Legislature(2015 - 2016)BILL RAY CENTER 208

05/27/2016 03:00 PM House FINANCE

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Open Public Testimony --
Heard & Held
-- Open Public Testimony --
Heard & Held
-- Open Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 4005                                                                                                           
     "An Act  relating to the  mining license  tax; relating                                                                    
     to  the  exploration   incentive  credit;  relating  to                                                                    
     mining  license  application,  renewal, and  fees;  and                                                                    
     providing for an effective date."                                                                                          
3:46:21 PM                                                                                                                    
Mr. Burnett explained HB 4005  was an increase in the mining                                                                    
license tax rate.  The bill would increase the  top tax rate                                                                    
on  net  profits  greater  than $100,000  per  year  from  7                                                                    
percent to  9 percent.  Additionally, the bill  would reduce                                                                    
the tax  holiday for new  mines from  3.5 years to  2 years,                                                                    
prevent the mining exploration  incentive credits from being                                                                    
used to  reduce royalties  (limiting them  to the  tax), and                                                                    
added a  $50 annual  license fee. He  noted the  license fee                                                                    
was  reasonable  because  miners   were  exempted  from  the                                                                    
business license  fee. He read the  sectional analysis (copy                                                                    
on file):                                                                                                                       
   · Section 1: Eliminates the ability to take the mining                                                                       
     exploration tax credit against royalty payments                                                                            
   · Section 2: Removes references to royalties in the                                                                          
     mining exploration tax credit provisions in AS                                                                             
   · Section 3: Removes references to royalties in the                                                                          
     mining exploration tax credit provisions in AS                                                                             
   · Section 4: Removes references to royalties in the                                                                          
     mining exploration tax credit provisions in AS                                                                             
   · Section  5: Changes  the existing  tax holiday  for new                                                                    
     mining operations  from three  and one-half years  to 2                                                                    
   · Section 6:  Changes the  tax rate  on mining  income in                                                                    
     excess of $100,000 from 7 percent to 9 percent.                                                                            
   · Section  7: Provides  for a  $50 annual  mining license                                                                    
   · Section  8: Provides  that changes  to the  exploration                                                                    
     tax  credit are  applicable to  royalty payments  after                                                                    
     the effective date of section  1. Provides that the two                                                                    
     year  tax holiday  applies  to  mining operations  that                                                                    
     begin production  after the  effective date  of section                                                                    
     6. Provides that the new  tax rate begins the first tax                                                                    
     year after the effective date of section 6.                                                                                
   · Section   9:  Provides   the  exploration   tax  credit                                                                    
     accounting  in   current  law   applies  to   a  mining                                                                    
     operation which  began mining  production prior  to the                                                                    
     effective date of this act.                                                                                                
   · Section  10: Allows  for the  Department of  Revenue to                                                                    
     adopt regulations to administer this act.                                                                                  
   · Section 11:  Provides for  an immediate  effective date                                                                    
     for section 10.                                                                                                            
   · Section  12: Provides  that  the rest  of  the bill  is                                                                    
     effective July 1, 2016.                                                                                                    
Mr.  Burnett  elaborated that  the  new  tax would  go  into                                                                    
effect in January 1, 2017.                                                                                                      
Representative  Gara  noted the  bill  had  briefly been  in                                                                    
front of  the committee several  weeks earlier. He  had been                                                                    
surprised to learn that a  company would continue to receive                                                                    
a tax  holiday if  they were making  profits (for  3.5 years                                                                    
under current  law and  2 years  under the  legislation). He                                                                    
understood the  justification of not having  a profits based                                                                    
tax  if  a  company  was not  making  profits;  however,  he                                                                    
wondered about the justification for  giving a company a tax                                                                    
holiday when it was making profits.                                                                                             
Mr. Burnett responded that mining  operations tended to have                                                                    
very large  capital costs prior  to the start  of operations                                                                    
and the  tax holiday  allowed a company  to recover  some of                                                                    
