Legislature(2021 - 2022)BUTROVICH 205

09/09/2021 03:30 PM Senate RESOURCES

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as

Audio Topic
03:38:37 PM Start
03:39:46 PM SB3002
05:06:05 PM Presentation: Tax Overview: Motor Fuels, Corporate Income, and Per Barrel Credits
06:07:52 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Testimony <Invitation Only> --
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                       September 9, 2021                                                                                        
                           3:38 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Joshua Revak, Chair                                                                                                     
Senator Peter Micciche, Vice Chair                                                                                              
Senator Click Bishop                                                                                                            
Senator Gary Stevens                                                                                                            
Senator Natasha von Imhof                                                                                                       
Senator Jesse Kiehl                                                                                                             
Senator Scott Kawasaki                                                                                                          
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
OTHER LEGISLATORS PRESENT                                                                                                     
Representative Cronk                                                                                                            
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 3002                                                                                                            
"An Act  establishing an  income tax on  certain entities  in the                                                               
state;   relating   to   the  motor   fuel   tax;   relating   to                                                               
nontransferable tax  credits against  the oil and  gas production                                                               
tax; and providing for an effective date."                                                                                      
     - HEARD & HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB 3002                                                                                                                 
SHORT TITLE: TAX: MOTOR FUEL, CORP. INCOME, O&G                                                                                 
SPONSOR(s): SENATOR(s) BEGICH                                                                                                   
09/01/21       (S)       READ THE FIRST TIME - REFERRALS                                                                        
09/01/21       (S)       FIN                                                                                                    
09/02/21       (S)       RES REFERRAL ADDED BEFORE FIN                                                                          
09/09/21       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
WITNESS REGISTER                                                                                                              
SENATOR TOM BEGICH                                                                                                              
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Sponsor of SB 3002.                                                                                       
MERCEDES COLBERT, Staff                                                                                                         
Senator Tom Begich                                                                                                              
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Presented the sectional analysis for SB 3002                                                              
on behalf of the sponsor.                                                                                                       
EMILY NAUMAN, Attorney                                                                                                          
Legislative Legal Services                                                                                                      
Legislative Affairs Agency                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Answered questions during the hearing on SB
COLLEEN GLOVER, Director                                                                                                        
Tax Division                                                                                                                    
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Co-presented the overview of Alaska's taxes                                                               
on motor fuels, corporate income, and per barrel credits.                                                                       
NICOLE REYNOLDS, Deputy Director                                                                                                
Tax Division                                                                                                                    
Department of Revenue (DOR)                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Co-presented the overview of Alaska's taxes                                                               
on motor fuels, corporate income, and per barrel credits.                                                                       
JHONNY MEZA, Commercial Section Manager                                                                                         
Division of Oil and Gas                                                                                                         
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Co-presented the overview of Alaska's taxes                                                               
on motor fuels, corporate income, and per barrel credits.                                                                       
DAN STICKEL, Chief Economist                                                                                                    
Tax Division                                                                                                                    
Department of Revenue (DOR)                                                                                                     
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions and  provided information                                                             
during the overview  of Alaska's taxes on  motor fuels, corporate                                                               
income, and per barrel credits.                                                                                                 
ACTION NARRATIVE                                                                                                              
3:38:37 PM                                                                                                                    
CHAIR  JOSHUA   REVAK  called   the  Senate   Resources  Standing                                                             
Committee meeting  to order at 3:38  p.m. Present at the  call to                                                               
order  were Senators  Stevens, Kawasaki,  Kiehl,  Von Imhof  (via                                                               
teleconference, Micciche and Chair  Revak. Senator Bishop arrived                                                               
shortly thereafter.                                                                                                             
           SB 3002-TAX: MOTOR FUEL, CORP. INCOME, O&G                                                                       
3:39:46 PM                                                                                                                    
CHAIR JOSH REVAK  announced the consideration of  SENATE BILL NO.                                                               
3002 "An  Act establishing an  income tax on certain  entities in                                                               
the  state;  relating   to  the  motor  fuel   tax;  relating  to                                                               
nontransferable tax  credits against  the oil and  gas production                                                               
tax; and providing for an effective date."                                                                                      
3:41:02 PM                                                                                                                    
SENATOR  TOM BEGICH,  Alaska State  Legislature, Juneau,  Alaska,                                                               
stated that SB  3002 seeks to establish an income  tax on certain                                                               
entities relating to a motor  fuels tax and a nontransferable tax                                                               
credit against  the oil  and gas production  tax. He  stated that                                                               
the Fiscal  Plan Working Group  of 2021 was historic  because two                                                               
members  from   the  House   Majority,  House   Minority,  Senate                                                               
Majority,  and  Senate  Minority  worked  together  to  create  a                                                               
bipartisan  revenue plan.  The plan  received widespread  support                                                               
from the public, administration, and legislators.                                                                               
SB 3002 addressed  a portion of the working  group's revenue plan                                                               
by increasing revenue  from three sources. He  expressed a desire                                                               
for SB 3002  to move to the next committee  of referral since the                                                               
Senate previously heard or passed the proposals in the bill.                                                                    
3:44:30 PM                                                                                                                    
Using the estimates  assumed by the working group,  SB 3002 would                                                               
increase revenue  by $195 million;  $110 million would  come from                                                               
the change  to the per  barrel tax credit structure,  $18 million                                                               
from  the motor  fuel tax  adjustment, and  $67 million  from the                                                               
expansion of  corporate income tax structure  to capture excluded                                                               
3:45:06 PM                                                                                                                    
SENATOR  BEGICH opined  there is  a need  for a  revenue bill  to                                                               
advance to the finance committee for exploration.                                                                               
He said the oil and gas  industry will object to SB 3002 claiming                                                               
lack  of  competition  and  that   additional  taxation  will  be                                                               
harmful.  Yet, Alaskan  citizens  have contributed  $2 billion  a                                                               
year of  expected permanent  fund dividend  income over  the past                                                               
five years.                                                                                                                     
SENATOR STEVENS asked  how much revenue would come  from taxing S                                                               
SENATOR BEGICH answered $67 million in the first year.                                                                          
3:47:21 PM                                                                                                                    
MERCEDES  COLBERT,  Staff,  Senator   Tom  Begich,  Alaska  State                                                               
Legislature,  Juneau, Alaska,  presented  the sectional  analysis                                                               
for SB 3002 on behalf of the sponsor:                                                                                           
     Section 1: Adds a new  section to the Alaska Net Income                                                                    
     Tax  Act. This  section establishes  a new  tax of  9.4                                                                    
     percent for  certain corporations  earning at  least $4                                                                    
     million  on  qualified  net taxable  income.  This  tax                                                                    
     applies  to  sole   proprietorships,  partnerships,  or                                                                    
     federally defined  S and  C corporations,  not publicly                                                                    
SENATOR  BEGICH interjected  that a  company with  net income  of                                                               
$4.1 million  would pay 9.4  percent tax  on the amount  above $4                                                               
million, which would be $100,000.                                                                                               
SENATOR REVAK asked how the $4 million threshold was determined.                                                                
SENATOR BEGICH  responded that the  $4 million cut-off  came from                                                               
proposed legislation from Senator Wielechowski.                                                                                 
MS. COLBERT added that the  legislation set the $4 million amount                                                               
with a specific entity in mind.                                                                                                 
SENATOR VON IMHOF questioned why  the percentage rate jumped from                                                               
0 to 9.4 percent.                                                                                                               
3:49:58 PM                                                                                                                    
SENATOR  BEGICH  responded  that  9.4  percent  mirrors  existing                                                               
legislation  for corporate  income tax,  which stair-steps  up to                                                               
9.4 percent for  companies earning over $220,000  in net profits.                                                               
The threshold  is set at $4  million for S corporations  to avoid                                                               
hurting mom-and-pop  businesses. Some corporations chose  to be S                                                               
corporations and avoid Alaska's state corporate tax.                                                                            
SENATOR BEGICH  stated that British Petroleum  divested itself of                                                               
assets in Alaska to an  S corporation. Previous legislation tried                                                               
to  recapture  the  lost  $40 million  in  corporate  income  tax                                                               
revenue and remedy the loophole.                                                                                                
SB 3002  would begin  taxing S corporations  only on  net profits                                                               
exceeding $4 million.                                                                                                           
3:52:19 PM                                                                                                                    
SENATOR STEVENS asked  if individuals who own  S corporations pay                                                               
