposed legislation be                 
 enacted.  Let me tell you why it should, if you will.  First,                 
 should the legislation be enacted prospectively?  First, with the             
 respect to the six year collection statute.  I as you, does it make           
 any sense to require a levy on an assessment before the amount owed           
 by virtue of the assessment has become final.  I think no one would           
 argue that it makes sense to require, or the legislature to                   
 require, the executive branch of government to make a levy while              
 the taxpayer is in the process of making an administrative appeal             
 from the assessment or a subsequent judicial appeal from the                  
 administrative determination.                                                 
 And, when I served as attorney general, I said this statute is no             
 problem if there is a $500 million assessment, the taxpayer has               
 filed a request for an informal conference and the six year statue            
 is about to run.  Just get out a levy and go up and levy the                  
 taxpayer's property at Prudhoe Bay and be done with it, but I                 
 assure you as soon as you walked into their premises with that                
 levy, they would say, 'Wait a minute.  We will waive the six year             
 statute,' because it doesn't make any sense to be levying upon an             
 assessment before the amount owing has been finally determined.               
 So I say, clearly and without reservations, you should adopt                  
 perspectively the amendment to the six year collection statute.               
 Number 254                                                                    
 What about amendment the three year assessment statute, so as to              
 provide that a change may be made in the assessment during the                
 period of an administrative appeal.  Is it unfair?  Does it offend            
 your moral sense, that if a taxpayer appeals and says, 'I want an             
 adjustment to my tax assessment.'  If in the course of that                   
 proceeding, the evidence show that the assessment is too low and              
 should be increased, that's prohibited from increasing the                    
 assessment.  The only evidence which may be considered by the                 
 hearing officer is evidence which decreases the taxes.  What is so            
 unfair to the taxpayer by allowing the State to amendment its                 
 assessment during the course of that proceeding.                              
 If, as the supreme court has said, this is largely a matter for               
 issues to be determined by documentary evidence, then what is the             
 harm to the taxpayer.  And, furthermore, the option to allow the              
 assessment to be increased lies with the taxpayer.  The taxpayer              
 need not appeal the assessment, but the taxpayer should not be                
 given the advantage of only the taxpayer being able to reduce the             
 amount of the assessment.                                                     
 And, furthermore, the taxpayer certainly, if it intends to                    
 prosecute an appeal, is not prejudiced by stale evidence, by fading           
 memories, by disappearing witnesses.  That is within the control of           
 the taxpayer.  The taxpayer is certainly not prosecuting its appeal           
 in allowing its evidence, its documents to be lost or frittered               
 away.  The taxpayer has the ability to preserve fading memories by            
 taking depositions; this is all under the control of the taxpayer.            
 So, certainly the taxpayer is not prejudiced.  From the standpoint            
 of enactment of the amendments prospectively, to the three year               
 assessment statute, it seems clear that this statute should be                
 Furthermore, let me say, this is the very revision which the State            
 of Texas has adopted in connection with its tax appeal provisions.            
 This is not some new striking revolutionary legislation which was             
 dreamed up by an aging attorney general.  This is legislation which           
 is right within the State of Texas, where big oil is headquartered,           
 and they are not out urging the Texas legislature to amendment the            
 statute because its so unfair.  Ask them if they have gone down to            
 the Texas legislature to say this is so morally offensive, so                 
 destructive, of this industry that we must have this legislation              
 repealed.  Of course not.  They accept it.                                    
 Number 310                                                                    
 This has been the practice in courts of law in equity for years,              
 years, and years.  And, in 1938, when the Federal Rules of Civil              
 Procedure were adopted, provision was made in Civil Rule 15(c) for            
 the adoption of the Doctrine of Relation Back, which says that if             
 one files an action before the statute of limitation runs, and then           
 in the course of that litigation, the statute of limitation runs,             
 that the claimant may amend the complaint and have the amended                
 claim relate back to the date the original action was filed.  That            
 had been the practice in the courts of equity, in courts of law,              
 before 1938 when it became formalized in the Civil Rules, and the             
 underlying reason is very simple. The underlying reason is that               
 which I have related to you today, because it is not unfair for a             
 person against whom, in this case, a claim is made to have the                
 statute of limitations told - not run.  And the reason the courts             
 may, and the scholars say, is because this person, who is being               
 sued is on notice that the claim is made against him or her.                  
 The person, individual, or corporation is in a position to preserve           
 the evidence and not allow memories to fade and documents to go               
 away, but that is not the case which we have here.  The case, which           
 we have here, is a case where it is the taxpayer, who controls that           
 process, not the person making the claim against him in control.              
 So therefore, in summary, prospectively this legislation should               
 clearly be adopted.  It is fundamentally fair and good public                 
 policy.  After all, taxpayers, who are able to string out                     
 prosecution of their claims, or the final determination of them, by           
 employing the finest lawyers and CPA'S in the world, and then say,            
 'Well, you know we fought the State, and the statute has run.  Nice           
 going, guys!  We don't have to pay.'                                          
 Now I tell you, the legislation in the State of Alaska should not             
 permit that, because it is fundamentally unfair that people are               
 able to do that to avoid payment of the just amount of money which            
 they owe.                                                                     
 Number 354                                                                    
 This is not seeking to change the rules for liability for taxes,              
 its only seeking to make clarifications of the existing statutes              
 governing the amendment of assessments.  Now, let me say this,                
 should this legislation be adopted retroactively?  Well, if you               
 follow the theory of Federal Civil Rule 15(c), if you follow the              
 Historic Practices of the Courts of Equity and the Courts of Law,             
 certainly there is nothing fundamentally unfair about making this             
 statute retroactively.  These taxpayers, since they received their            
 assessments within the three period, have been on notice that these           
 claims were being made against them.  You think for one moment that           
 they allowed their evidence, their documents to be lost, witnesses'           
 memories to fade.  I can guarantee you in the files they have                 
 statements three feet high of these witnesses.  They know every               
 thing that happens, and the records would probably fill this room,            
 which they have appealed, and which they have kept.  And, the                 
 reason is, because they knew these claims were being made against             
 them and they needed to preserve that evidence, and that is why               
 they have done that.                                                          
 So, there is nothing unfair about these statues being made                    
 retroactively.  Let them come before you today, as they will, and             
 say, 'We have been prejudiced.  We will have been prejudiced if               
 this legislation is enacted.  We will have lost our ability to                
 defend against an assessment, which has been increased, so as to              
 seek to compel us to pay the amount of tax we really owe.'                    
 Finally, let me say this.  These people will come before you today.           
 They oppose this legislation, and they will predict dire                      
 consequences if this legislation is enacted, and they will tell you           
 that it is unfair, terribly unfair.  But, let me tell you, ladies             
 and gentlemen, they oppose it, not because it offends their moral             
 sense, not because its underlying policies are not sound, but                 
 because, and only because, it affects their bottom line.                      
 Thank you." (End of formal presentation by former attorney general,           
 CHARLIE COLE.)                                                                
 SENATOR KELLY said the administration took these same arguments in            
 front of the superior court and lost.  Since it will be heard in              
 the supreme court, he asked MR. COLE why he felt the legislature              
 should interfere at this time with the legal processes going on.              
 MR. COLE - "For the reasons which I have related to you because the           
 Executive Branch of this government is under a statutory and                  
 constitutional duty to collect taxes owed by these tax payers.                
 That they should not be able to avoid the payment of these                    
 incredibly large amounts of money, because of infirm and unsound              
 limitations imposed by the legislature years ago, before almost 15            
 years of experience has shown they are unsound."                              
 SENATOR KELLY explained the bill was introduced last year, towards            
 the end of the session there was a flurry of activity, and all of             
 a sudden the administration dropped the attempt to have the                   
 legislation passed.  He asked MR. COLE how and why that occurred.             
 Number 407                                                                    
 MR. COLE - "The reason, senator, was not because of a position                
 adopted by the Executive Branch of government.  I could go a little           
 farther in answer to that question if you would insist, but I would           
 simply like to conclude my answer by saying, it was the sense that,           
 at that time, because of the lateness of the legislative hour, that           
 the bill was dead in the water."  (SENATOR KELLY  said it was                 
 introduced on April 7th.)                                                     
 SENATOR KELLY opened the meeting to questions and called on SENATOR           
 MS. SALO questioned whether, if the bill is adopted, it would go              
 into the whole court challenge that currently exists on the same              
 MR. COLE - "I think the answer to that is simply this, and I don't            
 mean to be flippant about it, but the answer is yes, because it               
 substantially will affect the bottom lines, and surely, those                 
 affected adversely by the enactment of this legislation, would                
 challenge it in every legal forum, as well as political forum in              
 which they can.  I don't begrudge them that.  I would expect them             
 to do that, but it will be, of course."                                       
 SENATOR LINCOLN indicated she was not sure she understood MR.                 
 COLE'S answer to the question asked about the loss in superior                
 court in 1992 on the time limitations.  She asked what could be               
 done differently before the superior court.                                   
 MR. COLE - "You would substantially, in my view, be strengthening             
 the State of Alaska's hand to collect validly due and owing taxes,            
 except for the application of the existing statutes of limitations.           
 Does the legislature wish to strengthen the State of Alaska's hands           
 in the collection of these tax assessments by the enactment of this           
 proposed legislation, or doesn't it?  If you don't want to                    
 strengthen the state's hand in the collection of these taxes, you             
 should say, 'We decline to enact this legislation.'  If you want to           
 strengthen the state's hand in the collection of these taxes, by              
 all means you should enact this legislation."                                 
 Number 453                                                                    
 SENATOR LINCOLN paraphrased his answer, commented the courts would            
 hear the arguments again in May, and asked whether he thought the             
 State would have much of a case.  MR. COLE indicated he didn't say            
 that, but they both agreed the State would have a weaker hand                 
 without the passage of SB 185.                                                
 MR. COLE explained with the passage of the bill, the State would              
 have a stronger hand.  He said, "I support the State's position on            
 appeal.  I think it is sound, but the Alaska Supreme Court decides            
 cases the way it sees them, and it may not see this case in the               
 same manner in which the State sees it.  I'm saying fervently,                
 passionately believe the State's hand in the collection of these              
 taxes ought to be strengthened, and I say it not because of the               
 money, fundamentally, but because it is morally sound.  These                 
 taxpayers have not been prejudiced by the running of the statute of           
 limitations.  If they were, one might say, 'Well, it is unfair.               