those capital costs at the  very beginning of production. He                                                                    
detailed there was no cash out  to the companies as a result                                                                    
of the  tax holiday. He  furthered that companies  tended to                                                                    
not be  as profitable in  the first two years  of production                                                                    
as they became once production reached full swing.                                                                              
Co-Chair Thompson  referred to the International  Tower Hill                                                                    
Mines Livengood  project that had  300 people working  on it                                                                    
two  years back.  He  detailed  the mine  was  still in  the                                                                    
permitting  process  and  it had  tremendous  upfront  costs                                                                    
already. He  reasoned the tax  holiday would allow  the mine                                                                    
to  recover  some of  the  startup  costs  - it  would  take                                                                    
several  years  before  the  company  would  actually  begin                                                                    
3:50:55 PM                                                                                                                    
Representative Gara  conjectured that two-year  holiday made                                                                    
more  sense   under  some   circumstances.  He   provided  a                                                                    
hypothetical scenario  where a company invested  $10 million                                                                    
to prepare  a mine  for operation  and became  profitable in                                                                    
year one. He  asked if the company would deduct  part of the                                                                    
$10 million  from year  one so  they were  truly profitable.                                                                    
Alternatively, he wondered  if a company was  not allowed to                                                                    
deduct the prior costs from the first year of profits.                                                                          
Mr.  Burnett responded  that a  company was  not allowed  to                                                                    
directly  deduct prior  cost. There  was an  exploration tax                                                                    
credit a company may be  able to take part of. Additionally,                                                                    
there was a depletion allowance,  which allowed a company to                                                                    
take a  certain percentage of  a prior cost. He  explained a                                                                    
company did not take a deduction  for prior cost in one lump                                                                    
like with a cash  flow tax (oil and gas was  a cash flow tax                                                                    
rather than  a profits tax)  where capital costs  were taken                                                                    
when they were spent and credits were taken.                                                                                    
Co-Chair  Thompson  informed   the  committee  that  Brandon                                                                    
Spanos the  deputy director of  the DOR Tax Division  was on                                                                    
the line for additional questions.                                                                                              
Representative  Gara had  heard  companies  were allowed  to                                                                    
deduct  a certain  percentage  of  pre-operations costs.  He                                                                    
referred to the carried forward  tax credit and a portion of                                                                    
costs a  company could  deduct in the  first year.  He asked                                                                    
what  portion  could  be  deducted  once  a  company  became                                                                    
3:53:21 PM                                                                                                                    
BRANDON   S.   SPANOS,   DEPUTY  DIRECTOR,   TAX   DIVISION,                                                                    
DEPARTMENT  OF  REVENUE   (via  teleconference),  asked  for                                                                    
Representative  Gara  referred  to a  company's  development                                                                    
costs and asked for an  estimate of what portion the company                                                                    
was  allowed  to  deduct once  they  became  profitable.  He                                                                    
referenced   the  concept   that  once   a  company   became                                                                    
profitable they would still not pay a tax for a few years.                                                                      
Mr.  Spanos   replied  [note:  audio  cut   out  during  the                                                                    
Representative Gara referred to  the depletion allowance and                                                                    
asked  for  verification a  company  was  allowed to  deduct                                                                    
development  costs on  a depreciation  schedule (similar  to                                                                    
federal  law  pertaining to  federal  taxes).  He asked  for                                                                    
verification  that a  company received  the money  back (the                                                                    
deductions) over a period of time.                                                                                              
Mr.  Spanos replied  in the  affirmative. He  detailed there                                                                    
was  a cost  or  percentage depletion  allowance similar  to                                                                    
federal depreciation or depletion.                                                                                              
3:55:39 PM                                                                                                                    
Representative Gara asked if the  allowance pertained to all                                                                    
of a company's development costs.                                                                                               
Mr.  Spanos  responded  it  pertained  to  a  company's  own                                                                    
capitalized development costs.                                                                                                  
Representative  Gara asked  for  verification the  allowance                                                                    
pertained to capital costs but not operations costs.                                                                            