income tax instead of corporate state tax and what the rate is.                                                                 
SENATOR BEGICH replied  that owners of S  corporations pay income                                                               
tax if the  state has an income tax. An  S corporation owner does                                                               
not pay individual state income tax in Alaska.                                                                                  
SENATOR STEVENS  commented that the  $40 million in  lost revenue                                                               
is truly a loss.                                                                                                                
SENATOR BEGICH replied, correct.                                                                                                
3:53:47 PM                                                                                                                    
SENATOR VON IMHOF expressed concern  that a particular company is                                                               
being targeted for taxable revenue.  She asked for the definition                                                               
of the term "qualified taxable income in Section 1(c).                                                                          
SENATOR  BEGICH  responded that  Emily  Nauman  would answer  the                                                               
question. He commented  that the loss of  $40 million highlighted                                                               
a flaw  in Alaska's  revenue system. When  drafting SB  3002 with                                                               
Legislative Legal  Services (Leg  Legal), the  goal was  to close                                                               
the  loophole  without  destroying mom-and-pop  businesses;  that                                                               
threshold  was $4  million. He  opined that  upstanding corporate                                                               
companies   willingly  contribute   to   the  state's   corporate                                                               
3:55:48 PM                                                                                                                    
SENATOR REVAK  requested that questions  for [Leg Legal]  be held                                                               
until after  the presentation.  He asked  the sponsor  to confirm                                                               
that the tax  applies to S corporations,  LLCs, partnerships, and                                                               
other entities making over $4 million in net income.                                                                            
SENATOR   BEGICH  replied,   correct.  It   also  includes   sole                                                               
3:56:34 PM                                                                                                                    
MS. COLBERT resumed reading the sectional analysis                                                                              
     Section  2: Increases  the surcharge  from $0.0095  per                                                                    
     gallon  to  $0.015 per  gallon  on  refined fuel  sold,                                                                    
     transferred, or used in Alaska.                                                                                            
     Section  3: Increases  the tax  on motor  fuel sold  or                                                                    
     transferred within  the state  from $0.08 to  $0.16 per                                                                    
     gallon.  This section  also increases  motor fuel  sold                                                                    
     and transferred for  the use in and  on watercraft from                                                                    
     $0.05 cents to $0.10 per gallon.                                                                                           
     Section  4: Increases  the tax  on motor  fuel consumed                                                                    
     from  $0.08  to $0.16  per  gallon.  This section  also                                                                    
     increases the  tax on motor  fuel consumed for  the use                                                                    
     in  and on  watercraft from  $0.05 cents  to $0.10  per                                                                    
     Section  5: Amends  AS  43.40.030(a),  relating to  the                                                                    
     refund of  the motor fuel  tax for non-highway  use, by                                                                    
     increasing the fuel tax refund  from $0.06 to $0.12 per                                                                    
     gallon for  internal combustion  engines. Adds  a $0.05                                                                    
     per  gallon refund  eligibility for  commercial fishing                                                                    
3:58:04 PM                                                                                                                    
SENATOR  MICCICHE  stated that  with  the  increased use  of                                                                    
electric  vehicles  (EV)  nationwide,   there  has  been  an                                                                    
increase in tax legislation  aimed at capturing revenue from                                                                    
EV use to pay for highway  maintenance. He asked if that was                                                                    
considered in SB 3002.                                                                                                          
SENATOR BEGICH  answered that tax  on EVs was  considered in                                                                    
the  original motor  fuels bill.  It is  not included  in SB
3002 because  Leg Legal  advised it might  lead to  a single                                                                    
subject rule  violation. He  said he  is willing  to support                                                                    
standalone legislation  on an  EV tax but  does not  want to                                                                    
risk the integrity of SB 3002 by including it.                                                                                  
SENATOR  REVAK   asked  why  there   is  an   exemption  for                                                                    
commercial fishing vessels and how much it would be.                                                                            
4:00:13 PM                                                                                                                    
SENATOR  BEGICH  stated that  Leg  Legal  might be  able  to                                                                    
provide  the amount  of the  exemption.  He said  commercial                                                                    
fishing vessels were exempted because  they were exempted in                                                                    
the bill from which it was drafted. The motor fuels tax                                                                         
portion of SB 3002 is taken from the final House version of                                                                     
Senate Bill 115.                                                                                                                
4:00:58 PM                                                                                                                    
MS. COLBERT continued reading the sectional analysis:                                                                           
     Section   6:  Amends   AS  43.55.024(j),   relating  to                                                                    
     nontransferable  oil   production  tax   credits.  This                                                                    
     section  repeals the  $8,  $7, and  $6  per barrel  tax                                                                    
     credits, effectively capping the  per barrel tax credit                                                                    
     at  $5 per  barrel if  the average  gross value  at the                                                                    
     point of  production for  the month  is less  than $110                                                                    
     per barrel.                                                                                                                
     Section  7:  Applies  the   new  corporate  income  tax                                                                    
     established in section  1 of this bill to  the tax year                                                                    
     beginning  on or  after January  1, 2022.  32-LS1152/B|                                                                    
     9.9.2021 | 2                                                                                                               
     Section 8:  Transition language  for the  Department of                                                                    
     Revenue  to adopt  regulations  necessary to  implement                                                                    
     this bill if passed into  law. Regulations may not take                                                                    
     effect before January 1, 2022.                                                                                             
     Section 9: Immediate effective  date for the Department                                                                    
     of Revenue  to begin work on  regulations as authorized                                                                    
     under Section 8.                                                                                                           
     Section  10:  Except for  Section  9,  this bill  takes                                                                    
     effect January 1, 2022                                                                                                     
4:02:06 PM                                                                                                                    
SENATOR BEGICH added that his  hope is that the finance committee                                                               
makes passage of SB 3002  contingent upon legislation relating to                                                               
a change in the dividend statute.                                                                                               
CHAIR REVAK  asked if the purpose  of SB 3002 is  to increase the                                                               
permanent fund dividend.                                                                                                        
SENATOR BEGICH replied  that the purpose of SB 3002  is to ensure                                                               
the  state  has  an  acceptable comprehensive  fiscal  plan.  The                                                               
fiscal plan working  group identified that a plan  must include a                                                               
constitutional percent of market  value, finality to the dividend                                                               
question, revenue for a balanced  budget, and spending review. SB
3002  addresses  two elements  suggested  by  the working  group.                                                               
Legislators must be  willing to make painful changes  if they are                                                               
serious about establishing a state fiscal plan.                                                                                 
4:04:03 PM                                                                                                                    
SENATOR MICCICHE asked  if the surcharge increase  from $0.95 per                                                               
gallon to $1.05 in Section 2  was calculated to capture the Spill                                                               
Prevention and Response (SPAR) funding  gap and if the Department                                                               
of Environmental Conservation (DEC)supports it.                                                                                 
SENATOR BEGICH  answered that it  does meet the  amount discussed                                                               
in the DEC subcommittee meeting.  He does not know DEC's position                                                               
but  his belief  is that  the department  was in  support of  the                                                               
SENATOR  KIEHL  commented  that it  seems  counterintuitive  that                                                               
Section 6  proposes deleting the  per barrel tax credit  at lower                                                               
net oil prices but keeps them  at higher net oil prices. He asked                                                               
why this approach  was taken and if he would  be receptive to the                                                               
existing approach.                                                                                                              
SENATOR  BEGICH stated  he is  amenable to  change and  explained                                                               
that the approach in SB 3002  was selected because it seemed less                                                               
damaging to the oil industry.  Garnering less opposition from the                                                               
oil  industry is  favorable to  the  state. The  proposal was  an                                                               
attempt to  compromise. He stated  his preference for  a property                                                               
tax on  oil company land  use because  it would net  more revenue                                                               
and  be  stable.  However,  the   idea  of  a  property  tax  met                                                               
opposition from  the oil industry.  He stated his desire  for the                                                               
legislature to find the least painful means to compromise.                                                                      
SENATOR VON  IMHOF asked  what evaluation  was done  to determine                                                               
that  the oil  tax  credit  proposal in  SB  3002  would be  less                                                               
damaging to the oil industry,  aside from comparing it to Senator                                                               
Wielechowski's bill, which eliminates all tax credits.                                                                          
4:07:33 PM                                                                                                                    
SENATOR BEGICH  replied that Senator Wielechowski's  bill was the                                                               
comparison. It  is more damaging  to the oil industry  to provide                                                               
zero tax credits than some tax credits.                                                                                         
The goal  of SB 3002  is to  initiate solutions to  state revenue                                                               
needs.  Any bill  that  adds  an industrial  tax  burden will  be                                                               
viewed unfavorably by the industry.  Likewise, a reduction in the                                                               
dividend  check will  damage  the  individual. The  comprehensive                                                               
fiscal plan was  designed in the spirit of compromise  to get the                                                               
legislature discussing revenue.                                                                                                 
When discussing an  overall fiscal plan, there must  be a revenue                                                               