 They have been prejudiced.  Let us not be unfair to them,' but                
 claim as they might that this is prejudicial to them, if I may                
 assure you.  It has not been."                                                
 SENATOR KELLY questioned MR. COLE on his use of the word "State"              
 and asked if he didn't mean "Executive Branch," and might the                 
 Supreme Court see it differently than he does.                                
 MR. COLE - "Of course, but the caption in the complaint is State of     f    
 Alaska Appellate, tax collector discharging its statutory and                
 constitutional duties to collect taxes, taxes which, but for the            
 running of the statute of limitations, by virtue of statutes                  
 enacted by the legislature, would have to be paid."                           
 SENATOR LINCOLN asked about the adoption of legislation or                    
 regulations addressing the collection of taxes in the State of                
 Texas.  She also asked the date and whether it was a long process.            
 MR. COLE - "I didn't study the legislative history but I have                 
 copies of that legislation here and I can give them to you.  It has           
 some historical notes.  Some of it, I think was first enacted in              
 1956, then I saw amendments in 1968, probably amendments in 1981.             
 By writing the comptroller or the attorney general in Texas, I am             
 certain you could obtain legislative history."                                
 SENATOR LINCOLN asked if it was very similar to the content of SB
 185, and MR. COLE answered it was while looking for his copy.                 
 SENATOR LINCOLN asked SENATOR KELLY to get copies for the                     
 MR. COLE - "Let me say this, it is almost right on, although I did            
 notice in reading it, the legislation uses the term, administrative     e    
 proceeding."  SENATOR KELLY directed MR. FINK to get a copy of the           
 legislation.  MR. COLE offered to provide copies.                             
 SENATOR RIEGER questioned MR. COLE on his schedule, and MR. COLE              
 indicated he had planned to return to Fairbanks tonight, but he               
 assured SENATOR RIEGER he would stay until the end of the hearing.            
 Number 501                                                                    
 SENATOR SALO, in reference to his comments on moral dilemma faced           
 by the legislature regarding the change in the rules, asked MR.               
 COLE to expand a bit more on this point.  She indicated the whole             
 area of collecting taxes is much more complex, fraught with more              
 disagreement than one would think in looking on the surface of it.            
 She wanted to know if the legislature would be unfairly changing              
 the rules, or were the rules ever clarified.                                  
 MR. COLE - "Let me say this.  First, very clearly, the rules                  
 determining tax liability, (1) the obligation to pay a given amount           
 of tax, are not being changed by this in statute, (2) only being              
 changed is the point in appeal process, or the chronological                  
 history of the tax appeal, when an amended assessment may be made.            
 For example, let me put this case.  Suppose an assessment is made             
 for $10 million.  Taxpayer files a notice of request for informal             
 conference by way of a grievance, and discussions are held by this            
 informal conference, and the Alaska Supreme Court comes down with             
 a decision which changes the substantive rules for determining tax            
 liability, and that decision, if applied to the pending assessment,           
 would then permit an increase in the assessment.                              
 Under the existing rules, if the three year statute had run, that             
 assessment could not be amended.  Or suppose during a formal                  
 conference, the three year assessment having run, and the taxpayer            
 in the formal hearing presents evidence by the taxpayer's own                 
 documents that the assessment is too low, under the existing                  
 statute of limitations.  The taxpayer would say, 'I don't care what           
 our evidence shows, you can't increase the amount of that                     
 assessment.'  The only thing the hearing officer can do is decrease           
 the assessment.  I say rhetorically, is that fair to the State of             
 Alaska to not be able to increase its assessment, the only thing              
 that can happen is the assessment be decreased?   I mean, if the              
 determination is made that the amount of the assessment is not                
 accurate, and it inaccurately reflects the amount of tax the                  
 taxpayer is owing, why is it so unfair about allowing the                     
 Commissioner of Revenue to increase the amount of the assessment.             
 I say none.  The taxpayer is not prejudiced.  They have all of the            
 evidence there.  They are the ones that presented it."                        
 Number 544                                                                    
 SENATOR PEARCE suggested that if all of the cases were as straight            
 forward as the one MR. COLE put on the table, she doubted anyone at           
 the table would disagree with him.  She didn't think any of the               
 committee members were qualified to figure out, or whom to ask,               
 about assessments that are still being gathered from decades ago.             
 She asked, in reference to the assessments being dealt with in the            
 bill, if it made sense to MR. COLE to go back and redo the                    
 assessments.  She also asked how the legislators can know whether             
 the State employees kept those assessments from being made in                 
 timely manner, at which time she didn't think it was fair to go               
 MR. COLE - "First, no one more fervently believes than I, this                
 process has got to be speeded up, to say the least, and further               
 more let me say this, sort of off the mark, 'I would urge the                 
 legislature to form a committee and to look at this whole                     
 underlying issue about how you value this oil.'  That is where one            
 of the major problems comes from, but in direct response to your              
 question, assume, arguendo as they say, that the State has been               
 tardy.  Just assume that, and they haven't gotten these assessments           
 done as promptly as they should have.  I don't concede that, but              
 assume that for the purpose of my response to your question.  How             
 has the taxpayer been prejudiced?  You see, the taxpayer could have           
 said, 'I want a formal hearing.  I want to get this over and behind           
 me.'  The taxpayer didn't request formal hearing to get this done,            
 and wound up, (so they could present the payment).  Maybe, I am not           
 saying they did, they thought it was better to string this stuff              
 out, because, given the interest rate which was accruing on these             
 assessments, that it was better to string them out and not pay the            
 tax, because the price of money they would have to use to pay the             
 assessment was more costly than the price of the State financing,             
 which they were receiving by not having to pay these taxes.                   
 So what I am saying, in the final analysis, they have not been                
 prejudiced, they have been able to be on notice that these claims             
 are being made against them, that they can preserve their evidence,           
 they can preserve their witnesses, and their cases is ever bit as             
 sound today as it was on three years plus one day after the                   
 assessment, after the return was filed.  What I am saying is, it is           
 not unfair because they have not been prejudiced, although they               
 will say they have been prejudiced.  They will tell you all sorts             
 of horror stories, but the fact of the matter is, and I will put              
 the focus on it with an electron microscope, you will find they               
 have not been prejudiced."                                                    
 Number 587                                                                    
 SENATOR SALO explained MR. COLE had touched on one of key issues              
 being dealt with, and she asked why the settlements are taking so             
 long, and why all are contested.  She questioned, if SB 185 was               
 enacted, if this would create less incentive to settle and how MR.            
 COLE saw this question.                                                       
 MR. COLE - "Bunkum! Total bunkum!  The statute of limitations has             
 nothing to do with that, and I've testified on this subject before.           
 I'll send you a transcript of my testimony as soon as I correct my            
 bad grammar.  That's another subject, why these things are taking             
 so long, and what needs to be done.  I would like to comment on it,           
 but I think I will reserve my comments if you don't mind."                    
 SENATOR SALO asked for clarification on his position that the bill            
 does not adversely affect incentive to settle.                                
 TAPE 94-18, SIDE B                                                            
 Number 001                                                                    
 MR. COLE - "I think the enactment of this bill would increase the             
 industry's incentive to settle.  I think so strongly because their            
 in a position, we can't avoid our liability by relying on the                 
 statute of limitations anymore, so we should sit down and talk                
 turkey with the State.  That is what I think, and frankly, I                  
 thought that on April 7, 1993, but I just wasn't able to pull it              
 off.  Sorry."                                                                 
 SENATOR SHARP explained, three or four years ago in Resources                 
 Committee in the other body, there was an indication from Revenue             
 Commissioner at that time, that they really didn't know what the              
 tax should be.  He quoted the commissioner as saying they doubled             
 or tripled it, and filed an assessment.  SENATOR SHARP didn't think           
 there would be a rush to settle those kinds of situations without             
 some kind of ongoing negotiations, and he thought that might be               
 part of the problem, in some instances.                                       
 MR. COLE - "Just let me say this.  Taking that testimony, and then            
 I read in the media that these taxes, which have been assessed, are           
 owed.  Not simply assessed, but they are owed as if they were               
 adjudicated as a legally binding obligations, and then one seeks to           
 deal with these statute of limitations problems, which I have                 
 talked about this afternoon.  You get beaten up to a pulp in the              
 press, because one tries on behalf of this state, to address these            
 problems, and if you settle any of these claims that have been                
 doubled or tripled, if they have been, as you say, then people say,           
 'The attorney general is giving away the farm.'  So, what do you              
 do?"  (unintelligible phrase)  (Thus ended the verbatim testimony             
 of former attorney general, CHARLIE COLE.)                                    
 SENATOR KELLY explained the committee was being asked to interpose            
 in a matter that's in the court on behalf of one litigant, but he             
 said there were two sides to the story, so there were a lot of                
 people who wanted to testify.  He decided to move from one position           
 to the other in accepting testimony, and he began with LARRY                  
 KIMBALL of the Cook Inlet Region, Inc.  Next would be COMMISSIONER            
 DARREL REXWINKEL from the Department of Revenue.                              
 Number 033                                                                    
 "I work for Cook Inlet Region, Inc. and LAWRENCE KIMBALL is my                
 name.  CARL MARRS, Senior Vice-President and generally in charge of           
 oil and gas issues couldn't be here today.  He has asked me to                
 present his testimony to you on this issue.  Also, what we want to            
 do is convey mainly some concerns that we have.  CIRI is a company            
 is Alaska owned, Alaska based, and whose shareholders depend upon             
 the long term health and stability of the Alaskan economy.                    
 (At this point, MR. KIMBALL read a prepared statement by MR. MARRS,           
 which is entered in its entirety.)                                            
 "There are two major concerns if SB 185 becomes law, which I would            
 respectfully ask you to give careful consideration.  The first is             
 that SB 185 likely would increase, rather than decrease, the                
 litigation, delay, and expense of tax collections.  One purpose of            
 SB 185 appears to be to give the Department of Revenue more                   
 negotiating leverage in tax collection cases, making it able to               
 increase the amount under negotiation by increasing the assessment.           