Mr. Spanos  replied no, if  there had  been an expense  in a                                                                    
given  year that  would  be capitalized.  He  detailed if  a                                                                    
company had a loss in the  year a corporation may be able to                                                                    
use   it  against   other   income.   However,  in   general                                                                    
development costs were capitalized.                                                                                             
Representative  Gara relayed  he was  getting tripped  up on                                                                    
capitalized versus  capital costs. He explained  he was used                                                                    
to oil production  taxes and the terms  capital costs versus                                                                    
operations costs.  He asked for a  definition of capitalized                                                                    
Mr. Spanos  replied a capitalized  cost was an  expense that                                                                    
was not expensed  in the current year. He  furthered that it                                                                    
became  part  of the  capital  and  was expensed  through  a                                                                    
schedule over the life of the mine.                                                                                             
Representative   Gara   asked   for  verification   that   a                                                                    
capitalized  development cost  could include  operations and                                                                    
capital  costs.  Mr.  Spanos asked  Representative  Gara  to                                                                    
repeat the question.                                                                                                            
Representative  Gara   complied.  He   surmised  capitalized                                                                    
development  costs  could  include  operations  costs  (e.g.                                                                    
labor)  and  capital  costs  (e.g.  equipment).  Mr.  Spanos                                                                    
agreed. He expounded that the  labor would be capitalized if                                                                    
it was part of the development of a mine.                                                                                       
Representative  Wilson asked  how  the mining  and fuel  tax                                                                    
bills would economically impact the mining industry.                                                                            
3:58:15 PM                                                                                                                    
FRED  PARADY, DEPUTY  COMMISSIONER, DEPARTMENT  OF COMMERCE,                                                                    
COMMUNITY, AND ECONOMIC  DEVELOPMENT (DCCED), responded that                                                                    
the  mining tax  itself  was  a net  income  tax, which  was                                                                    
somewhat  unusual in  his experience  related to  mining. He                                                                    
shared  he had  spent 30  years  in mining  in Wyoming.  The                                                                    
taxes he was  most familiar with in  Wyoming were severance-                                                                    
based, not  net income-based. The  net income tax  would not                                                                    
occur unless  a property  had a net  income. He  stated "you                                                                    
can debate the amount of the  haircut, but at the end of the                                                                    
day you're still  growing hair, you weren't  bald." He noted                                                                    
he would leave the specifics of  the fuel tax to DOR, but he                                                                    
believed  there  was an  off-road  tax  credit against  that                                                                    
because it's a fuel tax.                                                                                                        
Representative  Wilson indicated  that she  had spoken  with                                                                    
Fort Knox and  she believed even with a credit  the fuel tax                                                                    
would  be  a huge  amount  of  money (excluding  the  mining                                                                    
portion).  She  thought  it was  DCCED's  responsibility  to                                                                    
consider  how taxes  would impact  business  in Alaska.  She                                                                    
added  if it  was not  the department's  responsibility, she                                                                    
wanted to know why.                                                                                                             
Mr. Parady that the task had  not been given to DCCED in the                                                                    
current timeframe.  He suggested that as  everyone looked at                                                                    
the holistic  picture of the  situation Alaska  found itself                                                                    
in,  of  course  there  were   economic  consequences  to  a                                                                    
$400,000 per hour deficit.                                                                                                      
Representative  Wilson stressed  that  HB 4005  was not  her                                                                    
legislation; however, if  it was her bill she  would come up                                                                    
with  the information  [she was  currently  asking for  from                                                                    
DCCED]. She did not understand  why anyone would have to ask                                                                    
the administration to bring certain  things up. She reasoned                                                                    
there were departments for  specific reasons. She redirected                                                                    
her question  to the Department of  Natural Resources (DNR).                                                                    
She asked DNR if it had  done any analysis on how the mining                                                                    
and  fuel  taxes  would  impact  the  mining  industry.  She                                                                    
wondered how much money they  were talking about, especially                                                                    
related to mines making over $100,000.                                                                                          
BRENT  GOODRUM,  DIRECTOR,  DIVISION  OF  MINING,  LAND  AND                                                                    