element, or it  is not a fiscal plan. If  legislators are serious                                                               
about doing a  comprehensive plan, it must have  revenue. SB 3002                                                               
was  designed to  get members  into a  discussion on  revenue. He                                                               
said  he is  hopeful members  will move  SB 3002  to the  finance                                                               
committee for further analysis.                                                                                                 
4:09:25 PM                                                                                                                    
SENATOR  VON IMHOF  surmised that  SB 3002  was not  economically                                                               
evaluated  to   determine  its   potential  effect   on  Alaska's                                                               
investment in the  North Slope, which is the  largest employer in                                                               
the state and provides competitive jobs.                                                                                        
She  opined  that  revenue  would  not  be  addressed  until  the                                                               
permanent dividend issue was solved.  The state needs to know how                                                               
revenue will  be spent  in order to  have a  comprehensive fiscal                                                               
plan.  Large dividends  should not  be paid  at the  exclusion of                                                               
Alaska's needs.                                                                                                                 
4:10:51 PM                                                                                                                    
SENATOR BEGICH responded that passing  SB 3002 is contingent upon                                                               
the  dividend statute  being  changed. All  measures  need to  be                                                               
considered simultaneously. He opined  that an overall fiscal plan                                                               
could  not  be  achieved  if   revenue  discussions  on  industry                                                               
continue to be delayed.                                                                                                         
He agreed  that the oil  industry is critically important  to the                                                               
state;  however, the  fishing industry  is the  largest employer.                                                               
The  next largest  is  the  State of  Alaska,  followed by  local                                                               
government. The  largest single private  employer may be  the oil                                                               
industry regarding  salaries earned.  Yet, many employees  do not                                                               
live  in Alaska,  which results  in uncaptured  revenue. A  state                                                               
income tax would not necessarily capture this revenue if passed.                                                                
He reiterated  that SB  3002 is trying  to balance  resources and                                                               
interests for individuals and industries.  It is an all-inclusive                                                               
bill where everyone pays something.                                                                                             
He  stated that  the issues  of revenue  and dividend  change had                                                               
been discussed  and debated. There  will be no  definitive answer                                                               
if  the  legislature does  not  address  them simultaneously.  He                                                               
recognized that  members want to  defend their  interests. Still,                                                               
he implored  them to consider  revenue alongside  dividend change                                                               
to achieve  a comprehensive  fiscal plan for  the benefit  of the                                                               
4:13:35 PM                                                                                                                    
CHAIR  REVAK  commented that  the  $4  million threshold  is  not                                                               
difficult to achieve for many  businesses. He asked if industries                                                               
or businesses other than fishing were considered for exemption.                                                                 
4:14:21 PM                                                                                                                    
SENATOR BEGICH replied  that members could adjust  the $4 million                                                               
threshold,  although constituents  expressed concern  about taxes                                                               
affecting small businesses. He reiterated  that the tax is on net                                                               
income above $4 million, not gross income.                                                                                      
He stated  the portion of SB  3002 dealing with a  motor fuel tax                                                               
is the  same language used in  a bill that passed  the Senate and                                                               
stood  a   good  chance  of   passing  the  House  but   for  the                                                               
interruption caused by COVID.                                                                                                   
SENATOR BEGICH  called SB  3002 a plagiarist's  bill since  it is                                                               
comprised of previously heard bills that had broad consensus.                                                                   
4:16:55 PM                                                                                                                    
MS.  COLBERT began  the presentation  on slide  3 that  shows the                                                               
legislative history on corporate tax.  She noted that many of the                                                               
concepts  have been  discussed in  the last  four or  five years.                                                               
Some bills  applied only to  S or C corporations,  others applied                                                               
to both,  and some applied only  to oil and gas  companies. Since                                                               
2017,  five bills  have been  introduced  regarding the  S and  C                                                               
corporate income tax loophole. None  of the recent bills that are                                                               
listed have received hearings.                                                                                                  
She displayed  slide 4 of the  more recent history of  motor fuel                                                               
taxes. SB  3002 reflects a  bill currently in House  finance. She                                                               
noted  that Senate  Bill 115  was the  only motor  fuel tax  bill                                                               
heard during the  31  Legislature. It passed  the Senate and came                                                               
close to  passing in the  House but  was a casualty  of COVID-19.                                                               
During the  30   Legislature, two  bills were  heard but  did not                                                               
make it to the floor. They were introduced  during the 1  Special                                                               
Session but were  not heard. In the  29  Legislature  in 2015 and                                                               
2016, several bills  were heard; House Bill 4001  and Senate Bill                                                               
4001 were omnibus tax bills introduced in the  4  Special Session                                                               
that included taxes  on a number of industries.  She related that                                                               
the purpose  for listing these bills  is to show that  taxes have                                                               
been discussed on the record.                                                                                                   
4:19:42 PM                                                                                                                    
MS.  COLBERT  turned  to  slide   5  that  lays  out  the  recent                                                               
legislative  history  of  the  per   barrel  oil  production  tax                                                               
credits. She stated  that a bill aimed at the  per barrel oil tax                                                               
heard. This morning, the House  Ways and Means Committee held its                                                               
first hearing on  a bill similar to SB 3002.  Senate Bill 129 was                                                               
introduced in  the 31   Legislature but  not heard.  Changes were                                                               
passed into  law in the 30   Legislature, but per  barrel credits                                                               
were  unchanged.  A subsequent  bill  considered  changes to  per                                                               
barrel tax credits but did not  pass out of House finance. During                                                               
the 29   Legislature,  House Bill 247  considered changes  to the                                                               
per barrel tax  credit. Although it passed, the  changes were not                                                               
made. House  Bill 326 was  referred to House Resources  and House                                                               
Finance but received no hearing.  She added that this provides an                                                               
overview, not a comprehensive bill history.                                                                                     
4:21:13 PM                                                                                                                    
MS.  COLBERT reiterated  that SB  3002 uses  language from  bills                                                               
introduced in the recent past. It  would impose a 9.4 percent net                                                               
income   tax    to   sole   proprietorships,    partnerships,   S                                                               
corporations, and  C corporations that  make at least  $4 million                                                               
in profits.                                                                                                                     
MS. COLBERT said  that the State of Alaska has  not changed motor                                                               
fuel taxes since 1970. She read slide 7:                                                                                        
    • When enacted in 1970, $0.08 tax on motor fuel would                                                                       
        be worth $0.54 today.                                                                                                   
     • The average cost of a gallon of gas in the US was                                                                        
        $0.36 per gallon in 1970. As of 2021, it is $2.94                                                                       
        per gallon.                                                                                                             
        • Alaska's fuel tax has lost 85 percent of its                                                                          
        purchasing power to help pay for highway, ferry, and                                                                    
        harbor maintenance.                                                                                                     
MS. COLBERT stated  that slide 8 provides a brief  history of the                                                               
motor fuels tax.  In 1945 Alaska levied its first  motor fuel tax                                                               
at $0.01 per  gallon. In 1970 it established the  current rate of                                                               
$0.08. In 1977  the marine fuel tax was increased  to its present                                                               
value of $0.05  per gallon. In 1994 the aviation  tax was changed                                                               
to $0.047  per gallon, which SB  3002 does not change.  In 2015 a                                                               
surcharge for the  oil spill prevention and  response (SPAR) fund                                                               
was established.                                                                                                                
4:23:16 PM                                                                                                                    
MS. COLBERT moved  to slide 9 that compares  Alaska's motor fuels                                                               
tax to other states and read:                                                                                                   
      • Alaska ranks 50th in the nation for highway and                                                                         
        marine fuel tax rates.                                                                                                  
    • Passage of this bill would move Alaska up to 43rd in                                                                      
        the nation for highway fuel taxes and remain at 50th                                                                    
        for marine fuel taxes.                                                                                                  
     • The national average for State motor fuel taxes is                                                                       
        nearly 26 cents per gallon.                                                                                             
      • This bill does not impact aviation fuel. Alaska                                                                         
        remains competitive among the lowest in the nation                                                                      
        for aviation and jet fuel tax rates.                                                                                    
MS. COLBERT  said an outcry occurred  when a tax on  jet fuel was                                                               
considered  because Anchorage  was  the fourth  or fifth  busiest                                                               
cargo airport.  The aviation  fuel tax was  not considered  in SB
3002 to keep Alaska competitive.                                                                                                
4:24:04 PM                                                                                                                    
MS.  COLBERT stated  that estimates  indicate  that Highway  fuel                                                               
revenue would  be $29.7  million to  $31.4. It  would be  used to                                                               
maintain roads and  is an account that  receives matching federal                                                               
dollars. Marine fuel would go  to the watercraft fuel tax account                                                               
that is used  for water and harbor  facilities maintenance, which                                                               
