HB 191: "An Act relating to the oil and gas corporate income tax; and providing for an effective date."
00 HOUSE BILL NO. 191 01 "An Act relating to the oil and gas corporate income tax; and providing for an effective 02 date." 03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 04 * Section 1. AS 29.60.599(1) is amended to read: 05 (1) "barrel," when used with reference to oil, means the quantity of 06 oil contained in 42 United States gallons of 231 cubic inches each, measured at a 07 temperature of 60 degrees Fahrenheit and an absolute pressure of 14.65 pounds a 08 square inch [HAS THE MEANING GIVEN IN AS 43.20.144]; 09 * Sec. 2. AS 41.09.010(b) is amended to read: 10 (b) An exploration incentive credit extended under (a) of this section may be 11 applied against 12 (1) a payment or obligation against which a credit authorized by 13 AS 38.05.180(i) may be claimed; 14 (2) taxes payable under AS 43.20 or AS 43.21, as applicable; and
01 (3) oil and gas bonus payments due the state under AS 38.05.180(f). 02 * Sec. 3. AS 43.20.011 is amended by adding a new subsection to read: 03 (g) For purposes of calculating the tax under (e) of this section, the taxable 04 income of a corporation engaged in the production or transportation of crude oil or 05 natural gas shall be determined in accordance with AS 43.21. 06 * Sec. 4. AS 43.20.145(f) is amended to read: 07 (f) This section does not apply to taxpayers subject to AS 43.21 08 [AS 43.20.144 ENGAGED IN 09 (1) THE PRODUCTION OF OIL OR GAS FROM A LEASE OR 10 PROPERTY IN THE STATE; OR 11 (2) THE TRANSPORTATION OF OIL OR GAS BY REGULATED 12 PIPELINE IN THE STATE]. 13 * Sec. 5. AS 43.21 is amended by adding new sections to read: 14 Article 1. Determination of Taxable Income. 15 Sec. 43.21.200. Application. This chapter applies to every corporation doing 16 business in the state that derives income from the production of oil or gas from a lease 17 or property in the state or from the pipeline transportation of oil or gas in the state. The 18 tax calculated under this chapter is measured by the total taxable income of the 19 corporation during the tax period as defined by AS 43.21.210 - 43.21.250 and is 20 calculated at the rates established under AS 43.20.011(e). 21 Sec. 43.21.210. Internal Revenue Code adopted by reference. (a) 26 U.S.C. 22 1 - 1399 and 6001 - 7872 (Internal Revenue Code), as amended, are adopted by 23 reference as a part of this chapter. These portions of the Internal Revenue Code have 24 full force and effect under this chapter unless excepted to or modified by other 25 provisions of this chapter. 26 (b) When portions of the Internal Revenue Code incorporated by reference as 27 provided in (a) of this section refer to rules and regulations adopted by the United 28 States Commissioner of Internal Revenue, or hereafter adopted, those portions shall be 29 regarded as regulations adopted by the department under and in accord with the 30 provisions of this chapter, unless and until the department adopts specific regulations 31 in place of those portions conformable with this chapter.