WATER,    DEPARTMENT     OF    NATURAL     RESOURCES    (via                                                                    
teleconference), replied  that the  department had  not been                                                                    
able to  conduct an  economic analysis  at the  present time                                                                    
regarding the bill proposals.                                                                                                   
Co-Chair Thompson asked  how many mines in  Alaska made over                                                                    
$100,000 per year in taxable profits.                                                                                           
Mr. Goodrum  responded that  about six  mines fell  into the                                                                    
category  [note: due  to poor  audio quality  some testimony                                                                    
Representative  Wilson  stated  she  was  not  asking  trick                                                                    
questions. She  reasoned the  administration was  asking the                                                                    
legislature  to increase  taxes on  industry as  well as  on                                                                    
individuals without  the information she believed  should be                                                                    
required.  She wanted  to  know the  overall  impact of  the                                                                    
proposed taxes on  each industry. She noted  the bills would                                                                    
add an  incredible cost to  Fort Knox (the estimate  did not                                                                    
include property taxes,  which Pogo Mine did  not have). She                                                                    
stated each mine  was different and although  there were not                                                                    
a  significant   number,  certain  boroughs   had  different                                                                    
responsibilities  and  costs.  She thought  the  information                                                                    
should have been available either from DOR or DCCED.                                                                            
4:03:05 PM                                                                                                                    
Co-Chair Neuman asked if there  was a methodology that could                                                                    
predict the economic impacts of an increased tax.                                                                               
Mr. Parady replied  that in a mine  management scenario with                                                                    
an investment property such as  Fort Knox (i.e. an operating                                                                    
mine) at  the time of  determining the capital  investment a                                                                    
company would have run best,  worst, and probable scenarios;                                                                    
the internal rate of return;  and hurdle rate related to the                                                                    
range  of risk  for the  investment. He  stated the  factors                                                                    
came  from  all  directions including  permitting  timeline,                                                                    
scale  of  investment,  rate   of  return,  commodity  price                                                                    
volatility,  and  other.  Across  the  range  of  factors  a                                                                    
company   was   reaching    an   investment   decision.   He                                                                    
acknowledged that  uncertainty was the enemy  of investment,                                                                    
which  was the  reason  the  tax holiday  (at  the time  the                                                                    
investment  was  made)  was  a  fairly  significant  benefit                                                                    
because  it  occurred right  at  the  point where  cash  was                                                                    
flowing out  the door, but  not in. The bill  would shorten,                                                                    
but  not eliminate  the  window. He  continued  that once  a                                                                    
company began  operation, its cost structure  was predicated                                                                    
on all  of the variable  costs (i.e. labor  contracts, fuel,                                                                    
and  other) and  commodity price  variability. He  explained                                                                    
that mines were driven by  economies of scale. He detailed a                                                                    
company could  respond to market  volatility by  running its                                                                    
equipment around the  clock, year round to  spread out fixed                                                                    
cost and lower per unit cost.                                                                                                   
Mr. Parady  addressed the particular  tax and its  impact on                                                                    
an operating environment.  He agreed the change from  7 to 9                                                                    
percent was  not a 2  percent change, it was  a two-sevenths                                                                    
change or  28 percent,  which constituted a  substantive tax                                                                    
change.  However,  it was  a  tax  change occurring  on  net                                                                    
income; at  that point,  it may lessen  a mine's  ability to                                                                    
reinvest  or  hire  additional workforce,  but  it  was  not                                                                    
shifting from  a profitable  to a  non-profitable enterprise                                                                    
on the  basis of  the tax.  He did not  have the  ability to                                                                    
model  Fort  Knox's cost  structure;  each  of the  existing                                                                    
mines knew  exactly where their  cost structure  was against                                                                    
the current price of gold.  He agreed the tax increase would                                                                    
have an  impact, but because it  was a net income,  it would                                                                    
tighten their operating margins,  but would not position the                                                                    
mines for failure.                                                                                                              
4:06:30 PM                                                                                                                    
Co-Chair  Neuman  knew  that different  mines  had  internal                                                                    