would be about $5.5 million  per year. The refined fuel surcharge                                                               
goes  to the  SPAR fund  and  is about  $3.5 million  a year.  As                                                               
currently drafted, the total annual  increase would be upwards of                                                               
$40 million a year.                                                                                                             
SENATOR  BEGICH  interjected  that  total  annual  revenue  would                                                               
increase from $38.5 million to $40.7 million.                                                                                   
MS. COLBERT  said the legislature  has discussed  AS 43.55.024(j)                                                               
at length  over the past  decade. It  establishes nontransferable                                                               
oil production tax credits. SB  3002 would remove the credit caps                                                               
of  $8,  $7,  and  $6   listed  in  AS  43.55.024(j)  (1-4).  The                                                               
established  new credit  cap  will be  at $5  per  barrel if  the                                                               
average gross  value at  the point of  production (GVPP)  for the                                                               
month is less than $110 per barrel.                                                                                             
4:26:10 PM                                                                                                                    
MS.  COLBERT turned  to slide  12 and  said the  oil tax  credit,                                                               
motor fuels tax, and expanded  corporate income tax are estimated                                                               
to bring  in $195  million by  fiscal year  2022. That  amount is                                                               
predicted to  increase to  over $500 million  per year  by fiscal                                                               
year  2030. These  amounts  were determined  by  the fiscal  plan                                                               
working group who  extrapolated figures from the  fiscal notes of                                                               
previous bills.                                                                                                                 
4:26:47 PM                                                                                                                    
SENATOR  BEGICH  asked if  there  were  any questions  about  the                                                               
SENATOR  STEVENS   asked  what  happened  to   the  lost  revenue                                                               
following the passage of Senate Bill 21 in 2013.                                                                                
MS. COLBERT  replied that the  Department of Revenue  (DOR) would                                                               
address that question.                                                                                                          
CHAIR  REVAK  requested  Leg Legal  address  questions  from  the                                                               
4:27:50 PM                                                                                                                    
EMILY NAUMAN,  Attorney, Legislative Legal  Services, Legislative                                                               
Affairs Agency, Alaska State  Legislature, Juneau, Alaska, stated                                                               
her understanding  that in Section  1 subsection(c)  was designed                                                               
to  avoid gaming  subsection  (a)  that puts  a  tax on  entities                                                               
having  taxable  income  of  $4   million.  That  subsection  was                                                               
designed  to give  the  Department of  Revenue  the authority  to                                                               
combine the income  of entities that appear to  be splitting into                                                               
smaller units to avoid reaching the $4 million cap.                                                                             
MS. NAUMAN stated that a low  to moderate single subject risk was                                                               
the reason for  not including an electric vehicle (EV)  fee in SB
3002. If included,  the bill adjoins taxes and  fees. In general,                                                               
fees go to  the department they originated from,  while taxes are                                                               
broadly  collected  and  serve  the general  fund.  SB  3002  was                                                               
drafted  to be  bulletproof. The  entire  bill would  fail if  it                                                               
fails the single subject test.                                                                                                  
4:29:36 PM                                                                                                                    
SENATOR  MICCICHE stated  the  motor fuels  tax  bill passed  the                                                               
Senate and advanced  partially through the House.  The EV portion                                                               
of that bill was segmented into SB  3002. He asked why there is a                                                               
single subject issue with SB 3002  but not the bill from which it                                                               
was drafted.                                                                                                                    
MS.  NAUMAN replied  that all  sections  of the  other bill  were                                                               
related to  motor vehicles. SB  3002 has provisions  about taxes,                                                               
so  the  single  subject  of  the bill  has  changed  from  motor                                                               
vehicles to taxes.                                                                                                              
4:30:42 PM                                                                                                                    
CHAIR  REVAK  recognized that  Representative  Cronk  was in  the                                                               
4:30:54 PM                                                                                                                    
SENATOR  KIEHL stated  he does  not recall  a distinction  in the                                                               
constitution  between taxes  and fees.  He used  the Division  of                                                               
Motor  Vehicles as  an example  of raising  more revenue  through                                                               
fees than it uses, which presents  the argument that all fees are                                                               
taxes. He asked if Alaska  courts have opined on this distinction                                                               
and its importance to the single subject rule.                                                                                  
MS.  NAUMAN answered  that the  courts  have not  opined on  that                                                               
specific  distinction. It  has been  discussed between  attorneys                                                               
and  the Leg  Legal  office.   It  was omitted  from  SB 3002  to                                                               
achieve zero risk of violating the single subject issue.                                                                        
SENATOR BEGICH  stated the intent of  excluding an EV tax  was to                                                               
remove the risk  of having SB 3002 struck down  after passing. He                                                               
relied on the advice of Leg Legal  to avoid the risk. He does not                                                               
object  to changes  but cautioned  against having  a bill  struck                                                               
down  for invalidation  reasons. He  said he  supports standalone                                                               
legislation on EVs.                                                                                                             
SENATOR KIEHL commented  that it seems unlikely SB  3002 would be                                                               
struck down  under the  single subject rule  for inclusion  of EV                                                               
4:33:15 PM                                                                                                                    
SENATOR BISHOP stated the genesis  behind the motor fuels tax has                                                               
not  changed.  Roads  need  to  be  maintained,  but  maintenance                                                               
stations  have closed  due  to a  lack of  funds.  He stated  his                                                               
support of the motor fuels tax has not changed.                                                                                 
SENATOR VON IMHOF stated that fairness  seems to be lacking in SB
3002.  Entities  are  excluded  from   the  motor  fuels  tax,  S                                                               
corporation tax, and per barrel  credit rollback. She opined that                                                               
a  lower broad-based  tax  bill  would be  better  and asked  why                                                               
exemptions were put forward instead.                                                                                            
4:36:16 PM                                                                                                                    
SENATOR  BEGICH  stated  he  favored   a  state  income  tax  and                                                               
introduced a broad-based income tax  bill that also captures out-                                                               
of-state  income.  He  welcomes  all members  to  co-sponsor  it.                                                               
However, the  governor indicated he  would not support  an income                                                               
SENATOR  BEGICH said  he would  support a  broad-based sales  tax                                                               
that exempted  clothing and food,  but it has not  been proposed.                                                               
Therefore, three previously heard  bipartisan bills were combined                                                               
into  one in  an attempt  to  pass the  Senate and  House with  a                                                               
simple majority. Combining  the bills appeared to  be the easiest                                                               
way to obtain  passage of a revenue bill and  bring resolution to                                                               
the dividend formula issue.                                                                                                     
SENATOR  BEGICH  reiterated that  SB  3002  was not  designed  to                                                               
single out any entity. To the extent  that it does is a result of                                                               
the legislative process.                                                                                                        
He encouraged members to change  SB 3002 or present a broad-based                                                               
bill that can garner enough support  to be passed because time is                                                               
of the  essence. He stated  his desire for  SB 3002 to  receive a                                                               
fair  hearing and  be  moved  to the  next  committee to  receive                                                               
4:39:30 PM                                                                                                                    
SENATOR  VON  IMHOF said  the  state  budget is  balanced  before                                                               
paying a dividend. New revenue is  only needed to pay a dividend.                                                               
Therefore, she  is opposed  to new revenue  being paid  towards a                                                               
dividend  until the  dividend calculation  is solved.  Alaska has                                                               
many  needs  and  the  assignment   of  tax  revenues  should  be                                                               
determinable. The cart is being  put before the horse. She stated                                                               
her belief  that the dividend  issue needs to be  resolved first,                                                               
and  then the  needs  of the  state  assessed before  discussions                                                               
about taxes happen.                                                                                                             
She  opined that  SB  3002 is  premature,  unfair, targeted,  and                                                               
would have  significant unintended economic consequences.  She is                                                               
not  interested  in  dissecting  or amending  a  bill  where  the                                                               
appropriation of revenue is unknown.                                                                                            
4:41:41 PM                                                                                                                    
SENATOR BEGICH  stated his  motivations are  purely to  solve the                                                               
problems presented by the fiscal plan working group.                                                                            
CHAIR REVAK warned against impugning any member's motives.                                                                      
4:42:28 PM                                                                                                                    
SENATOR MICCICHE  stated he has talked  about a tax plan  that is                                                               
low,  broad, and  as temporary  as possible  to address  Alaska's                                                               
fiscal  situation. He  opined that  the approach  to closing  the                                                               
fiscal gap  should be all-inclusive.  He acknowledged  the intent                                                               
of   SB  3002   as  a   conversation  starter   for  creating   a                                                               
comprehensive fiscal  plan. He  stated his  belief that  the fuel                                                               
tax  is unfair.  Commercial fishers  receive a  $0.05 per  gallon                                                               
holiday on  fuel, and aviation  is exempt even though  Alaska has                                                               
many airports  to maintain. He  asked why electric  vehicles, the                                                               
fishing industry,  and the aircraft  industry were  excluded from                                                               
the motor fuels section of SB 3002.                                                                                             
4:45:24 PM                                                                                                                    
SENATOR BEGICH explained  that SB 3002 was derived  from the last                                                               
version of the  motor fuels tax bill. Aviation  fuel was excluded                                                               