01 Sec. 43.21.220. Determination of taxable income from oil and gas 02 production. (a) The taxable income of a corporation from the production of oil and 03 gas from a lease or property in the state is the corporation's net income as calculated in 04 accordance with this section. 05 (b) Gross income of a corporation from oil and gas production is the sum of 06 the gross value at the point of production of oil or gas produced from a lease or 07 property in the state, any gain or loss resulting from the sale of a lease, and any gain or 08 loss resulting from the sale of property used in the production of oil and gas in the 09 state. The department shall by regulation determine a uniform method of establishing 10 the gross value at the point of production. For the purpose of determining the gross 11 value at the point of production under this subsection, the department shall use 12 AS 43.55.150 for the determination of transportation costs. 13 (c) Net income from oil and gas production shall be determined by deducting 14 from gross income the following: 15 (1) royalties paid in kind or in value; 16 (2) taxes imposed under AS 43.55 that are actually paid or incurred by 17 the corporation on the production from a lease or property in the state; 18 (3) taxes imposed under AS 29.45.080 - 29.45.090 and AS 43.56 that 19 are actually paid or incurred by the corporation on property used directly in the 20 production of oil or gas from a lease or property in the state, including property used 21 in production, gathering, treatment, or preparation of the oil or gas for pipeline 22 transportation, but only if those property tax payments were due and payable only 23 after the date of commercial production from the lease or property with which the 24 property was associated; 25 (4) the direct costs incurred by or for the corporation in operating the 26 lease or property, including the direct costs of producing, gathering, treating, or 27 preparing the oil or gas for pipeline transportation, but net of any payments received 28 for those activities and not including any indirect cost or overhead expense; 29 (5) depreciation, under 26 U.S.C. 167 (Internal Revenue Code) or 30 another reasonable method as the department may by regulation establish, on property 31 used directly in the production, gathering, treatment, or preparation of the oil or gas
01 for pipeline transportation, including amortization of capitalized interest for 02 investments in that property at a rate not to exceed the average cost to the taxpayer of 03 borrowed capital during the year in which the interest is capitalized; for purposes of 04 this paragraph, property capitalized under AS 43.20 shall maintain its adjusted basis, 05 less any depreciation taken under AS 43.20 and any amount attributable to that 06 property received as a credit under this title; 07 (6) the amortization of lease acquisition payments and taxes paid or 08 incurred under AS 29.45.080, 29.45.090, or AS 43.56, including capitalized interest, 09 for or on producing properties before the commencement of commercial production 10 from the lease or property for which the property is being used; 11 (7) interest expense of the corporation, not capitalized during 12 construction, that was paid or incurred in connection with property in the state; 13 however, the interest expense may not exceed that portion of the total interest paid by 14 the consolidated business of which the corporation is a part, determined by 15 multiplying the total interest by a fraction, the numerator of which is the value of the 16 corporation's real and tangible personal property used directly in the production of oil 17 or gas from a lease or property in the state and the denominator of which is the value 18 of all real and tangible personal property of the consolidated business; in this 19 paragraph, "total interest paid by the consolidated business" does not include interest 20 expense arising from intercompany obligations within the consolidated business 21 except to the extent that the interest expense reflects a pass-through of interest on a 22 third-party borrowing by the parent or other member of the consolidated business with 23 the purpose, expressed at the time of the third-party borrowing, of financing Alaska 24 business activity of the taxpayer corporation; 25 (8) expenses incurred by the corporation after December 31, 2015, of 26 unsuccessful exploration of oil or gas in the state, including the acquisition costs of 27 abandoned properties, dry hole costs, and the costs of geologic and geophysical 28 exploration related to those abandoned properties; 29 (9) general overhead or administrative expense incurred by the 30 corporation attributable to deriving income from the production of oil or gas from a 31 lease or property in the state to the extent that the general overhead or administrative