information  that he  surmised the  department did  not have                                                                    
access  to. He  thought the  state would  have a  $3 billion                                                                    
deficit for  some time; he  did not anticipate the  price of                                                                    
oil to  increase any time  soon. He wondered how  to measure                                                                    
that  against   trying  to  cover   the  state's   debt.  He                                                                    
questioned  whether  the  money  should be  taken  from  the                                                                    
state's dividend.  He was  trying to think  of some  way the                                                                    
department  could  model the  economic  impacts  of all  the                                                                    
various information.                                                                                                            
Mr. Burnett  responded that  it was not  a simple  model. He                                                                    
specified  that  each  of  the   mines  were  different.  He                                                                    
clarified that DOR did receive  the mines' cost information.                                                                    
The largest  taxpayers in the  group had about  $451 million                                                                    
in profits in  2014 and the tax would take  an additional $7                                                                    
million  in  taxes per  year  out  of  that type  of  profit                                                                    
structure. He corrected that prices  would be lower based on                                                                    
commodity  prices  -  the  profit was  in  the  hundreds  of                                                                    
millions  and  the  state  would  take  a  few  million.  He                                                                    
elaborated  that the  state's tax  would reduce  the federal                                                                    
tax.  He continued  it was  not a  deduction from  the state                                                                    
income tax, but  it was a deduction from  the federal income                                                                    
tax,  which  was  a  35  percent  tax.  The  impact  on  the                                                                    
companies  was not  as great  as  the dollar  amount in  the                                                                    
fiscal note.  The 4 cents  in additional fuel tax  the mines                                                                    
would  pay  (he  clarified  the  number  was  determined  by                                                                    
subtracting  12  cents  from  16  cents)  was  lost  in  the                                                                    
volatility  of  fuel  prices.  He  acknowledged  the  dollar                                                                    
amount was significant, but commodity  prices also tended to                                                                    
move together  in many cases.  He continued that  oil prices                                                                    
and gold prices  could move in the  opposite directions, but                                                                    
it  was only  possible to  make predictions  or guesses.  He                                                                    
underscored the  increase would mean  a small  dollar impact                                                                    
relative to  the total investment.  The bill would  not mean                                                                    
the  state would  take money  before it  became profit;  the                                                                    
bill would only take profits with the mining tax.                                                                               
Co-Chair Neuman  requested a comparison of  the mining, gas,                                                                    
motor fuel,  and fisheries  taxes compared  to the  taxes in                                                                    
other states.                                                                                                                   
Mr.  Burnett  replied  that the  department  had  previously                                                                    
provided  the information  to the  committee.  He noted  the                                                                    
department could locate the information.                                                                                        
Vice-Chair  Saddler echoed  the  comments by  Representative                                                                    
Wilson.  He   expressed  embarrassment  on  behalf   of  the                                                                    
administration that  the taxes had been  considered for five                                                                    
or  six  months,  but  he   did  not  see  any  analysis  or                                                                    
consideration  of  the potential  impact  of  the taxes.  He                                                                    
understood  the tax  would only  be  on the  profit, but  he                                                                    
wondered if  the profit margin  could be reduced to  a point                                                                    
where it was not  sufficiently profitable. He wondered about                                                                    
the potential impact on  employment, exploration, and future                                                                    
investments. He assumed  there must be a  general model that                                                                    
applied.  He  believed  the administration  had  been  given                                                                    
sufficient  time to  come  up with  some  specifics. He  was                                                                    
concerned   the   administration   appeared  not   to   have                                                                    
considered the impact of the bills.                                                                                             
Mr. Parady assured the committee  the administration had not                                                                    
approached  the  tax  bills with  a  cavalier  attitude.  He                                                                    
explained that mining  was a cyclical business.  In the past                                                                    
several years the  price of gold had varied  between $950 or                                                                    
$1,000  to  $1,400  or  $1,500.  He  detailed  the  specific                                                                    
commodity  price  spread  far  exceeded any  impact  in  the                                                                    
suggested tax  rate. He agreed  that taxes had an  effect on                                                                    
the bottom line of a business  and a company would deal with                                                                    