from the original  version because, in 2017,  there was testimony                                                               
presented to the  House Resources Committee on  the direct impact                                                               
the tax would have on the  ability of the Fairbanks and Anchorage                                                               
airports to be competitive in the world market.                                                                                 
Despite fairness, he  reminded members that SB  3002 includes the                                                               
motor fuels tax bill as it passed  in 2020. He does not know what                                                               
compromises occurred  before it  reached the Senate  floor. There                                                               
were elements  that Senators believed  should have  been included                                                               
that were not. He welcomed changes  to SB 3002 but cautioned that                                                               
additions could  make the bill  less likely  to pass. He  said he                                                               
would like the bill to be discussed so that it can be moved.                                                                    
4:47:32 PM                                                                                                                    
SENATOR  MICCICHE stated  he would  research competition  and its                                                               
relevance  to  the aviation  fuel  tax  and  other areas  of  the                                                               
economy  that may  be overlooked.  He  uses state  services as  a                                                               
commercial fisherman  and is unaware  of a reason to  be excluded                                                               
from the tax.                                                                                                                   
He concluded  that low,  broad, and as  temporary as  possible is                                                               
the  approach to  use in  the development  of a  fiscal plan.  He                                                               
opined that  taxes should  be temporary until  the growth  of the                                                               
permanent fund improves Alaska's  fiscal situation. He added that                                                               
a motor fuel tax was unlikely to be temporary.                                                                                  
4:49:20 PM                                                                                                                    
CHAIR REVAK asked if there  is research indicating how industries                                                               
would  be affected  by imposing  the  $4 million  net income  tax                                                               
SENATOR BEGICH replied he is not  aware of any studies, but there                                                               
could have been answers if  Senator Wielechowski's bills had been                                                               
heard.  He  reiterated  that  the   $4  million  threshold  is  a                                                               
presupposed  number that  can be  raised. He  appreciates members                                                               
hearing SB 3002.                                                                                                                
4:51:26 PM                                                                                                                    
CHAIR  REVAK  stated  it  is  important  for  resource  committee                                                               
members to know a bill's impact on resources.                                                                                   
4:52:01 PM                                                                                                                    
SENATOR KIEHL commented  that the idiom, putting  the cart before                                                               
the horse, does not reflect the  process of finding a solution to                                                               
Alaska's  fiscal  problem.  He  opined that  the  legislature  is                                                               
"nailing together a  cart while stitching a  harness and teaching                                                               
the  horse  to take  a  bit."  He  appreciates that  members  are                                                               
working to figure out a fiscal solution.                                                                                        
He  mentioned S  corporations and  said he  perceives a  fairness                                                               
discrepancy in the oil industry  tax structure of SB 3002 because                                                               
two  companies  that produce  the  same  resource from  the  same                                                               
basin,  under  the  same  lease terms,  and  the  same  workforce                                                               
structure pay materially  higher taxes than one  other company in                                                               
particular.  He asked  if that  is  a fairness  issue that  needs                                                               
4:53:22 PM                                                                                                                    
SENATOR  BEGICH  answered yes.  There  is  an unfair  competitive                                                               
advantage because  the income  tax requirement  is not  the same.                                                               
This scenario applies to any S  or C corporation with net profits                                                               
of $4 million  that circumvents its corporate  tax obligation. He                                                               
quipped  that Alaska  could have  all S  corporations and  a $200                                                               
million fiscal gap.                                                                                                             
4:54:25 PM                                                                                                                    
CHAIR REVAK held SB 3002 in committee.                                                                                          
4:55:09 PM                                                                                                                    
At ease                                                                                                                         
^Presentation: Tax  Overview: Motor Fuels, Corporate  Income, and                                                               
Per Barrel Credits                                                                                                              
 PRESENTATION: TAX OVERVIEW: MOTOR FUELS, CORPORATE INCOME, AND                                                               
                       PER BARREL CREDITS                                                                                     
5:06:05 PM                                                                                                                    
CHAIR REVAK  reconvened the meeting  and announced  the committee                                                               
would hear a presentation from  the Department of Revenue and the                                                               
Department of Natural Resources.                                                                                                
5:06:35 PM                                                                                                                    
COLLEEN  GLOVER, Director,  Tax Division,  Department of  Revenue                                                               
(DOR), Anchorage,  Alaska, introduced the presenters  and offered                                                               
to  answer questions  on the  presentation,  Tax Overview:  Motor                                                               
Fuel, Corporate Income, and Per Barrel Credits.                                                                                 
5:07:28 PM                                                                                                                    
NICOLE  REYNOLDS, Deputy  Director, Tax  Division, Department  of                                                               
Revenue  (DOR), Anchorage,  Alaska,  stated slide  3 provides  an                                                               
overview  of  the  motor  fuels  tax statutes  in  AS  43.40  and                                                               
regulations that interpret the statutes.                                                                                        
She stated that the American  Petroleum Institute, Alaska has the                                                               
lowest  combined federal,  state, and  local gasoline  and diesel                                                               
tax  rates.  Florida  and Pennsylvania  have  lower  fuel  excise                                                               
rates, but  both states  impose other taxes  and fees  that bring                                                               
the  amount  higher  than  Alaska. Motor  fuel  is  considered  a                                                               
general tax when sold by  qualified dealers. They are responsible                                                               
for collecting the tax and  surcharge then remitting the proceeds                                                               
to DOR monthly.                                                                                                                 
5:09:42 PM                                                                                                                    
MS. REYNOLDS  said slide 5  breaks out the total  collections for                                                               
each fuel type and the surcharge  from t FY 2017 through FY 2020.                                                               
The  figures  were taken  from  the  2020 Department  of  Revenue                                                               
Annual  Report. Surcharge  proceeds  are considered  unrestricted                                                               
general fund  revenue. It is  set aside for appropriation  to the                                                               
oil  and hazardous  substance release  prevention account.  It is                                                               
intended  to benefit  the Spill  Prevention  and Response  (SPAR)                                                               
Division of the Department of Environmental Conservation (DEC).                                                                 
Tax proceeds are considered designated  general fund revenue. The                                                               
first sixty percent  of aviation fuel tax revenue  is refunded to                                                               
local communities that  own or operate an  airport. The remaining                                                               
revenue  is deposited  into the  aviation fuel  tax account.  The                                                               
legislature may appropriate this  money for capital and operating                                                               
costs of airports. Revenue from  the marine fuel tax is deposited                                                               
into  the  water  fuel  tax  account in  the  general  fund.  The                                                               
legislature  may  appropriate this  money  for  water and  harbor                                                               
Revenue from motor fuel tax  on non-highway vehicles is deposited                                                               
into  the non-public  highway use  general fund.  The legislature                                                               
may  allocate this  money to  the  transportation department  for                                                               
trail staking,  shelter construction, and maintenance.  All other                                                               
revenue from  motor fuel tax  is deposited into the  highway fuel                                                               
tax account in the general  fund. The legislature may appropriate                                                               
this money  to the Department  of Transportation to  maintain and                                                               
construct highways and ferries.                                                                                                 
5:12:05 PM                                                                                                                    
MS.  REYNOLDS  read  slide  7  that lays  out  the  statutes  and                                                               
regulations that concern corporate income tax in Alaska:                                                                        
     Corporate Net Income Tax Statutes & Regulations                                                                            
        • AS 43.19  Multistate Tax Compact Regulations 15                                                                       
          AAC 19.011-.1490                                                                                                      
        • AS 43.20  Alaska Net Income Tax Act Regulations                                                                       
          15 AAC 20.010-.920                                                                                                    
        • 26 U.S.C. 1  1399 and 6001  7872 Adopted, as                                                                          
          amended, by reference in AS 43.20.021(a)                                                                              
MS.  REYNOLDS stated  the language  "as amended"  in the  adopted                                                               
Internal Revenue  Code (IRC) Provisions  means Alaska  adopts any                                                               
changes  to the  IRC as  they happen.  Unless explicitly  stated,                                                               
these IRC provisions  have full force and  effect unless excepted                                                               
or modified by other provisions of AS 43.20.                                                                                    
5:13:59 PM                                                                                                                    
MS.  REYNOLDS  stated  that an  entity's  Alaska  taxable  status                                                               
depends on how they file federally.  Only entities that file as C                                                               
corporations federally are taxable  under Alaska corporate income                                                               
tax provisions.  Certain C corporations are  exempt from Alaska's                                                               
corporate  income  tax.  These include  certain  qualified  small                                                               
businesses  with  less  than  $50 million  in  assets  that  meet                                                               
industry  requirements and  electric  and telephone  cooperatives                                                               
paying tax  under AS 10.25.  Many types of business  entities are                                                               
not  subject   to  Alaska's  corporate  income   tax  provisions;                                                               
examples  included S  corporations, limited  liability companies,                                                               
partnerships, and sole proprietorships.                                                                                         
5:15:16 PM                                                                                                                    