 However, when the rules are clear, fair, and consistently applied,            
 taxpayers will be more likely to voluntarily comply and pay tax               
 amounts that fairly approximate their liability.  If, however, the            
 process is adversarial from the outset, and the department in                 
 essence has the power to raise the stakes throughout, all parties             
 will revert to protecting their positions, making fair compromises            
 more difficult and costly to achieve.                                         
 A second concern is that it may discourage a small company (like              
 CIRI) from exercising its right to appeal a tax assessment that it            
 genuinely believes is erroneous.  A taxpayer who desires to                   
 challenge an assessment will fear - and understandably so - that a            
 new, higher assessment will be imposed during the appeals process             
 in order to discourage appeals by others.  On the issue, like the             
 issue of the retroactive effect of the statute, I encourage the               
 legislature to obtain impartial constitutional advice.                        
 This bill, which seems to be directed at the large oil companies,             
 adversely affects smaller Alaska companies as well.  First and                
 foremost, our company depends, as does everyone in the state, on a            
 healthy, long-term Alaska economy.  At CIRI, we believe the                   
 continued strong presence of reinvestment by, and success of the           
 oil industry is crucial to everyone in our State.  The Alaska Oil            
 & Gas Association has outlined the detrimental effects of SB 185 on           
 continued investment in Alaska, and I will not repeat - but do                
 endorse - the points they have made.                                          
 What you may not know is that CIRI, along with Doyan, Nana, and               
 other ANCSA Regional Corporations, own small minority interests in            
 certain Alaska producing oil fields. We have made these investments           
 in part because we believe in our State's future, and the money we            
 earn from them is distributed to our shareholders as well as other            
 ANCSA Corporations statewide through Section 7(i) requirements.               
 For the most part, revenue generated is pumped back into the Alaska           
 economy.  CIRI, along with other small independent producers, pay             
 production taxes on its share of substances produced.  Although we            
 depend entirely on the operators to set the value on which we pay             
 our taxes, we can be - and have been - audited and assessed.                  
 It is not fair to us for assessment to reach back to 1976, for                
 assessments to drag on for years, and for the department to be able           
 to increase assessments even as they are properly being challenged.           
 Laws, when passed, must be universally and uniformly applied.  The            
 adverse affects that may have on the large companies will be felt             
 by the smaller producers as well, like CIRI.  And those effects               
 will be severe enough to ultimately discourage further investment             
 in our State's resources by smaller producers.                                
 In short, CIRI is opposed to the passage of SB 185.  We do believe            
 its procedural provisions introduce unfairness into the tax                   
 collection process.  The proposed provisions are likely to produce            
 an adverse effect on the economy that you do not desire.  Instead,            
 it is sufficient to let the Department of Revenue use the extensive           
 audit and assessment powers it has now in a timely and consistent             
 fashion." (This ended the prepared statement read by MR. KIMBALL.)            
 Number 505                                                                    
 SENATOR KERTTULA asked MR. KIMBALL if he believed the taxpayers               
 should pay their taxes if they are due the State.                             
 MR. KIMBALL answered that CIRI pays a fair amount of taxes.                   
 SENATOR KERTTULA questioned MR. KIMBALL about doing business with             
 other major oil companies and its other departments.                          
 MR. KIMBALL asked he was referring to other than oil and gas, and             
 SENATOR KERTTULA asked about drilling.  MR. KIMBALL said CIRI has             
 one of its own wells in West Fork, a partnership with Doyan and               
 Nana Corporation, and owns a small percentage in an oil company in            
 SENATOR KERTTULA asked for the number of members in CIRI, and MR.             
 KIMBALL said there were 6700 shareholders - Alaskans.                         
 SENATOR KERTTULA explained he always reasoned that if the State               
 collected full share of its revenue due it, those 6700 people would           
 receive more in allocations for schools and other programs than               
 they will directly from a very modest amount that CIRI may be                 
 taxed.  He expressed annoyance at testimony which conflicts with              
 the shareholders' needs.                                                      
 SENATOR SALO asked MR. KIMBALL whose fault he thought it was that             
 assessments had dragged on for years.  MR. KIMBALL thought it was             
 the State that has dragged the assessments out, but he didn't feel            
 qualified to say how much.                                                    
 SENATOR KELLY asked MR. KIMBALL whose fault the superior court                
 decided it was, and MR. KIMBALL didn't know.                                  
 SENATOR KELLY asked MR. COLE what was said on that issue.  MR. COLE           
 said he had a copy of the opinion.                                            
 SENATOR KELLY called for a short recess, after which the committee            
 listened to COMMISSIONER DARREL REXWINKEL from the Department of              
 Revenue, testify on SB 185.                                                   
 Number 115                                                                    
 MR. REXWINKEL indicated his support of the testimony given by                 
 former attorney general, CHARLIE COLE, and he introduced a letter             
 from BRUCE BOTELHO, the present attorney general, addressed to                
 SENATOR KELLY in regards to SB 185 on the statute of limitations              
 MR. REXWINKEL explained that MR. BOTELHO'S letter provided some               
 excellent background information regarding the statute of                     
 limitations issues.  He pointed to the first paragraph which talks            
 about the need for clarification of the statutes as the issue in              
 this bill.                                                                    
 MR. REXWINKEL read the following paragraphs from the letter: "So we           
 need to be very clear that what is at stake here is not a dispute             
 about how much tax oil companies, or an particular oil company,               
 should pay.  It is not a dispute about whether the Department of              
 Revenue's assessments reflect a correct or incorrect application of           
 the production tax or income tax laws and regulations.  What is at            
 stake here is whether there can even be a determination of who is           
 right and who is wrong, and how much tax is actually owed under the           
 state's revenue laws.  What the administration is saying is, let              
 the taxpayers exercise all of their rights to contest the                     
 Department's assessments on the merits; ..."                                  
 At the bottom of the page, MR. REXWINKEL read: "Remember that the             
 only situations affected by the bill are those in which the                   
 taxpayer has already been notified before the three-year deadline             
 that the Department of Revenue disputes the return, and where the             
 taxpayer is entitled to present new evidence and arguments                    
 concerning its tax liability, and the Department is charged by                
 statute with determining the correct amount of tax due.  The bill's           
 opponents would like this to be a one-way street: they are happy to           
 have the amount corrected downward, but they want the Department              
 barred from determining the correct amount of the tax if that                 
 amount turns out to be higher than the initial assessment.  That is           
 perfectly understandable, since it furthers each taxpayer's                   
 individual financial interest, but one could not call it fair."               
 MR. REXWINKEL referenced page 5 of MR. BOTELHO'S letter to the                
 paragraph entitled VALUATION OF ANS IS DIFFICULT FOR MANY REASONS,            
 which he believed answered SENATOR SALO'S questions.  On page 6, he           
 read the headlines and a bit more: "A.  The sheer volume of crude            
 and number of dispositions make the audit process difficult and               
 time-consuming.  I have given you the statistics for the first               
 decade of North Slope production, but I want to emphasize that when           
 this huge field began production, there was no model that the                 
 Department could look at to figure out how the system worked. The             
 producers created and controlled the system, which was influenced             
 heavily by the world oil market and events in the Middle East, as             
 well by U.S. price controls."                                                 
 MR. REXWINKEL next referred to B. on page 7 to talk about how the             
 ANS trade is unique; it is not like other domestic crude oil in the           
 way it is traded or transported.  On page 8, item C., he read:                
 "Another key factor contributing to the difficulties in valuing ANS     S    
 is the way that ANS is disposed of by the producers.  Almost all             
 North Slope crude oil is disposed if in two ways: it is either                
 internally transferred and refined by the producer, or it is                  
 exchanged for another crude or crudes which are refined by the                
 MR. REXWINKEL continued quoting from the letter on page 11, item D.           
 which stated: After the value of the crude is determined, the                
 Department has to audit the transportation cost of moving ANS from            
 the North Slope to the destination market."  He also read the                
 Summary at the bottom: " This is all to say that the task of                
 determining a value for ANS is uniquely complex and difficult                 
 undertaking.  It took the state experts in the royalty litigation             
 years to compile the data and reach agreement with the producers              
 over the disposition of much of the ANS produced.  It is not                  
 surprising that the Department of Revenue also needed time to do              
 the job correctly."  (Thus ended MR. REXWINKEL'S background                   
 information, and he suggested everyone read the letter.)                      
 MR. REXWINKEL said that copies of his testimony were distributed to           
 the members of the committee, parts of which he planned to review:            
 "This is a significant issue for the State of Alaska.  Presently,             
 we have assessments outstanding plus penalties and interest                   
 surrounding the three year and the six year statute of limitations            
 approaching $3 billion.  Certain producers have challenged the                
 Departments ..."                                                              
 SENATOR KELLY interrupted to ask if the $3 billion total, is being            
 discussed in the narrow definition in reference to the bill.                  
 Number 159                                                                    
 MR. REXWINKEL explained there were two items being discussed in the           
 bill, one is the three year audit statute and the other is the six            
 year connection statute.  He said the sum total of the two statutes           
 in amounts that could be under question, is approaching $3 billion.           
 SENATOR KELLY asked for an explanation of his answer, since he was            
 under the impression the committee was addressing about $600                  
 million that might be at stake.                                               
 MR. REXWINKEL recalled back in 1992, an auditor in the Department             
 of Revenue tried to provide testimony to the court to approximately           
 that amount of money in tax assessments.  He said some of the taxes           
 are very old, with accumulated interest in excess of that which was           
 SENATOR KELLY opined the legislation would not only retroactively             
 tax them, but charge them interest on taxes they didn't know they             
 owed at the time.  MR. REXWINKEL objected, saying it was not a                
 matter of retroactive taxation, but it is a matter of taxation, and           
 tax accumulates interest.                                                     
 SENATOR KELLY asked how much more is in dispute, what is the total.           
 MR. REXWINKEL explained the total in taxes assessed, penalties and            
 accrued interest is approximately $5.5 billion.  SENATOR KELLY                
 clarified that SB 185 affected $3.3 billion of the amount, and MR.            
 REXWINKEL said he was correct.                                                
 SENATOR LINCOLN asked if the amounts went back to 1976, and MR.               
 REXWINKEL said it would be going back to all of the uncollected               
 taxes going back that far.                                                    
 SENATOR KELLY invited REPRESENTATIVE MIKE NAVARRE to the committee,           
 and MR. REXWINKEL continued his testimony.                                    