01 expense does not exceed that portion of the total general overhead or administrative 02 expense incurred by the consolidated business of which the corporation is a part, 03 determined by multiplying the total general overhead or administrative expense by a 04 fraction, the numerator of which is the value of the corporation's real and tangible 05 personal property used directly in the production of oil or gas from a lease or property 06 in the state and the denominator of which is the value of all real and tangible personal 07 property of the consolidated business; 08 (10) the amount of income from the production of oil and gas from a 09 lease or property that is divided among the regional Native corporations under 43 10 U.S.C. 1606(i) (sec. 7(i), Alaska Native Claims Settlement Act, P.L. 92-203); 11 (11) net operating loss carry forward amounts accrued from taxes paid 12 under AS 43.20 or AS 43.21 for expenditures related to the production of oil or gas 13 from a lease or property in the state or from pipeline transportation of oil or gas in the 14 state, except that a net operating loss amount that resulted from an expenditure that 15 was also the basis of a credit under this title may not be deducted under this paragraph. 16 (d) Deductions from gross income under this section may not include 17 expenses previously deducted on a return filed under AS 43.20. 18 (e) If a corporation subject to this chapter shares the production or proceeds of 19 the production from a lease or property through a working interest, royalty interest, 20 overriding royalty interest, production payment, net profit interest, joint venture, or 21 other agreement, the taxpayer shall allocate the deductions from gross income between 22 the corporation and the persons with whom the corporation has the agreement in 23 accordance with the terms of the agreement. 24 Sec. 43.21.230. Determination of taxable income from oil and gas pipeline 25 transportation. (a) Except as provided in (c) of this section, taxable income 26 attributable to the transportation of oil in a pipeline engaged in interstate commerce in 27 this state is the amount reported or that would be required to be reported to the Federal 28 Energy Regulatory Commission or its successors as net operating income, less those 29 portions of interest and general overhead or administrative expense attributable to the 30 pipeline transportation of oil in the state, except that taxable income shall also include 31 taxes on or measured by income. The department shall establish regulations governing
01 the determination of interest and general overhead or administrative expense 02 attributable to pipeline transportation of oil in the state. 03 (b) Except as provided in (c) of this section, taxable income attributable to the 04 transportation of natural gas in a pipeline engaged in interstate commerce in this state 05 is the amount reported or that would be required to be reported to the Federal Energy 06 Regulatory Commission as net operating income, less that portion of interest and 07 general overhead or administrative expense attributable to pipeline transportation in 08 the state, except that the taxable income shall also include taxes on or measured by 09 income. The department shall establish regulations governing the determination of 10 interest and general overhead or administrative expense attributable to pipeline 11 transportation of natural gas in the state. 12 (c) Taxable income attributable to the transportation of oil or natural gas in 13 this state of a corporation not under the jurisdiction of the Federal Energy Regulatory 14 Commission, or of a corporation under the jurisdiction of the Federal Energy 15 Regulatory Commission but not reporting the operation of pipelines in the state 16 separately from the operation of pipelines elsewhere, shall be based on an amount 17 equal to the amount that would have been reported to the Federal Energy Regulatory 18 Commission under (a) of this section in the case of oil pipelines, or under (b) of this 19 section, in the case of natural gas pipelines, had the corporation been, in fact, under the 20 jurisdiction of the Federal Energy Regulatory Commission for the taxable year and 21 required to report on the operation of pipelines in the state separately from the 22 operation of pipelines elsewhere. 23 Sec. 43.21.240. Determination of taxable income from activities other than 24 oil and gas production or pipeline transportation. (a) Taxable income of a 25 corporation subject to this chapter from activities in this state other than the production 26 of oil or gas from a lease or property in the state or the pipeline transportation of oil or 27 gas in the state shall be determined in accordance with the method established in art. 28 IV of AS 43.19.010 and in AS 43.20.143, as modified by (b) - (d) of this section. 29 (b) The total taxable income of a consolidated business is its entire income 30 less the portion of that entire income attributable to worldwide production and pipeline 31 transportation of oil and gas. In this subsection, for a member of a consolidated