CHAIR REVAK  asked how  many companies would  be affected  by the                                                               
tax change proposed in SB 3002.                                                                                                 
MS. REYNOLDS  replied that the Department  of Commerce, Community                                                               
and Economic Development (DCCED)  estimates there are over 20,000                                                               
companies. DOR  did a limited  information estimate  and believes                                                               
SB 3002 would impact less than 900 of those entities.                                                                           
SENATOR  MICCICHE  asked if  DOR  provided  the expected  revenue                                                               
amounts given in SB 3002.                                                                                                       
MS. REYNOLDS answered  no, but Mr. Stickle is  available if there                                                               
are questions about the fiscal note.                                                                                            
5:17:03 PM                                                                                                                    
MS. REYNOLDS  moved to  slide 9 and  explained that  a taxpayer's                                                               
applicable  corporate tax  rate is  determined by  the amount  of                                                               
their net taxable income.                                                                                                       
Responding to  Senator von Imhof's  question, she  explained that                                                               
the entities mentioned in Section 1  of SB 3002 are not currently                                                               
taxable  under   state  or  federal  law.   Therefore,  the  term                                                               
"qualified taxable income"  used in subsection (c)  would need to                                                               
be defined.                                                                                                                     
The maximum tax rate in Alaska  is 9.4 percent for taxpayers with                                                               
taxable income  over $222,000. The  tax rates were  last modified                                                               
in 1981.                                                                                                                        
5:18:27 PM                                                                                                                    
MS. REYNOLDS  said the  chart Historic  Corporate Net  Income Tax                                                               
Collections Summary  on slide 9  separates the  total collections                                                               
for oil  and gas corporate  income taxpayers and non-oil  and gas                                                               
corporate income taxpayers for FY  2017 thru FY 2020. The numbers                                                               
are from the Department of Revenue 2020 annual report.                                                                          
Oil  and  gas corporate  income  tax  collections resulting  from                                                               
assessments are deposited into  the Constitutional Budget Reserve                                                               
Fund (CBRF).  All remaining corporate income  tax collections are                                                               
deposited into the general fund.                                                                                                
CHAIR  REVAK  asked how  much  is  paid  out  in per  barrel  tax                                                               
MS. REYNOLDS  replied that the  per barrel credits do  not affect                                                               
corporate income tax and added  that Ms. Glover would address the                                                               
question further in the next portion of the presentation.                                                                       
5:20:13 PM                                                                                                                    
MS. GLOVER moved  to slide 12 and stated that  the per barrel tax                                                               
credit is  a component  of the  oil and  gas production  tax. She                                                               
explained  that the  governing statutes  and regulations  for oil                                                               
and gas production are AS 43.55 and regulations 14 AAC 55.010-                                                                  
.900.  The  statutes are  complicated,  and  the regulations  are                                                               
extensive. The  per barrel  tax credits  only impact  North Slope                                                               
products. There are  two types of credits.  Gross Value Reduction                                                               
(GVR)  found  in AS  43.55.024(i)--referred  to  as the  (.024(i)                                                               
credit--is a flat $5 per barrel credit for new production. Non-                                                                 
GVR found in AS 43.55.024(j)--referred  to as the .024(j) credit-                                                               
-is  for legacy  production. It  is a  sliding scale  credit that                                                               
ranges from  $8 to  $0 per  barrel. SB  3002 impacts  this credit                                                               
5:21:44 PM                                                                                                                    
CHAIR REVAK asked her to explain how tax credits are paid out.                                                                  
MS. GLOVER replied  that the per barrel tax credit  should not be                                                               
confused  with the  tax credits  that  could earn  cash that  the                                                               
state bought  back. Per barrel  tax credits  are part of  the tax                                                               
calculation. They are not eligible for cash.                                                                                    
CHAIR REVAK  summarized his understanding  that a per  barrel tax                                                               
credit means less tax is paid.                                                                                                  
MS.  GLOVER  restated  that  the  per  barrel  tax  credit  is  a                                                               
deduction in the tax calculation.                                                                                               
5:22:55 PM                                                                                                                    
SENATOR MICCICHE clarified  that the oil and gas  industry is not                                                               
paying  less tax.  Instead, the  legislation  increased the  base                                                               
rate from  25 percent  to 35  percent and added  a $5  per barrel                                                               
credit.  This created  a  progressivity curve  because  $5 has  a                                                               
greater effect  at a lower price  than at a higher  price. It was                                                               
designed as an  overall process and not as a  credit. The idea of                                                               
it being  a credit  is misunderstood.  The sliding  scale changed                                                               
the curve, but the industry is  not paying less tax. The original                                                               
bill was  a lower tax  rate. It was  increased to 35  percent, so                                                               
there could be progressivity in the rate.                                                                                       
5:24:08 PM                                                                                                                    
MS.  GLOVER  stated   that  is  correct;  Senate  Bill  21   [28                                                                
Legislature] had a 25 percent tax  rate with a flat $5 per barrel                                                               
credit.  It then  changed to  a 35  percent rate  with a  sliding                                                               
scale credit for  progressivity, so there is a lower  tax rate at                                                               
lower prices.  Once the  tax credits expire  at $150  per barrel,                                                               
the tax rate is 35 percent.                                                                                                     
CHAIR REVAK clarified  that the state is not paying  out money to                                                               
the industry.                                                                                                                   
SENATOR MICCICHE said  he had a small correction  for the record.                                                               
The original  amount in  Senate Bill  21 was  25 percent  with no                                                               
credit.  The increase  to 35  percent was  for the  progressivity                                                               
that was delivered with the $5 per barrel credit.                                                                               
5:25:44 PM                                                                                                                    
MS. GLOVER  moved to slide  13 and  stated the production  tax is                                                               
complicated to discuss in depth.  However, the gross value at the                                                               
point of production  (GVPP) is pertinent to SB  3002. The diagram                                                               
is  a simplified  calculation  of  the North  Slope  oil and  gas                                                               
production  tax and  can be  used  to understand  the context  of                                                               
gross  value at  the point  of production,  net tax,  minimum tax                                                               
floor, and per barrel credits.                                                                                                  
5:28:01 PM                                                                                                                    
SENATOR  MICCICHE  stated  the sectional  analysis  for  SB  3002                                                               
appears to have  an error. In slide 13, the  per barrel credit is                                                               
not applied to  the GVPP.  It is applied  after determining which                                                               
is higher net tax or floor minimum.                                                                                             
MS. GLOVER replied, correct.                                                                                                    
5:28:49 PM                                                                                                                    
MS. GLOVER read slide 14:                                                                                                       
     Per Taxable Barrel Credit                                                                                                  
        • Component to overall fiscal regime                                                                                    
        • Works as an "offset" not as "credit".                                                                                 
        • Reduction from Production Tax calculation                                                                             
        • Creates progressivity in the tax calculation up                                                                       
          to maximum of 35% production tax as oil prices                                                                        
        • Amount of credit based on the gross value at the                                                                      
          point of production (GVPP).                                                                                           
MS. GLOVER  stated that when  Senate Bill 21 passed,  prices were                                                               
above  $100  per  barrel.  Following   its  passage,  oil  prices                                                               
dropped, which  has impacted revenue  since credits start  at $80                                                               
per barrel.                                                                                                                     
MS.  GLOVER  explained that  the  chart  on  slide 15  shows  the                                                               
current  sliding  scale  changes  in $10  increments.  The  scale                                                               
starts at  a GVPP of  $80 and a  tax credit  rate of $8.  The tax                                                               
credit  rate goes  down $1  for every  $10 increase  in the  GVPP                                                               
until it decreases to $0 and the GVPP has reached $150.                                                                         
MS. GLOVER noted that these numbers  are based on the gross value                                                               
at the  point of production price  (GVPP) per barrel and  not the                                                               
Alaska North  Slope (ANS) oil  price, which is the  market price.                                                               
The  GVPP is  calculated by  deducting transportation  costs from                                                               
the ANS price. The cost of  transportation averages $9 to $10 per                                                               
5:31:15 PM                                                                                                                    
MS. GLOVER said slide 16 shows  the historic amount of per barrel                                                               
credits  used  against  a  tax  liability  by  all  oil  and  gas                                                               
taxpayers.  The  .024(i) and  .024(j)  tax  credits are  reported                                                               
together for confidentiality. The  information is reported in the                                                               
Department  of  Revenue    Fall  and  Spring  forecasts  and  the                                                               
Department of Revenue   biennial  indirect expenditure report. If                                                               
tax  credits  were repealed,  she  said  that additional  revenue                                                               
would not equal  the amount given in state  credits because other                                                               
credits and deductions could offset the taxpayer's liability.                                                                   
MS. GLOVER  concluded the  presentation and  asked if  there were                                                               
any questions.                                                                                                                  
5:32:55 PM                                                                                                                    
At ease                                                                                                                         
5:33:21 PM                                                                                                                    