 Number 190                                                                    
 MR. REXWINKEL returned to the prepared statement to give some                 
 additional history: "The charge to the Department of Revenue is set           
 out in AS 43.05.010.  The Commissioner of Revenue must administer             
 the tax laws of the State of Alaska including the inspection of tax           
 returns, inspection of books and records, and the holding of                  
 conferences and hearings to determine the correct amount of tax due           
 and to resolve disputes.  The Attorney General and the Department             
 of Law are significantly involved in these processes.                         
 The Petroleum Division was created in 1975, prior to TAPS coming on           
 line in June of 1976.                                                         
 In 1976 the oil and gas separate accounting income tax was passed           
 by the legislature.  The Department of Revenue adopted regulations            
 to implement this act in February 1979.                                       
 The separate accounting income tax was subsequently challenged as             
 unconstitutional by the producing companies, but the state was                
 ultimately upheld in the United States Supreme Court, even though             
 the state had by then repealed the law. (separate accounting tax)             
 Through December 1977, the Petroleum Revenue Division had only one            
 Revenue Field Auditor.  Tax returns were filed with the Department            
 of Natural Resources.                                                         
 By December 1979 the staff was increased to seven positions                   
 including five field auditors.  Between 1983 and 1985 the staff               
 grew to eight field auditors.  In July of 1985 the Petroleum                  
 Revenue Division was combined with the Audit Division.  Prudhoe Bay           
 oil producers had seen nine years worth of production flow down               
 TAPS and filed in excess of 200 monthly production tax returns each           
 year.  For some years the number of returns is double or triple               
 that because of the filing of one or more amended returns for a               
 month or group of months.                                                     
 In December 1986, the Oil & Gas Audit Division was formed and the             
 staff was increased to fifteen revenue auditors, two audit                    
 supervisors, two tax examiners and three appeals officers.                    
 Currently we have sixteen revenue auditors, one audit supervisor,             
 four appeals officers, one appeals supervisor, six members of the             
 economic research staff, and two in the property tax section, one             
 assistant to the director and four support and return processing              
 The procedures prescribed for tax dispute resolution are set out in           
 the Alaska Statutes and the Alaska Administrative Code (the                   
 Regulations).  The "normal" procedure consists of an audit of a               
 taxpayer's returns performed by the Department of Revenue, the                
 issuance of an assessment of tax due with a notice of deficiency.             
 The assessment is issued within the 3-year statute of limitations             
 (or the agreed-up extension period).  The problem occurs when the             
 department sees a need to make changes as the result of information           
 developed during the administrative appeal. If a taxpayer disagrees           
 with assessment a Request for Appeal must be filed by the taxpayer            
 within 60 days of the receipt of the notice of assessment.  The               
 taxpayer may request an appeal at the informal conference level to            
 provide additional facts, documents or relevant information.  Or              
 the taxpayer may request a formal hearing, conducted in a more                
 formal legal setting, with the ground work being laid for                     
 subsequent litigation if the case remains unresolved or if further            
 appeals to the Alaska Superior Court or Alaska Supreme Court.                 
 Number 230                                                                    
 The assessments dealing with both production tax and separate                 
 accounting income tax are highly complicated and deal with highly             
 confidential areas of valuation of the oil and the cost of                    
 transporting the oil since Alaska's taxes are based on the value,             
 net of transportation costs.  Any impact upon these two factors               
 means millions of dollars in tax.                                             
 To determine the value of oil for tax purposes, essentially every             
 barrel is traced during audit to the sales delivery point, normally           
 the west or gulf coasts of the United States.  Every barrel is also           
 traced to a sales contract, which is examined to determine the                
 actual consideration received by the taxpayer and then that is                
 compared to what was reported on the tax returns and to the                   
 Department's own determination of the prevailing value of the oil             
 in the market where sold.                                                     
 This process requires voluminous data be obtained from the                    
 producing companies and careful evaluation of that data to                    
 determine the consideration received by the producer, since much of           
 the oil is traded in-kind or refined by the producer, and not sold            
 outright for cash.  It takes professional judgement along with                
 sophisticated factual data analysis to determine the value of the             
 oil for tax purposes.                                                         
 Alaska's oil and gas does not get to market until weeks after it is           
 produced.  the production, transportation and marketing activity              
 encompasses many diverse and often geographically distant                     
 affiliates of large integrated oil companies.  The compilation of             
 information for just filing the tax returns involves many                     
 individuals and volumes of information.  Amended returns are often            
 filed many months and sometimes years after the original return is            
 filed is the rule.                                                            
 Any resistance or hesitation by the taxpayer companies to provide             
 this data slows the audit process to the extent to where an auditor           
 frequently must request a written consent of the taxpayer to extend           
 the period of audit under the three-year statute of limitations.              
 Taxpayers seem to be increasingly hesitant to grant such waivers.             
 The auditor may be forced to issue an assessment based on                     
 insufficient information, if factual data is not forthcoming during           
 audit field work.  The taxpayers then try to settle during the                
 administrative appeals process on some other basis, in hopes of               
 avoiding the production invoices, contracts and records concerning            
 the real consideration received for their oil.                                
 One begins to grasp an understanding of the tremendous workload in            
 terms of work-hours, document production and computer data                    
 processing required.  We are dealing with some of the largest and             
 most sophisticated corporations in the world. A dispute over taxes            
 quickly evolves into a major legal contest of skilled attorneys and           
 credentialed expert witnesses pitted against the State.  In a                 
 recent formal hearing completed by the Department, a single                   
 taxpayer produced over 120 boxes of documents.  The administrative            
 hearing record consisted of about 40,000 pages.                               
 Given the large volume of oil, the large number of contracts and              
 the relatively few auditors, it is a high-stakes game the taxpayers           
 play well and to their advantage.  Taxpayers have attempted to use            
 the three-year audit limitation and a six-year collection                     
 limitation period to prevent the Department from determining or               
 collecting the correct tax due based on factual information                 
 discovered years after the fact.                                              
 Even the utilization of the North Slope Oil Field and the multiple-           
 ownership of TAPS have, despite their efficiencies, created                   
 disputes among and between the producers themselves that have taken           
 many years to resolve.                                                        
 Section 2 of proposed SB 185 ensures that the Department may                  
 utilize information discovered during the course of an appeal in              
 determining the correct amount of tax due.  This is only common               
 At the present time, the Division's normal audit practice is to               
 audit three or four years of monthly oil and gas production tax               
 returns in a single audit program.  We are presently auditing the             
 1987 - 91 period of the major producers.                                      
 Number 284                                                                    
 While some taxpayers may try to provide us information to complete            
 the audit assessments, we frequently find that the information is             
 incomplete and additional information is necessary to accurately              
 analyze and develop audit issues.  If the deadline expires prior to           
 receipt of the necessary data, assessment is based on incomplete              
 If SB 185 is not passed - audits may not be completed and disputes            
 from assessments will occur, resulting in re-auditing during the              
 administrative appeals process.  Too much tax revenue is at risk to           
 allow oil and gas producers to go un-audited because of unrealistic           
 statute of limitations restrictions.                                          
 In the face of the reduced oil prices on the world market and the             
 inevitable decline in North Slope oil production, every dollar of             
 tax assessed in our audits, and ultimately collected under Alaska's           
 tax laws, become more important to the state Treasury.                        
 It is not uncommon to receive comments about how old some of the              
 oil and gas tax cases are.  Let me point out that the recent Aramco           
 case decided by the U.S. Tax Court last December involved complex             
 issues similar to those arising under Alaska's production tax and             
 dealt with the 1979 - 82 tax years.  That case, and the Amerada               
 Hess Royalty litigation, both illustrate the amount of time and               
 work involved in resolving these complex matters.  These cases                
 should dispel any thought that these lingering disputes are due to            
 lack of activity on the part of the State of Alaska, which has been           
 diligent in pursuing resolution of these matters.                             
 The division presently has five assessments of AS 43.50 oil and gas           
 production tax against three producers whose assessments were                 
 corrected based on information disclosed during the informal                  
 conference or formal hearing stage.                                           
 The taxpayers potentially have much to gain by defeating SB 185.              
 Much of the Department's ability to issue these assessments has               
 arisen directly from data obtained through litigation against the             
 taxpayers in the Amerada Hess Royalty Case.  One producer even                
 developed a method of concealing the actual disposition of barrels            
 of ANS exchange from the consideration received, thereby burying              
 the audit trail.                                                              
 It has only been through legal discovery in the Amerada Hess                  
 Royalty case and the great volume of documents produced to the                
 State's attorneys, that auditors were finally able to obtain                  
 disposition of ANS crude.  That case took almost 10 years to                  
 prepare and many tens of millions of dollars in legal and                     
 consulting fees!                                                              
 Without the data obtained in the Royalty litigation, much of the              
 information used by our auditors would still be unavailable through           
 the peeling of the onion approach that producer company tax                 
 personnel put in front of the State of Alaska auditors.                       
 If the State was unable to toll the three-year and the six-year               
 statute of limitations during the administrative appeals process,             
 the State would be barred from determining the correct tax due                
 under Alaska law.  It is that amount to which the State is legally            
 entitled to, and only that amount, that the Department of Revenue             
 is trying to assess and collect.                                              
 One need only to look at the recent history of settlement revenues            
 received to grasp the magnitude of impact upon the State Treasury             
 these cases have.                                                             
 In summary, because of the large amount of public revenues at risk            
 and the Division's long-standing position and desire to assess and            
 collect the correct amounts of oil and gas production and "separate           
 accounting" taxes due the State of Alaska, I again, urge you to               
 pass Senate Bill 185 which confirms that the six-year collection              
 statute of limitations is tolled and allows for the issuance of               
 amended assessments during the administrative appeals process."               
 (Thus concluded the formal testimony from COMMISSIONER REXWINKEL.)            
 SENATOR KELLY opened the meeting to questions, and invited                    
 REPRESENTATIVE NAVARRE to speak.                                              
 REPRESENTATIVE NAVARRE asked, with all of the information from                
 Amerada Hess and other litigation up to this point, how long would            
 it take for an accurate assessment process to be initiated today.             
 MR. REXWINKEL said it would depend, and since they were more                  
 current with the 1987 to 1991 time frame, and he explained the                
 advantage of doing multiple years because of the audit efficiency.            