01 business who is 02 (1) required to file under the Internal Revenue Code, "entire income" 03 means the taxpayer's taxable income as the term is used in AS 43.20.011 - 43.20.142; 04 (2) not required to file under the Internal Revenue Code, "entire 05 income" means an income determination prepared in accordance with generally 06 accepted accounting principles, except that a taxpayer may elect to report income as 07 the income would be determined under (1) of this subsection. 08 (c) The numerator and denominator of the property factor, of the payroll 09 factor, and of the sales factor shall be calculated without reference to that portion of 10 property, payroll, or sales directly related to the production of oil or gas from a lease 11 of property in the state or the pipeline transportation of oil or gas in the state. 12 (d) The value attributed to vessels transporting Alaska oil or gas of a 13 consolidated business that are not owned or effectively owned by the consolidated 14 business shall be excluded from the property factor. 15 Sec. 43.21.250. Applicability of tax to a consolidated business. The 16 provisions of this chapter apply to a consolidated business whether or not the taxpayer 17 is the parent or controlling corporation. 18 Article 2. Calculation of Tax; Returns. 19 Sec. 43.21.300. Calculation of tax. (a) The amount of the tax payable on the 20 taxable income of a corporation subject to tax under this chapter shall be determined 21 using the tax rates in AS 43.20.011(e). 22 (b) For purposes of this chapter, the department may combine taxable income 23 of corporations subject to tax under this chapter who are part of the same consolidated 24 business. 25 (c) If the methods of allocation and apportionment provided in this chapter do 26 not fairly represent the extent of a corporation's business activity in the state, the 27 corporation may petition for or the department may require, in respect to all or any 28 part of the corporation's business activity, if reasonable, the employment of any 29 method authorized under art. IV, sec. 18, AS 43.19.010 (Multistate Tax Compact), to 30 carry out an equitable allocation and apportionment of the corporation's income. The 31 commissioner shall include in the annual report required in AS 43.21.410 a report on
01 all relief granted under this subsection, including, for each case, a statement of the 02 changes in tax liability resulting from the granting of relief, the tax years involved, and 03 a description of the method of determining taxable income that was substituted for the 04 methods provided in this chapter. 05 Sec. 43.21.320. Credits. Subject to the limitations imposed on the credits in 06 AS 43.20, a credit under AS 43.20.014, 43.20.043, 43.20.044, 43.20.046, 43.20.047, 07 43.20.048, 43.20.049, or 43.20.053 may be applied against the tax levied under this 08 chapter, unless a credit for the same expenditure has been taken against a tax levied 09 under AS 43.20 or AS 43.55. Any refund of a credit under this section is limited to the 10 portion of the tax credit unused under this title. 11 Sec. 43.21.330. Returns and payment of taxes. (a) A corporation subject to 12 tax under this chapter and required to make a return under the Internal Revenue Code 13 shall, within 30 days after the federal return is required to be filed, submit a return 14 setting out 15 (1) the amount of tax due under this chapter, less credits claimed 16 against the tax; and 17 (2) other information the department may require to carry out the 18 purposes of this chapter. 19 (b) The return shall be made under oath or shall contain a written declaration 20 that it is made under penalty of perjury and shall be made on a form prescribed by the 21 department. 22 (c) On request by the department, a taxpayer shall furnish to the department a 23 true and correct copy of each annual tax return the taxpayer has filed with the United 24 States Internal Revenue Service. Every taxpayer shall notify the department in writing 25 of any modification of the taxpayer's federal income tax return and of a recomputation 26 of tax or determination of deficiency. A full statement of the facts must accompany 27 this notice. The notice shall be filed within 60 days after the final determination of the 28 modification, recomputation, or deficiency, and the taxpayer shall pay the additional 29 tax or penalty under this chapter. For purposes of this section, a determination shall be 30 considered to be final at the time an amended federal return is filed or a notice of 31 deficiency or an assessment is mailed to the taxpayer by the Internal Revenue Service,
01 except that in no event shall a determination be considered final for purposes of this 02 section until the taxpayer has exhausted the taxpayer's rights of appeal under federal 03 law. 04 (d) The total amount of tax imposed by this chapter is due and payable to the 05 department at the same time and in the same manner as the tax payable to the United 06 States Internal Revenue Service, including quarterly estimated tax prepayments, 07 except that a taxpayer with an estimated tax liability of less than $1,000,000 for the 08 year is not required to make quarterly prepayments of the estimated tax. 09 (e) A tax due under this section is payable even if the assessment is under 10 appeal or the validity, enforceability, or application of this chapter or any provision of 11 this chapter is challenged before the department or in the courts. 12 (f) An unpaid amount of an installment payment required under (d) of this 13 section that is not paid when due shall be treated as an underpayment under 26 U.S.C. 14 6655 (Internal Revenue Code) and shall accrue interest at a rate appropriate for the 15 state prescribed in regulation. 