CHAIR REVAK reconvened the meeting.                                                                                             
5:33:47 PM                                                                                                                    
JHONNY  MEZA, Commercial  Section  Manager, Division  of Oil  and                                                               
Gas, Department  of Natural Resources, Anchorage,  Alaska, stated                                                               
that DNR's  presentation summarizes  the effects  SB 3002  has on                                                               
Alaska's oil and gas revenues.                                                                                                  
MR.  MEZA said  that slide  2  describes the  revenues the  state                                                               
receives  as the  resource  owner. He  stated  that the  greatest                                                               
revenue source for  Alaska comes from North Slope  and Cook Inlet                                                               
oil and gas  royalties. Early this year,  combined royalties were                                                               
about $30 billion while revenue  from net profit-sharing was $1.2                                                               
billion, and  another $2.3 billion  was received from  cash bonus                                                               
payments. Rental payment revenue was $379 million.                                                                              
MR. MEZA  stated that  royalties are Alaska's  gross oil  and gas                                                               
production shares. They can be  received at the n value (dollars)                                                               
or  in-kind (physical  hydrocarbons) at  the state's  discretion.                                                               
The typical royalty rate for Alaska's  oil and gas leases is 12.5                                                               
percent. Although  there are  cases where the  royalty is  1/6 or                                                               
1/5  of gross  production.  The royalty  owed  is triggered  upon                                                               
severance from a lease.                                                                                                         
In general, production  costs are not considered  in the monetary                                                               
value  of royalties.  However, transportation  costs and  quality                                                               
adjustments are  considered. Therefore, royalty is  assessed on a                                                               
gross  basis because  the royalty  calculation does  not consider                                                               
production  costs.  This is  different  from  the production  tax                                                               
calculation,  which  considers  lease expenditures  and  is  net-                                                               
based. The changes in Section  6 will not directly impact royalty                                                               
revenues since  tax credits  are not part  of the  calculation of                                                               
5:36:35 PM                                                                                                                    
MR. MEZA  turned to slide 4  and explained that net  profit share                                                               
leases (NPSLs) contain another source  of revenue. Companies with                                                               
these leases  share the  net profits generated  from oil  and gas                                                               
production and have  a royalty. The share  percentage ranges from                                                               
30 to 79 percent.                                                                                                               
In contrast  to royalties  where the  state obtains  revenue from                                                               
each barrel of  oil and cubic foot of gas  produced, revenue from                                                               
net profit  sharing is paid  with interest after  the development                                                               
costs of a  lease have been recovered. Revenue  is generated from                                                               
the lease after operating expenses are deducted.                                                                                
Royalty  payments are  made monthly  during times  of production.                                                               
Net profit  share payment occurs  after the lessee  has recovered                                                               
development costs,  which may take  years. Therefore, there  is a                                                               
timing difference between the two types of revenue.                                                                             
5:38:06 PM                                                                                                                    
MR. MEZA  stated that   In the calculation  of net  profits being                                                               
shared  with the  state, the  regulations on  NPSLs determine  an                                                               
allowance for  the potential contribution of  the production from                                                               
the lease  to the overall  production tax assessed on  the lessee                                                               
(the producer).                                                                                                                 
When calculating  net profits  from a  lease, the  production tax                                                               
lease  allowance is  a deduction  to  the revenues  from the  net                                                               
profit shared lease.                                                                                                            
Tax credits, generated by taxable  production from the lease, are                                                               
considered  in calculating  the production  tax lease  allowance.                                                               
Therefore, the  proposed changes in  the .024(j) tax  credits can                                                               
directly impact revenues from net profit sharing.                                                                               
5:39:12 PM                                                                                                                    
MR. MEZA stated  that the bonus bid statutes require  oil and gas                                                               
leases to  be offered competitively  through a  bidding variable,                                                               
which is typically a cash  bonus. The bidder offering the highest                                                               
upfront  cash bonus  is awarded  the lease,  including a  royalty                                                               
provision, lease  duration, and  rental fee.  Section 6  does not                                                               
have an  impact on revenue  from bonus bids. Likewise,  Section 6                                                               
does not  impact annual  rental lease  payments, which  are about                                                               
$10 per acre.                                                                                                                   
5:40:38 PM                                                                                                                    
SENATOR KIEHL asked what the impact  would be on NPSL payments to                                                               
the state.                                                                                                                      
MR. MEZA answered  that the impact on NPSL  payments is presented                                                               
in the next slide.                                                                                                              
SENATOR  STEVENS asked  if other  oil-producing  states have  the                                                               
same level of complexity or if  there are simpler ways to tax the                                                               
MR.  MEZA offered  his  belief that  the  federal government  has                                                               
utilized NPSLs for  federal leases, but Alaska is  the only state                                                               
that has used NPSLs.                                                                                                            
5:41:47 PM                                                                                                                    
MR. MEZA turned  to slide 3 and addressed the  impact the .024(j)                                                               
credit might  have on revenue  from NPSLs. He said  the reduction                                                               
in  the dollar  per barrel  tax credit  proposed in  SB 3002  was                                                               
wrongly estimated. The dollar per  barrel tax credit is estimated                                                               
to  generate $500,000  in revenue  from  the NPSLs  in the  North                                                               
There are  26 NPSLs in  the North  Slope. Just 12  have recovered                                                               
their development  costs and  shared their  net profits  with the                                                               
state. So,  the reduction  in net  profit share  revenues applies                                                               
only to a subset of Alaska's NPSLs.                                                                                             
In  contrast, the  North  Slope has  461  leases that  contribute                                                               
revenue through  the production tax.  So, the impact  of .024(j),                                                               
while significant at  the NPSL level, has  less significance when                                                               
viewed as overall production.                                                                                                   
5:44:03 PM                                                                                                                    
MR.  MEZA stated  that the  production tax  lease allowance  is a                                                               
deduction to  the revenues  generated by  the NPSL.  Therefore, a                                                               
higher production  tax lease allowance means  lower profit shared                                                               
with  the   state.  In  this   calculation,  DNR   considers  the                                                               
contribution of the  taxable production from the NPSL  to the oil                                                               
and gas production tax credits, like the .024(j) tax credit.                                                                    
As a result,  if there is a  lower tax credit, as  proposed in SB
3002,  then the  allowance for  the  production tax  of the  NPSL                                                               
would be higher.  This results in lower profit  being shared with                                                               
the state and  is how the estimated impact  reduction of $500,000                                                               
in net profit share revenues was derived.                                                                                       
MR. MEZA  stated that  his negative impact  only occurs  when the                                                               
NPSL  has recovered  its development  costs.  He reiterated  that                                                               
only 12 of  the 26 NPSLs have recovered  development costs. Also,                                                               
tax credits above the minimum  tax have significance because that                                                               
is the application threshold for  the tax credit when calculating                                                               
the production tax for a lease.                                                                                                 
Another effect of the .024(j)  tax credit reduction on net profit                                                               
sharing is a  delayed recovery date for development  costs.  When                                                               
the lease  is not ready to  share profits, revenues in  excess of                                                               
operating costs become smaller.                                                                                                 
5:46:24 PM                                                                                                                    
SENATOR KIEHL asked  if corporate income tax plays a  role in the                                                               
calculation or if it only pertains to the production tax.                                                                       
MR. MEZA  replied that corporate  income tax does not  affect the                                                               
calculation of net profit sharing in these leases.                                                                              
SENATOR MICCICHE  commented that the example  is interesting, but                                                               
the amount is miniscule in the  grand scheme of oil tax rates and                                                               
MR. MEZA  replied yes;  the estimate of  $500,000 per  year comes                                                               
from  12 out  of 26  NPSLs, while  461 leases  contribute to  the                                                               
production tax.  This gives  a comparison  for the  impact versus                                                               
proposed additional revenue from production tax.                                                                                
5:47:57 PM                                                                                                                    
SENATOR  MICCICHE stated  he found  the presentation  interesting                                                               
and expressed appreciation that he put the issue in perspective.                                                                
5:48:12 PM                                                                                                                    
MR. MEZA proceeded  to slide 4 and provided  a simplified example                                                               
of  how  the  proposed  change  in Section  6,  relating  to  tax                                                               
credits, could reduce the shared amount of a NPSL.                                                                              
The table  on the left  provides an  example of a  NPSL producing                                                               
1000 barrels per  day, having a royalty rate of  1/6, and sharing                                                               
40  percent  of  the  net  profits  once  development  costs  are                                                               
recovered. Under these terms, the field  value of a barrel of oil                                                               
would be $55  assuming development costs were  recovered, the oil                                                               
price was $65  per barrel, and transportation costs  were $10 per                                                               
Since royalty  and net  profit share  payments are  assessed each                                                               