 He also explained many of the taxpayers liked to maintain a certain           
 amount of confidentiality over their sales agreements and other               
 contracts for a period of some time.                                          
 MR. REXWINKEL explained the production tax is based on the value              
 that could have been received, and they have to look at the                   
 prevailing value.  He also explained the difficulty because a lot             
 of the oil is either refined or exchanged, including multiple                 
 exchanges.  These chain of exchanges require complex procedures. If           
 they were all straight cash sales with no other consideration                 
 involved the process would be easier.  MR. REXWINKEL claimed they             
 had the barrel tracking down very well, also.                                 
 Number 340                                                                    
 MR. NAVARRE questioned the barrel tracking procedures and asked if            
 all of the procedures had been made easier since the litigation               
 such as the Amerada Hess case.                                                
 MR. REXWINKEL explained the Amerada Hess process provided his                 
 department with the data base of all the past years and was a                 
 tremendous help with respect to determining the amount of                     
 production and the barrel tracking in the years up to Amerada Hess.           
 He said, subsequent to that, it gave us a good base of knowledge,             
 plus the barrel tracking process because easier with better                   
 MR. NAVARRE questioned whether the bulk of the taxes, interest, and           
 penalties that are due the state for prior years, were from years             
 when arguably the state did not have the information necessary to             
 make an accurate assessment.                                                  
 MR. REXWINKEL said he was somewhat correct.  He explained it had              
 taken an extended period of time to receive all of the factual                
 information upon which to base a proper assessment of taxes.                  
 SENATOR SALO asked, in relation to the history on the number of               
 employees back in the late 1970's, if the information about the               
 value of oil was determined largely on information from the                   
 taxpayers themselves.  She wanted to know how that had changed.               
 MR. REXWINKEL explained the factual information, such as contracts            
 and the barrel tracking, initially came about during the Amerada              
 Hess litigation.  Since that time, he further explained, we have              
 been in a much better position, also, due to the increased staff,             
 within what is now the Oil & Gas Audit Division.  He gave credit              
 also to an economist division headed up by DR. CHARLES LOGSDON, the           
 Chief Petroleum Economist, which helps in some of the value                   
 considerations in other areas of the economy with prevailing value            
 Next, SENATOR KELLY introduced JOE HOUSEHOLDER, the General Tax               
 Counsel for Unocal Corporation, to testify on behalf of the Alaska            
 Oil and Gas Association (AOGA), and as chairman of the AOGA Tax               
 Committee.  He distributed copies of his prepared statement.                  
 Number 380                                                                    
 MR. HOUSEHOLDER explained, before he read his prepared statement,             
 he wanted to make a few points about CHARLIE COLE'S impassioned               
 plea, on behalf of the bill: "First, he indicated several times               
 that we were in control of whether or not to appeal, but the                  
 department controls the timetable of these appeals, both informal             
 and formal.  Thus, we are damaged by evidence or people lost by               
 delay.  Also, the department raises new issues, so how could be               
 have three feet of depositions on issues that are raised after                
 people die or are otherwise incapacitated.  Realistically, they are           
 in control, they, the audits, and the appeals on their schedule.              
 When they are done, tho, they should be done.  There must be an               
 Second, the State of Texas provision is not the same.  It is                  
 complex and although I have not studied it in detail, it appears to           
 me from reading it, that it only allows changes during the appeals            
 process during an open statute of limitations period, and then only           
 up to the amount of the original assessment.                                  
 Third, why is it that only we care about the money, and not the               
 morality, but he cares about the morality, and not the money.  I              
 don't think the two can be divorced.                                          
 Fourth, he says they are not changing the substantive tax law, only           
 the procedural rules, but this is semantics.  It is not a direct              
 change, but indirectly it allows him to continue to raise new                 
 issues, and change their interpretation of old issues for an                  
 indefinite period of time.                                                    
 Fifth, MR. COLE said we have not or will not be prejudiced, that we           
 are voluntarily extending to save money on interest or in hopes of            
 reducing the tax.  That is just bunko, but if we did not agree to             
 extend the statute, we were constantly threatened with larger                 
 assessments, and those companies that challenged them on it, called           
 their bluff, they lost, were assessed large penalties, sometimes              
 multiples of the tax.                                                         
 Finally, and most importantly, he said it will be an incentive for            
 the industry to settle if you approve this bill, but should you               
 decide to approve this bill, and we certainly urge you not to, it             
 will definitely be an incentive for the Department of Revenue never           
 to settle.  They will drag these appeals out forever, and continue            
 amending assessments ad nauseam.  Now I will read our prepared                
 Number 451                                                                    
 REPRESENTATIVE NAVARRE quoted MR. HOUSEHOLDER as saying those would           
 not agree to extending were punitively assessed.                              
 MR. HOUSEHOLDER - "I believe that's the case.  We, at Unocal,                 
 always extended, but whenever we were in a position where we                  
 thought we probably shouldn't, we were told we were just going to             
 get a larger assessment, because we got to protect our interests.             
 And, we do know that other people have told us they were assessed             
 large penalties in these situations."                                         
 REPRESENTATIVE NAVARRE asked if had looked at it from the                     
 department's perspective, under the mandate they have in statutes,            
 and whether it is in the State's best interest if they don't have             
 adequate information to make an assessment.  Shouldn't they assess            
 a larger number and then go back.                                             
 MR. HOUSEHOLDER - "I guess I would ask a question in response to              
 that.  How long do they need?  Some of these are ten years passed             
 the tax period.  I think they have had adequate time.  Its just               
 that they continue to invent new issues and look for new things,              
 and how long are we going to let it go on?"                                   
 SENATOR KELLY asked to listen to MR. HOUSEHOLDER give his prepared            
 testimony before more questions.                                              
 MR. HOUSEHOLDER - "Thank you for this opportunity too testify on              
 Senate Bill 185.                                                              
 AOGA is a trade association whose member companies account for the            
 majority of oil and gas exploration, production, transportation and           
 marketing activities in Alaska.  AOGA absolutely opposes SB 185.              
 This bill represents unwise and unfair tax policy.  It would set              
 terrible precedent.  It will provoke more litigation that it would            
 resolve.  Even the findings it purports to make as justification              
 for what it does are incomplete, misleading or simply untrue.  Let            
 me examine what SB 185 would do, in order to explain our reasons              
 for such strong opposition.                                                   
 SB 185 proposes to amend the statutes of limitations for taxes.               
 There are two of these statutes.  One gives the Department of                 
 Revenue three years from the time a tax return is filed, in which             
 to audit the return and issue an assessment for additional tax.               
 The other gives the Department six years from the time it issues a            
 tax assessment, in which to go start legal proceedings to collect             
 the tax claimed in the assessment.  There is no need for this                 
 legislation.  Under current law each of these statutes provides               
 that the time period may be extended by mutual agreement between              
 the Department and the taxpayer, and there is no limit to the                 
 number of times an extension may be further extended by mutual                
 agreement.  Since the very beginning of oil and gas production in             
 Alaska, it has been the general practice of oil and gas taxpayers             
 to agree to extensions whenever the Department asked for them.                
 This is common practice both within and outside Alaska.  It is also           
 fairly well settled law, at least in the U.S., that once a statute            
 of limitations period has expired, it cannot be resurrected,                  
 despite the willingness of the parties.  That brings me to an                 
 interesting point with respect to the subject matter here.  While             
 I am not personally knowledgeable about the tax affairs of other              
 AOGA members, I am familiar with those of Unocal.  Unocal has                 
 typically received its assessments on, or after, the very last day            
 of the extended limitations period - which, by the way, may have              
 been 10 years after the taxable period.  How then, could our appeal           
 of the assessment be found to extend the limitations period which             
 has already expired by the time we file the appeal?  I'll tell you,           
 the fact is that the Department is asking you to enact legislation            
 which will likely be unsuccessful in the Courts.  It is only the              
 retroactivity they can be interested in because they have not                 
 asserted a problem with receiving waivers under current law.                  
 Speaking of the courts, let me tell you what they say:                        
 'The purpose of statutes of limitations is to encourage promptness            
 in the prosecution of actions and thus avoid the injustice which              
 may result from the prosecution of state claims.  Statutes of                 
 limitations attempt to protect against the difficulties caused by             
 lost evidence, fading memories and disappearing witnesses.'                   
 These aren't my words, nor the words of anyone else with AOGA.                
 They are the words of the Alaska Supreme Court in Byrne v. Ogle,            
 reported at page 718 in Volume 488 of the Second Series of the                
 Pacific Reporter.                                                             
 Think about that for a minute.  The purpose is 'to encourage                  
 promptness ... and thus avoid the injustice which may result from             
 the prosecution of state claims.'  How might this 'injustice'                 
 occur?  Because of 'the difficulties caused by lost evidence, faded           
 memories and disappearing witnesses.'  In other words, as time                
 passes it gets harder and harder to prove what exactly you did and            
 why you did it.                                                               
 Number 500                                                                    
 Statutes of limitations are suppose to let you defend yourself                
 while you still have the evidence available to do it.  AOGA members           
 are facing tax claims based on events 15 years or more in the past.           
 Not only do memories fade and witnesses disappear during such a               
 long time, but people may die and documents may be difficult to               
 locate.  Even corporate taxpayers may merge and disappear                     
 altogether during such a long time.                                           
 Now, what does SB 185 propose to do?  Well, Section 2 would amend             
 the three-year statute of limitations to allow the Department of              
 Revenue to 'increase or decrease the amount of tax due by issuing             
 or amending an assessment at any time during the administrative               
 consideration of a taxpayer grievance on an assessment[.]'  In                
 other words, instead of requiring the Department to do its audits             
 and make its claims while the evidence is still fresh, it will                
 allow the tax audits to drag on while the Department and its                  
 outside consultants try to invent new ways of viewing the past.               
 All it will need to do is issue an assessment for substantial sums            
 that is full of mistakes or questionable claims, and that will                
 force the taxpayer to appeal.  Under the proposed changes, there is           
 no restraint on how long the appeal process can go on and the                 
 Department could make assessments indefinitely so long as it held             
 the appeal within the Department's procedures.                                
 But SB 185 goes beyond being an open invitation for the Department            
 of Revenue to ignore the quest for prompt and reasonable audits.              