16 Article 3. Administrative Matters. 17 Sec. 43.21.400. Regulations. The department shall adopt regulations in 18 accordance with AS 44.62 (Administrative Procedure Act) to implement this chapter. 19 In the adoption of regulations under this section, the department shall use the 1981 20 regulations adopted under former provisions of this chapter as guidance. Regulations 21 adopted under this section must include methods for accounting for 22 (1) intercompany transactions in a fair and equitable manner and to 23 prevent purposeful tax evasion or manipulation of income or deductions, including 24 transactions for costs incurred by a party outside of the state that are related to oil or 25 gas production from a lease or property in the state or to pipeline transportation of oil 26 or gas in the state; and 27 (2) transactions between parent and subsidiary companies. 28 Sec. 43.21.410. Public reporting. (a) The commissioner shall compile and 29 transmit to the legislature an annual report of state revenue and the implementation of 30 taxation policies under this chapter. The report must include total aggregate income 31 tax paid by corporations subject to this chapter and aggregate income and deductions
01 by category, classified so as to prevent the identification of particular returns or 02 reports. 03 (b) The legislative auditor shall notify the legislature on or before the first day 04 of each regular session that the annual report reviewing the actions of the department 05 in administering this chapter is available. 06 Sec. 43.21.420. Information disclosure. Notwithstanding another provision of 07 law, the department shall disclose to a legislator, on request, information collected 08 from a taxpayer to the extent that 09 (1) the taxpayer is a publicly traded company; 10 (2) the information has been filed in a quarterly, annual, or other 11 periodic report to the United States Securities Exchange Commission; and 12 (3) the information has been made public by the United States 13 Securities Exchange Commission. 14 Sec. 43.21.499. Definitions. Unless the context requires otherwise, the 15 definitions contained in AS 43.55.900 are applicable to this chapter. In addition, in this 16 chapter, 17 (1) "consolidated business" means a corporation or group of 18 corporations having more than 50 percent common ownership, direct or indirect, or a 19 group of corporations in which there is common control, either direct or indirect, as 20 evidenced by an arrangement, contract, or agreement; 21 (2) "Internal Revenue Code" has the meaning given in AS 43.20.340. 22 * Sec. 6. AS 43.82.210(a) is amended to read: 23 (a) If the commissioner approves an application and proposed project plan 24 under AS 43.82.140, the commissioner may develop proposed terms for inclusion in a 25 contract under AS 43.82.020 for periodic payment in lieu of one or more of the 26 following taxes that otherwise would be imposed by the state or a municipality on the 27 qualified sponsor or member of a qualified sponsor group as a consequence of 28 participating in an approved qualified project: 29 (1) oil and gas production taxes and oil surcharges under AS 43.55; 30 (2) oil and gas exploration, production, and pipeline transportation 31 property taxes under AS 43.56;
01 (3) oil and gas corporate income tax under AS 43.21; [REPEALED] 02 (4) Alaska net income tax under AS 43.20; 03 (5) municipal sales and use tax under AS 29.45.650 - 29.45.710; 04 (6) municipal property tax under AS 29.45.010 - 29.45.250 or 05 29.45.550 - 29.45.600; 06 (7) municipal special assessments under AS 29.46; 07 (8) a comparable tax or levy imposed by the state or a municipality 08 after June 18, 1998; 09 (9) other state or municipal taxes or categories of taxes identified by 10 the commissioner. 11 * Sec. 7. AS 43.20.144 is repealed. 12 * Sec. 8. The uncodified law of the State of Alaska is amended by adding a new section to 13 read: 14 APPLICABILITY. AS 43.21, added by sec. 5 of this Act, applies to taxable income 15 earned or received after December 31, 2015. 16 * Sec. 9. The uncodified law of the State of Alaska is amended by adding a new section to 17 read: 18 REGULATIONS. (a) The Department of Revenue may adopt regulations necessary to 19 implement AS 43.21, added by sec. 5 of this Act. The regulations take effect under AS 44.62 20 (Administrative Procedure Act), but not before the effective date of the law implemented by 21 regulation. 22 (b) The Department of Revenue shall provide by regulation for a transition for a 23 corporation subject to tax under AS 43.20 before December 31, 2015, to avoid double 24 taxation of the same income or double deduction of the same expense of the corporation as a 25 result of becoming subject to tax under AS 43.21, added by sec. 5 of this Act. 26 (c) The Department of Revenue may adopt regulations necessary to provide a five- 27 year transition period for the adoption of applicable depreciation schedules. 28 * Sec. 10. Section 9 of this Act takes effect immediately under AS 01.10.070(c). 29 * Sec. 11. Except as provided in sec. 10 of this Act, this Act takes effect January 1, 2016.