month, the  monthly production value  of 30,000 barrels  would be                                                               
considered. The  production net  for the  lessee would  be 25,000                                                               
barrels.  Therefore, the  gross revenue  to the  lessee would  be                                                               
$1,375,000 for the month.                                                                                                       
5:49:56 PM                                                                                                                    
MR. MEZA explained  that the table on the upper  right provides a                                                               
lower production tax scenario for this hypothetical lease.                                                                      
Net  profit is  obtained  by deducting  operating  costs and  the                                                               
production tax  allowance from  the lessee's  calculated revenue.                                                               
The  net profit  would be  $525,000, and  40 percent  or $210,000                                                               
would be shared with the state.                                                                                                 
The  lower left  table  shows  the effect  that  the .024(j)  tax                                                               
credit  would  have   on  this  lease  when   the  allowance  for                                                               
production  tax  associated  with  the lease  increases.  If  the                                                               
production tax  were to increase  from $100,000 to  $200,000, the                                                               
reduction in  net profit  would drop  from $525,000  to $425,000.                                                               
The state's net profit share would be $170,000.                                                                                 
MR. MEZA  reiterated that the  example is only  for demonstration                                                               
purposes and is not based on NPSLs in the North Slope.                                                                          
SENATOR  MICCICHE   opined  that  while  this   example  was  for                                                               
illustrative  purposes,  it is  unlikely  that  a production  tax                                                               
would double in a per barrel credit reduction scenario.                                                                         
MR. MEZA replied, correct; it was only an arithmetic exercise.                                                                  
5:53:14 PM                                                                                                                    
CHAIR REVAK asked  how the Department of  Natural Resources (DOR)                                                               
foresees SB 3002 affecting production.                                                                                          
MR.  MEZA  answered  that  there  is  another  presentation  that                                                               
addresses   the  impact   of   direct   and  indirect   long-term                                                               
production. He  said a  high production  tax burden  might impact                                                               
the  long-term profitability  of specific  fields. That  exercise                                                               
has not been done, but it could be possible.                                                                                    
5:54:09 PM                                                                                                                    
CHAIR REVAK  recalled an earlier  presentation on the  net profit                                                               
share  lease  bill  and  asked  if  the  premise  was  that  NPSL                                                               
production is  being thwarted  because the  states  stake  is too                                                               
high, making production uneconomical.                                                                                           
5:54:54 PM                                                                                                                    
MR. MEZA replied  that is correct. The bill aimed  to help fields                                                               
in marginal situations by adjusting  the state's net profit share                                                               
rate so that production could potentially be economical.                                                                        
CHAIR REVAK asked  if DNR's perspective is  that increasing taxes                                                               
could have a negative long-term effect on production.                                                                           
MR.  MEZA replied  that it  could  reasonably be  argued that  an                                                               
additional burden  on the production  tax could have  an indirect                                                               
impact over  the long  term and  potentially affect  the marginal                                                               
situation  of  some  fields.  However,  concerning  the  proposed                                                               
credit changes in SB 3002, there  is a price range where it makes                                                               
a difference depending on whether  a company is above the minimum                                                               
tax value.                                                                                                                      
CHAIR REVAK asked what that price range is.                                                                                     
MR. MEZA  deferred to DOR for  an official estimate but  said the                                                               
amount would vary depending on cost assumptions.                                                                                
5:57:23 PM                                                                                                                    
SENATOR  MICCICHE stated  he  understands the  value  of the  net                                                               
profit share program and that  these wells are marginal. He asked                                                               
if NPSLs should be exempt  from changes that might compromise the                                                               
feasibility of production if the tax regime were changed.                                                                       
MR.  MEZA  replied that  the  regulations  on  NPSLs refer  to  a                                                               
deduction  in  the  existing  structure  of  the  production  tax                                                               
system. Therefore,  whatever changes  occur to production  tax in                                                               
statute  will  likely  be  reflected in  the  accounting  of  the                                                               
revenues from NPSLs.                                                                                                            
CHAIR  REVAK  asked if  the  following  estimated annual  revenue                                                               
figures  were correct:  Per barrel  tax  $110 million,  corporate                                                               
income tax $67 million, and motor  fuels tax $18 million. He also                                                               
asked what  SB 3002  would produce in  aggregate revenue  for the                                                               
5:59:19 PM                                                                                                                    
MS. GLOVER  stated that DOR  estimated that FY 2022  revenue from                                                               
SB  3002 would  be  $79  million. The  bill  sponsor provided  an                                                               
estimate  of $391  million for  FY 2025.  She offered  her belief                                                               
that the estimate from the  bill sponsor came from a presentation                                                               
by  DOR  to the  Comprehensive  Fiscal  Plan Working  Group.  She                                                               
stated if  this is  correct, then the  numbers presented  will be                                                               
different than the impact of SB 3002.                                                                                           
MS. GLOVER said regarding  expanding pass-through entities, there                                                               
were proposed  options with  effective dates  of January  2021 in                                                               
the  corporate income  tax  component  of SB  3002.  The FY  2022                                                               
revenue  impact   assumed  retroactivity,   which  is   why  that                                                               
component was larger than the actual impact.                                                                                    
What  DOR provided  to the  FWG  expands to  other entities.  The                                                               
pass-through only  applied to  oil and gas  entities and  did not                                                               
have the $4 million threshold.  So, there are differences between                                                               
SB 3002 and the bill sponsor's information.                                                                                     
6:01:33 PM                                                                                                                    
CHAIR REVAK asked when a fiscal note would be forthcoming.                                                                      
MS.  GLOVER replied  the  fiscal note  was  submitted and  should                                                               
arrive momentarily.                                                                                                             
SENATOR MICCICHE  asked if  the fiscal note  is updated  based on                                                               
the  expected Fall  forecast or  the Spring  forecast, which  was                                                               
lower than expected.                                                                                                            
MS.  GLOVER  replied the  fiscal  note  is  based on  the  Spring                                                               
forecast.  Another  significant  number  difference  between  the                                                               
fiscal note and  what was presented from the FWG  estimates was a                                                               
North Slope  price projected  increase for  July. A  higher price                                                               
forecast changes  the impacts for  the per barrel tax  credit and                                                               
the pass-through corporate income tax.                                                                                          
SENATOR MICCICHE  asked her  to provide  the number  of companies                                                               
affected by  the $4 million net  income threshold as well  as any                                                               
available revenue estimates.                                                                                                    
6:03:46 PM                                                                                                                    
CHAIR REVAK reiterated the request.                                                                                             
DAN  STICKEL,  Chief  Economist,   Tax  Division,  Department  of                                                               
Revenue (DOR),  Juneau, Alaska, stated  DOR would follow  up with                                                               
the  information.   However,  DOR   does  not   have  information                                                               
regarding  the impact  on non-petroleum  corporations and  the $4                                                               
million exemption  in SB  3002. In  the forthcoming  fiscal note,                                                               
there is no  non-petroleum entities revenue estimate.  There is a                                                               
revenue estimate for the oil and gas industries.                                                                                
SENATOR  REVAK  stated that  any  information  pertaining to  the                                                               
assumption of 900 entities being affected would be appreciated.                                                                 
6:05:03 PM                                                                                                                    
SENATOR  KAWASAKI said  that on  August  10, there  was a  fiscal                                                               
options  consideration presentation  from Governor  Dunleavy. The                                                               
presentation included modifying the  sliding scale, requiring oil                                                               
and gas  pass-through entities to  pay corporate income  tax, and                                                               
increasing  motor  fuels tax,  excluding  aviation.  He asked  if                                                               
there was a fiscal note for this presentation.                                                                                  
MS. GLOVER  replied that information  from that  presentation was                                                               
based on  analysis done  using the July  ANS price  increase. She                                                               
said she would provide the information to the committee.                                                                        
SENATOR KAWASAKI asked  her to also provide  information on motor                                                               
fuels tax,  expanding corporate income  tax, and the oil  and gas                                                               
pass-through entities.  He commented  that the numbers  vary, and                                                               
he would like to compare them.                                                                                                  
6:06:55 PM                                                                                                                    
CHAIR REVAK requested DOR send  the information to his office for                                                               
distribution to committee members.                                                                                              
CHAIR REVAK held SB 3002 in committee.                                                                                          
6:07:52 PM                                                                                                                    
There being  no further  business to  come before  the committee,                                                               
Chair  Revak adjourned  the Senate  Resources Standing  Committee                                                               
meeting at 6:07 p.m.                                                                                                            

Document Name Date/Time Subjects
SB 3002 Version A.PDF SRES 9/9/2021 3:30:00 PM
SB 3002 Sponsor Statement.pdf SRES 9/9/2021 3:30:00 PM
SB 3002 Sectional Analysis.pdf SRES 9/9/2021 3:30:00 PM
Presentation DOR & DNR - Taxes Overview 09.09.2021.pdf SRES 9/9/2021 3:30:00 PM
SB 3002 Letter of Support - PWSRCAC.pdf SRES 9/9/2021 3:30:00 PM
SB 3002 Letter of Opposition - Usibelli Coal Mine, Inc..pdf SRES 9/9/2021 3:30:00 PM
SB 3002 Presentation - Sen. Begich SRES PPT.pdf SRES 9/9/2021 3:30:00 PM