 So far only a handful of tax appeals have made it into court and              
 become public.  But it is clear from those that have become public,           
 that the Department at various times in the past has told taxpayers           
 what the tax rules mean and how they should comply with the law.              
 Sometimes this advice came from the Department's auditors during an           
 audit of the taxpayer.  Sometimes it came from the Commissioner of            
 Revenue.  sometimes it came in the form of instructions on the tax            
 return forms.  One would expect taxpayers to follow such advice               
 when it is given.  Indeed, if they don't follow it and don't have             
 a reasonable cause for not following it, they can be subject under            
 AS 43.05.220 to negligence and failure-to-pay penalties of up to              
 30% of the amount of their underpayment.                                      
 But as the years passed and the tax appeals dragged on and on,                
 something bad started to happen. The Department began getting new             
 advice from outside consultants and lawyers about how much more               
 taxes could have been due if the Department hadn't given it                   
 original advice.  Some of its own auditors also found ways to claim           
 additional taxes if only the Department hadn't given that                     
 inconsistent earlier advice.  And so the Department began issuing             
 new assessments which repudiated its earlier positions and its                
 advice that taxpayers had relied on.  Instead, the new assessments            
 asserted different positions under strained and unexpected re-                
 interpretations of the tax statutes and regulations.                          
 SB 185 would ratify this process of retroactive revisionism.  As              
 long as the Department still has a taxpayer's appeal pending before           
 it, its audit and litigation teams would be free to develop radical           
 new theories for yet more taxes and, under SB 185, they could amend           
 the assessment to incorporate those new positions.                            
 How does this square with the idea of 'avoiding justice' due to               
 'difficulties caused by lost evidence, faded memories and                     
 disappearing witnesses' which the Alaska Supreme Court said was the           
 purpose of s statute of limitations?  Well, of course, that's a               
 rhetorical question because it's obvious SB 185 doesn't square with           
 that idea at all.  Until a tax appeal finally makes it out of the             
 Department and into court - which could be 10, 15 or perhaps even             
 20 years or more after the fact - there would effectively be no               
 three-year statute of limitations at all under Section 2 of SB 185            
 and no limit on the exposure that a taxpayer may face simply for              
 having appealed an assessment containing mistakes.                            
 Section 3 of SB 185 effectively removes the six-year statute of               
 limitations as well while a tax appeal is pending before the                  
 Department.  That section proposes to amend the six-year statute so           
 that the six-years don't begin to run until 'the final ....                   
 TAPE 94-19, SIDE A                                                            
 Number 001                                                                    
 (MR. HOUSEHOLDER continues to read his prepared statement.)                   
 ... administrative determination of the grievance[.]' In other                
 words, the six years don't start until the Department finally                 
 issues its final decision in the tax appeal and the matter moves on           
 to court.                                                                     
 So between Sections 2 and 3 of the bill, there would effectively be           
 no statute of limitations at all until the Department has finished            
 its consideration of the tax appeal.                                          
 We in AOGA do not believe this is a sound policy for Alaska.  This            
 is not an easy time for the Alaskan oil industry.  Prudhoe Bay                
 production has been in decline for five years and is down by 25%              
 despite billions of dollars of continued capital investment during            
 the same period.  This year and in the coming years other fields on           
 the North Slope will begin their own production declines.  Cook               
 Inlet production has been in decline for over 20 years.  On top of            
 this, we have been hit by low oil prices, which makes it that much            
 tougher to continue the investments that need to be made to slow              
 down the rate of decline.                                                     
 Each company up here is competing for money against other parts of            
 the same company.  None of us can afford to make all of the good              
 investments that we have opportunities for.  So we only choose the            
 best investments.  Not just the best economically - often the                 
 opportunities elsewhere are economically comparable to the ones               
 here.  In such cases, if we are to make the Alaskan investment                
 instead of the other one, there has to be something else that gives           
 Alaska a competitive edge.                                                    
 SB 185 would take away some of Alaska's current edge in these                 
 decisions because it would increase the uncertainty about what our            
 tax obligations are.  We can pay today exactly what the Department            
 of Revenue tells us to pay, but we would have no assurance that the           
 Department will not change its position in the future and try to              
 apply the new position retroactively back to today through the                
 audit and appeals process.                                                    
 Both ARCO and BP have said that half the North Slope production               
 they expect to see in the year 2000 - just six years from now -               
 could come from investments that have not yet been made.  I submit            
 that if Alaska de-stabilized its tax system and scares off those              
 investments, the cost to the State in terms of lost taxes and                 
 royalties from the production will exceed any extra taxes that                
 Alaska might gain by adopting SB 185 and trying to administer its             
 taxes by hindsight.                                                           
 So far I've been talking about the problems with Sections 2 and 3             
 of SB 185.  Before I move on to other parts of the bill, let me               
 make two final points.                                                        
 Number 051                                                                    
 One, why is Section 3 necessary?  The Department of Revenue                   
 controls the pace of the tax appeals process within the Department.           
 Under the Department's own regulations, 15 AAC 05.030(e)-(g), the             
 administration hearing officer sets the schedule. If a taxpayer               
 tries to drag the hearing out unduly, the hearing officer has the             
 authority to cut off 'irrelevant and unduly repetitious                       
 evidence[.]' 15 AAC 05.030(h).  So if the Department, not the                 
 taxpayer, controls the schedule and pace of the tax appeal, why               
 can't the Department make sure it gets the hearing done within six            
 years?  Why does it need SB 185 to keep the clock from starting for           
 the six years until the hearing is over and the Department issues             
 its formal decision?  And if the Department does somehow find it              
 needs more than six years to get done with a tax appeal, why                  
 doesn't it just ask taxpayers for an extension of the six-year                
 The second point I'd like to make about Sections 2 and 3 is that              
 they are limited only to certain oil and gas taxes - namely, the              
 separate-accounting income tax that was repealed in 1981, and the             
 production tax.  It's not a very friendly message that the State is           
 sending to the petroleum industry if it changes the rules of the              
 game just for us and no one else.                                             
 In fact, it's one more bit of Alaska's competitive edge that would            
 be thrown away.  Why do this and invite at the same time litigation           
 over whether it's constitutional to discriminate this way against             
 one group of taxpayers.                                                       
 Now I would like to discuss the retroactivity of SB 185, which is             
 in Section 4 of the bill.  Not only are the proposed changes to the           
 statutes of limitation bad policy on a prospective basis, but                 
 Section 4 would make them retroactive by more than 18 years to the            
 beginning of 1976.                                                            
 There are three fundamental problems with this retroactivity.  One,           
 there is already litigation pending over the three-year statute of            
 limitations.  In fact, the Alaska Supreme Court is due to hear the            
 case on the three-year statute in May.                                        
 Adopting SB 185 retroactively would interfere in the orderly                  
 judicial resolution of the litigation.  The courts are, under our             
 constitutional system of government, the arbiter of what the                  
 statutes mean.  We don't think it is appropriate to change the                
 language of a statute retroactively and certainly not before the              
 courts have had the chance to rule on what it means.                          
 The second fundamental problem is that such extreme retroactivity             
 simply goes too far.  For some taxpayers, one or both of the                  
 statutes of limitations has expired, and they now have certain                
 rights that have vested as a result.  To take away those rights               
 retroactively and without compensation as SB 185 would do is, we              
 believe, unconstitutional.                                                    
 Number 102                                                                    
 The third fundamental problem with retroactivity relates to wise              
 tax policy.  Suppose the courts ultimately decide it is within                
 Alaska's constitutional powers to reach back more than 18 years and           
 change the rules of the game.  Is this the stability that invites             
 people to invest in Alaska?  No, it isn't.  For if the State can do           
 it to oil companies, nothing will keep it from being able to de it            
 legally to miners, fishermen, timber interest, investors in a Gas             
 Pipeline, or the general public at large.  Not only will SB 185               
 cast a pall over the oil industry here, but over all private                  
 sectors of the state economy. Don't cripple Alaska's future through           
 a misguided attempt to change the past.                                       
 Before I close, I need to correct the record on a number of                   
 statements in the findings and purposes of Section 1 that are                 
 inaccurate, incomplete or simply untrue.                                      
 First, on lines 6 and 7 of page 1, the finding asserts that the               
 Department has taken a certain position, described in the next                
 three lines, in the context of the separate-accounting income tax             
 under former AS 43.21 and the production tax under AS 43.55.  This            
 is incomplete.  We believe the department also takes this position            
 on the income tax under AS 43.20, and may also take it for other              
 taxes that we are unfamiliar with.  We fail to see why the findings           
 on this point, if true, should be limited to just the two oil and             
 gas taxes.                                                                    
 Second, on line 11 of page 1, the finding asserts that the                    
 Department's interpretation of AS 43.05.260 is correct.  This is              
 either false or misleading.  The Superior Court has ruled that the            
 Department's interpretation of AS 43.05.260 is incorrect.  While              
 the Department's appeal of that decision to the Alaska Supreme                
 Court is still pending, the current law if the case is that the               
 Department is wrong.                                                          
 Third, on lines 12-14 of page 1, the finding asserts that this is             
 a clarification.  In last year's hearing, ATTORNEY GENERAL COLE               
 testified that while working on tax claims and assessments, he                
 found 'corrections' that needed to be made to procedural tax                  
 statutes, procedures and regulations to 'balance the scales' as he            
 put it.  Corrections are not clarifications.  The finding also                
 asserts that the Department's position is a 'long-standing                    
 administrative interpretation' justifying the retroactivity of SB
 185 to the date of enactment of AS 43.05.260, the three-year                  
 statute of limitations.                                                       
 It is simply not true that the Department's position is long-                 
 standing.  It apparently dates back no earlier than May 1989 and              
 certainly does not date back anywhere near to the 1976 enactment              
 date of the statute.  Let me give you the facts to prove this.                
 Number 154                                                                    
 Under AS 43.21 taxpayers filed their tax returns no later than                
 April 15 of the year following their tax year, and the Department             
 issued tax assessments based on those returns no later than August            
 15, 1979 and each year thereafter while as AS 43.21 was in effect             
 all said that the assessed amount of tax 'may change as the result            
 of any audit findings within the three years of the date of this              
 notice of assessment.'  The regulation also said, 'Returns and                
 assessments under this section are subject to amendment for three             
 years from the date of the original notice of assessment.'  15 AAC            
 21.700(e).  In other words, the Department's own assessment notices           
 as well as its regulations said that the separate-accounting tax              
 assessment for the 1978 tax year, for example, was subject to                 
 amendment until August 15, 1982 - the third anniversary of the                
 August 15, 1979 tax assessment for the 1978 tax year.  This is not            
 consistent with the position that the Department may amend an                 
 assessment 'at any time during the administrative consideration of            
 an appeal[.]'  And so any long-standing position on the three-year            
 certainly doesn't relate back to the 1978-81 period when the                  
 Department was actively administering the tax.                                
 Further evidence that the Department's position is of a much more             
 recent date comes from a letter sent by the department to oil and             
 gas taxpayers seeking their comments to help the Department                   
 formulate a position as to the proper interpretation of the three-            
 year statute.  The letter, dated March 25, 1988, said, 'Your                  
 participation is invited in order to assist the Commissioner in               
 focusing on the broader implications of various possible rulings on           
 the statute of limitations.'                                                  
 There were 'various possible rulings' still open at that time, or             
 the Department would not have asked taxpayers for their input.  And           
 if there were 'various' rulings still open, that implies that no              
 ruling or position had yet been formally taken.                               
 Number 192                                                                    
 The Department explicitly confirmed that it had taken no formal               
 position on the three-year statute of limitations in 1987 and 2988            
 in the course of litigation by Standard Alaska Production Company.            
 In 1985 auditors in the Department had issued a new tax assessment            
 for separate accounting for the 1978 tax year, which was already              
 the subject of appeal by Standard for an earlier assessment for               
 that year.  The new assessment was after the three-year period had            
 expired, but the auditor asserted that the three-year statute                 
 didn't bar them from issuing the new assessment so long as the                
 appeal of the earlier one was still within the Department.                    
 Standard sued in March 1987 for declaratory judgement, asking the             
 court to rule on the question whether the three-year statute barred           
 the new assessment or not.  The Attorney General, acting on behalf            
 of the Department, argued to the courts that they should not hear             
 Standard's case before Standard had completed its appeal before the           
 department.  The Alaska Supreme Court summarized these arguments as           
  The Department moved to dismiss Standard's complaint on the                  
  ground that Standard 'had not yet exhausted its administrative               
  remedies.' It argued that no official Department view as to                  
  Standard's limitations claims had yet been formulated ...                    
 The case is Standard Alaska Production Co. v. Dept. of Revenue,             
 decided April 21, 1989 and reported in Volume 773 of the Second               
 Series of the Pacific Reporter, beginning at page 201.  The                   
 quotation appears on page 204.  So unless the Department was                  
 misrepresenting the situation to the courts in that case, it had              
 not yet formulated an official view about the three-year statute of           
 limitations as late as 1988 when the case was being briefed and               
 argued before the Alaska Supreme Court.  In fact, if the Department           
 had formulated an official position while the Court's decision was            
 pending, it had a duty to disclose that material development to the           
 Court.  So one may presume from the Department's silence that it              
 still did not have a formal position on the three-year statute of             
 limitations as late as April 21, 1989, when the Alaska Supreme                
 Court issued its decision in Standard.                                      
 The first time that the Department formally took a position was               
 indeed a few weeks after the Supreme Court decided the Standard             
 case.  On May 26, 1989, the Department issued its formal hearing              
 decision in Exxon's appeal over separate-accounting for its 1978              
 tax year.  In the Exxon decision, the Department formally took the     e    
 position the three-year statute does not bar it from issuing a new            
 assessment for additional taxes while the tax period is under                 
 appeal before the Department for an earlier assessment.  Thus,                
 contrary to the 'findings' in SB 185, the Department did not adopt            
 its interpretation of the three-year statute until May 1989.                  
 Perhaps a little less than five years is long enough to justify               
 going back over 13 years earlier to amend the statute on the basis            
 of the 'long standing' position.                                              
 Number 245                                                                    
 A fourth inaccuracy in the findings appears in lines 8-9 on page 2            
 of SB 185.  It says the Department's audit has been so lengthily              
 because its ability to audit the separate-accounting and production           
 taxes 'throughout the 1970's and 1980's ... was constrained by its            
 audit resources[.]'  In one sense that statement is true because              
 any limit on the resources available could theoretically operate as    as   
 a constraint.  But the statement is misleading because it implies             
 that the constraint was material and kept the Department from                 
 acting faster. In fact, however, the public record shows that, in             
 every Session of the Legislature since North Slope production                 
 began, the Department had received virtually every dollar they                
 asked for in the governor's budget proposals for oil and gas                  
 audits.  The Attorney General has informed the Legislature that the           
 State of Alaska has spent over 176 million in outside legal fees              
 and costs for litigation involving oil and gas royalty and tax                
 issues since 1977.                                                            
 As finding (a)(7) on lines 2-3 on page 3 of the bill indicates, all           
 of the disputes in the production tax and by far the largest                  
 disputes in separate-accounting are over the value at the point of            
 production of oil and gas, which was the key issue in the North               
 Slope royalty litigation as well.  Surely the Department shared in            
 and benefitted from the fruits of this massive investment.  Any               
 'constraint' on the Department therefore was at such a high level             
 that it is almost absurd to call it a constraint at all.                      
 A fifth misleading 'finding' in SB 185 appears on lines 10-14 on              
 page 2.  The finding says the length of these tax audits was caused           
 in part by 'taxpayers requested suspension of action on assessments           
 pending the outcome of a challenge to the constitutionality of the            
 separate accounting method[.]'  It is true taxpayers asked for                
 suspension of action on their separate-accounting assessments, but            
 the fact is the Department did not stop auditing taxpayers nor did            
 it suspend action on the assessments.                                         
 Standard Alaska Production Company, for example, was issued                   
 assessments in 1981, 1984 and 1985 for separate-accounting for the            
 1979 and 1980 tax years; and it received an assessment in 1986 for            
 production tax for the months from January 1979 through December              
 1982.  Exxon also had similar experiences during this period.  This           
 was all while the litigation was pending.  Contrary to what the               
 findings says, the taxpayers' requests for action to be suspended           
 did not slow the Department down at all.                                      
 A sixth erroneous finding appears in lines 18-20 on page 2 of SB
 185, which says that the proposed changes to the six-year statute             
 of limitations 'embodies the interpretation by and practice of the            
 Department of Revenue since the enactment of AS.05.270' in 1976.              
 The fact is the Department has never had any such interpretation or           
 practice, or it did, it never told any taxpayers about it.  Unlike            
 the separate-accounting tax regulations, for example, - which                 
 specifically say the assessment is open it audit adjustment for               
 three years from the date of the original assessment - there is not           
 now and has never been any regulation at all by the Department                
 about the fix-year statute. None for separate-accounting, none for            
 production tax, none for any other specific tax, and none for taxes           
 If you think about it for a moment, this lack of regulations isn't            
 surprising.  As I explained before, the Department controls the               
 pace of tax appeals pending before it.  So it is well within the              
 Department's own control to make sure it issues its formal                    
 decisions in tax appeals within the six-month period.  The six-year           
 period should never be a problem if the Department is doing its               
 job.  Moreover, the statute says the six-year period can be                   
 extended by agreement with the taxpayer.  Throughout the 1980s                
 taxpayers in the oil and gas area regularly agreed to extend the              
 three-year statute of limitations when the Department asked them              
 to.  There is no reason to think they wouldn't do the same with the           
 six year statute.  But the Department never asked any of us to                
 extend the six-year statute.                                                  
 Only after the Department found that the six year period had run              
 out for some taxpayers and it had forgotten or otherwise failed to            
 seek an extension of that period from them, did the Department                
 decide it needed to have an interpretation or practice regarding     g    
 the six-year statute.  This finding is a complete fabrication,                
 especially to the extent it purports to justify making the changes            
 to the six-year statute retroactive to 1976.                                  
 A seventh inaccurate finding appears in lines 21-30 on page 2 of              
 the bill.  It asserts that 'often a tax levy cannot be made or a              
 proceeding in court cannot be initiated' because the appeal of a              
 tax assessment 'begins a process that often takes several years to            
 complete[.]' and because judicial resolution of the tax appeal                
 'often lasts several more years' after the Department's final                 
 decision, and because starting a separate action in addition to the           
 tax appeal 'is impractical and inefficient use of ... resources[.]'           
 The administrative appeal of a tax assessment may take several               
 years but that shouldn't be six years.                                       
 Number 305                                                                    
 As I just said, the Department controls the schedule for tax                  
 appeals before they go to court.  Moreover, the fact that court               
 appeals of a tax assessment may last several more years is                  
 irrelevant.  When the tax appeal finally gets into court, that                
 makes the beginning of a court proceeding under which any                     
 additional tax that is owed can be collected.  The tax appeal                 
 statute, AS 43.05.240(d) says, 'If after the appeal is heard it               
 appears that the tax was correct, the court shall confirm the tax.            
 In incorrect, the court shall determine the amount of tax ...'  It            
 would be silly if the courts, having made these determinations,               
 said they could not force the taxpayer to pay the tax.  We believe            
 the court proceeding to hear the taxpayer is indeed a proceeding in     n    
 court under which the tax can be collected, which satisfies the              
 requirements of AS 43.05.270.  In other words, if the tax appeal              
 makes it to court within six years of the assessment, the                     
 requirements of AS 43.05.270 are satisfied and the Department will            
 be able to collect the correct amount of tax in the course of that            
 judicial appeal.  No second court action is needed after the courts           
 decide the tax appeal, and so it is irrelevant how long the courts            
 take to hear that appeal.  Thus, these factors cited in the finding           
 do not support the conclusion that a court proceeding cannot be               
 initiated within the six-year limitations period.                             
 An eighth erroneous statement appears in lines 9-10 on page 3 in              
 the purposes subsection of Section 1 of the bill.  It says the              
 purpose of this legislation is 'to validate and affirm the long-              
 standing administrative interpretation and practices of the                   
 Department of Revenue[.]'  As I have shown earlier, the Department            
 did not adopt its present view of the three-year statute until May            
 26, 1989 when it issued its decision in Exxon's separate-accounting           
 appeal.  And in fact as late as April 21, 1989 the Department, by             
 its silence to the Alaska Supreme Court in the Standard case,               
 implicitly denying that it had yet adopted an official view on this           
 statute.  And as I have also shown, it never had any position on              
 the six-year statute until it found itself in trouble two or three            
 years ago with this statute.  therefore, it is wrong to say that              
 the purpose of this legislation is to validate and affirm long-              
 standing positions when they are not long-standing at all.                   
 Finally, I would draw your attention to one more inaccuracy in the            
 bill, in lines 11-14 on page 3 in the purposes subsection of                
 Section 1.  The bill says one of its purposes is 'to resolve the              
 inconsistent decisions' in the Tesoro Case and the Exxon Case.  The           
 Tesoro Case involves the three-year statute regarding tax                     
 assessments.  With different statutes, there is no way the case               
 could be inconsistent.  And even if they were inconsistent, neither    er   
 judge's decision sets any precedent that binds any other judge.  In           
 civil cases only the Alaska Supreme Court sets binding precedent.             
 So in due course the Alaska Supreme Court would reconcile whatever            
 the inconsistency might have been.  But, as it turns out, the State           
 has settled the Tesoro Case, so there is nothing from that case               
 that could cause an inconsistency with the Exxon Case.                        
 I have gone on at some length rebutting the inaccurate, misleading            
 or even false statements in the findings and purposes section of              
 the bill because it is a very serious thing to play fast and loose            
 with the truth as part of the justification for legislation.  As              
 recited in the findings and purposes, the major justifications for            
 this legislation, and particularly its retroactivity, turn out to             
 be untrue.                                                                    
 Number 352                                                                    
 I believe the sponsors of this legislation are well-meaning and               
 justifiably interested and concerned about the lengthy tax appeals            
 that are going on.  Unfortunately, their good intentions and                  
 sincere desire to improve the situation have not been well served             
 by the parties who asked them to introduce this bill.  The sponsors           
 relied on those other parties to prepare accurate justifications              
 for the bill.  those other parties did not do so.  Instead, in                
 drafting the findings and purposes of this bill, those parties                
 indulged in the hyperbole and exaggeration that are common in legal           
 advocacy before a court or administrative tribunal.  Legislation is           
 the solemn exercise of sovereign power by the People's elected                
 representatives.  It is not the place for exaggeration and                    
 hyperbole.  SB185 is a piece of bad legislation, but the findings             
 and purposes that are offered to justify it are a travesty and an             
 abuse against this Legislature.                                               
 In summary, SB 185 represents bad tax policy.  The proposed change            
 to the three-year statute of limitations would put taxpayers in               
 jeopardy of increased tax claims at any time while their appeals              
 are still before the Department.  With the proposed change to the             
 six-year statute, there would be no time limits on the Department             
 for processing tax appeals, and the present system of litigating              
 tax disputes that are 10, 15 or more years old with be perpetuated.           
 But even more de-stabilizing, these changes would be made                     
 retroactively by more than 18 years.  And finally, SB 185 singles             
 out just one industry - oil and gas - for these changes.  All this            
 sends a very hostile message about Alaska not only to the                     
 managements of the companies who are already here, but also to                
 those who might be thinking about investing in Alaska.                        
 On behalf of AOGA and its Tax Committee, I urge you to reject SB
 185.  Thank you."  (This ended MR. HOUSEHOLDER'S formal testimony.)           
 SENATOR KELLY asked for any questions of MR. HOUSEHOLDER.                     
 REPRESENTATIVE NAVARRE - "In part of your testimony, you say the              
 Department constantly goes back and gets new advice from outside              
 counsels and lawyers in order to assess more taxes.  Does the                 
 industry ever use attorneys or outside counsel, or otherwise, to              
 try to reduce their tax burden?"                                              
 MR. HOUSEHOLDER - "They certainly use attorneys and accountants to            
 protest the assessments they get, and they certainly use attorneys            
 and accountants in all of their tax matters, that is not in                   
 REPRESENTATIVE NAVARRE - "I am trying to determine what is                    
 legitimately owed to the State.  I don't want to change the taxes             
 or send the wrong message, but tax stability has been an issue ever           
 since I have been in the legislature.  Under the tax structure and            
 the constitution, and our responsibility as legislators, every                
 single legislature has the responsibility to determine what is in             
 the best interest in the State.  The members of the legislature are           
 changing and so will the way they look at and the way they                    
 interpret what is in the best interest of the State.  That's our              
 responsibility.  To assume that we would not change anything simply           
 for stability would be to say we could never change license fees,             
 or anything, because some previous legislature determined the best            
 way to do it.                                                                 
 I don't want to change the tax system just to ding taxpayers, I               
 want to do what is in the best interest of the State, and I think             
 that is what the interest of the committee and the legislature is,            
 in order to find out what is in the best interest of people of the     e    
 State, and what is legitimately owing, and how we get to some way             
 to determine based on our statutes and what is owed to the State.             
 What we should be legitimately getting, and what we shouldn't, and            
 if the statute of limitations question is being used ... as a way             
 of trying to get out of a legitimate obligation to the State, then            
 we ought to go back and try to do everything we can to shore up the           
 State's case.  If it is just being used in order to go back and try           
 to ding the companies for something they didn't owe us, it is not             
 legitimate.  That's what we are trying to sort out."                          
 MR. HOUSEHOLDER - "I believe prior legislatures passed the                    
 provisions that we are talking about here, in the best interest of            
 the State, that you have procedural rules that the administrations            
 are to follow, so that you have a sound tax system that will allow            
 companies to come in and invest in Alaska, which they did.  Now the           
 administration is asking you to go back and change what that former           
 legislature thought was a good rule, in order to correct for, in              
 one case, mistakes they've by letting the six-year period lapse -             
 when they could have just asked us for a waiver - and they didn't.            
 They always asked us for waivers for the three-year statutes, so              
 the fact that they didn't ask on the six-year six is, in effect,              
 just a mistake.  On the three year assessments, there should be a             
 finality to taxes, and in some cases, some taxpayers are done.  In            
 Unocal's case, we've settled some things or had other years closed            
 out.  Other taxpayers might be open for that same period, and it              
 tomorrow, people in Darrel's organization find some new issues,               
 those people that are still in appeals, will have those new issues            
 raised, but those won't come against Unocal.  And, that's just the            
 way the tax administration works in the whole world.  It works by             
 statutes of limitations, so that you are not open indefinitely.               
 If you were always open indefinitely, you could change the amount             
 of tax, or the rate of tax, or a substantive law provision, and               
 nobody would invest in Alaska."                                               
 Number 425                                                                    
 REPRESENTATIVE NAVARRE - "The legislature, probably at the time of            
 attempting to get more sophisticated about how we assessed taxes              
 and how we determined the value oil, ... we probably should have              
 suspended all of the statues of limitations at that time, until               
 litigation was finished, which helped us to learn how determine               
 that value.  That is what would have been in the best interest of             
 the State, because absent that, how do we really determine what was           
 legitimately owed to the State."                                              
 MR. HOUSEHOLDER - "I don't know how long it takes.  Unocal extended           
 its statute of limitations; we just got assessment last year for              
 1986, that's a long time ago.  I don't think it takes that long to            
 figure it out."                                                               
 SENATOR SALO - "You state in your testimony that the State is in              
 total control of the time line.  Yet, when I asked that question              
 awhile ago, who shares the blame for things that drag on ... do you           
 really believe that the taxpayer shares none of the blame for these           
 cases dragging on?"                                                           
 MR. HOUSEHOLDER - "No, I think that with hindsight, it might have             
 been better for some of the taxpayers just to refuse to extend, and           
 hope that the State would move these things along, but in effect,             
 every time somebody did that, they got hit with these penalties or            
 told they would be given a big assessment, and so they were afraid.           
 They let it drag along, because of this fear, but with hindsight,             
 maybe we shouldn't have done that."                                           
 SENATOR LINCOLN - "I have a number of questions, we will have our             
 attorney general's office respond to a number of questions you have           
 raised, either at some other meeting or in written response.  You             
 have now, two or three times, alluded to the extended period of               
 time that could go on by mutual agreement, but is that more of a              
 gentleperson's agreement?"                                                    
 MR. HOUSEHOLDER - "No, these were written contracts.  Every six               
 months I would be asked by the auditor to extend the statute of               
 limitations under the three-year assessment."                                 
 SENATOR LINCOLN - "But, if one party does not agree to it?"                   
 MR. HOUSEHOLDER - "They both have to agree."                                  
 SENATOR LINCOLN - "And also, you said a couple of times, that SB
 185 would take away Alaska's current edge.  What is our current             
 Number 457                                                                    
 MR. HOUSEHOLDER - "Well, I think companies like to invest in                  
 domestic opportunities, and Alaska has some good opportunities, but           
 companies such as Unocal ... see a lot of opportunities outside the           
 U.S. and other parts of the United States, in the Gulf of Mexico,             
 and we have to place our dollars where we think they will result in           
 the best return.  And I can tell you that these big assessments we            
 got last year, did not help Alaska in its edge on those kind of               
 SENATOR LINCOLN - "The other point I want to make ... when you say,           
 'It will allow the tax audits to drag on while the Department and             
 its outside consultants try to invent new ways of viewing the                 
 past.'  I can't imagine why, with the 60 legislative individuals              
 and the administration beating the doors, on earth a Department               
 would want to drag on cases in court when we, as 60 individuals               
 representing the people of the State, are saying we need to resolve           
 these issues.  We need to resolve the litigations on the table now.           
 I can't believe that we intentionally would want to see cases drag            
 on, if it would not be to anyone's benefit."                                  
 MR. HOUSEHOLDER - "It might be to their benefit.  They don't have             
 a job when they are done."                                                    
 There being no further questions, SENATOR KELLY apologized to those           
 who were unable to testify: NORMA CALVERT of Marathon Oil, HUGH               
 MALONE and JOHN SACKETT representing themselves, JOHN RINGSTAD                
 representing BP, WALT FURNACE representing the Alliance, JOHN                 
 BINKLEY representing himself, BECKY GAY representing the Resource             
 Development Council, and GEORGE FINDLEY representing ARCO.                    
 SENATOR KELLY promised a further hearing as time permitted.                   
 There being no further business to come before the committee, the             
 meeting was adjourned at 5:05 p.m. by SENATOR KELLY.                          

Document Name Date/Time Subjects