the bottom line  the same way the state  was approaching the                                                                    
current deficit - a business  could freeze travel, overtime,                                                                    
and hiring,  and could  layoff contractors.  He acknowledged                                                                    
there  was  an  impact  when  money  was  pulled  out  of  a                                                                    
business. However, he spoke to  the perspective of the scale                                                                    
of a  change from 7  to 9 percent, which  was only on  a net                                                                    
income basis. He underscored the  increase was not on a cost                                                                    
basis.  He explained  the effect  was difficult  to quantify                                                                    
and was less than the effect  of the cost variability in the                                                                    
commodities cycle.                                                                                                              
Mr.  Parady continued  that  in his  knowledge  of taxes  in                                                                    
general, Alaska's  mining tax structure, which  dated to the                                                                    
1950s  and was  based on  net income  was different  than in                                                                    
other  major mining  states; the  most direct  comparison to                                                                    
Alaska was probably  Nevada because it was a  hard rock gold                                                                    
mining  state,   whereas  Wyoming  was  primarily   a  coal,                                                                    
uranium,  and  trona  mining   state  (albeit  trona  mining                                                                    
occurred underground  and there were some  similarities). He                                                                    
elucidated that most tax structures  were typically based on                                                                    
a  percentage of  cost, in  Wyoming it  was a  severance tax                                                                    
basis. The  fact that  Alaska's tax structure  was on  a net                                                                    
income  basis  moderated some  of  the  effect. He  believed                                                                    
DCCED had  a state-by-state comparison and  he would provide                                                                    
it to the committee.                                                                                                            
Co-Chair  Thompson  noted  the committee  had  received  the                                                                    
comparison in the past.                                                                                                         
4:14:00 PM                                                                                                                    
Representative Gattis  discussed that she could  not compare                                                                    
her farms  to those in the  Lower 48. She detailed  that the                                                                    
cost  of  fuel  and  fertilizer  was  significantly  higher.                                                                    
Additionally, she had  to haul in all of  her equipment from                                                                    
the  Lower 48.  She  reminded committee  members and  others                                                                    
that  Alaska  was  unlike  other states  as  it  related  to                                                                    
logistics. She  did not believe  it was possible  to compare                                                                    
Representative  Gara   thought  additional   discussion  was                                                                    
necessary.  He recalled  oil tax  debates in  the past  when                                                                    
there had been a gross tax.  He asked whether in low profits                                                                    
years a mining  company would prefer a profits  based tax or                                                                    
a gross tax (like in Wyoming).                                                                                                  
Mr.  Parady  clarified the  Wyoming  tax  was severance  tax                                                                    
based. He  detailed the tax  was based  on the value  of the                                                                    
mineral  at the  time it  was  severed from  the ground.  He                                                                    
explained it  was not a  gross on the  cost as the  value of                                                                    
the  cycle was  completed when  fed to  a refinery  or power                                                                    
plant. He  believed a mining  company would want  the lowest                                                                    
tax possible at any given point in time.                                                                                        
Representative Gara  thought there  had to  be an  answer to                                                                    
his  question.  He wondered  if  a  company would  prefer  a                                                                    
severance based tax or a tax  based on profits during a time                                                                    
when profits were low or a company was losing money.                                                                            
Mr. Parady commented  on the complexity of  the question. He                                                                    
explained  when  Russia   imploded  and  Russian  yellowcake                                                                    
flooded the world market and  depressed uranium pricing, "we                                                                    
went to a graduated severance  tax." He detailed the tax was                                                                    
zero  percent at  $12 per  pound of  yellowcake and  down (1                                                                    
percent to $14,  2 percent to $16, and back  to the original                                                                    
rate  of 4  percent  at $18).  The point  was  an effort  to                                                                    
salvage  the industry  through the  low spot  caused by  the                                                                    
spike.  There had  been zero  taxes at  the low  end and  an                                                                    
increase  back  to the  normal  taxing  rate as  the  market                                                                    
returned. He concluded  "there's a lot of ways  to skin this                                                                    
4:17:16 PM                                                                                                                    
Mr. Burnett responded to  Representative Gara's question and                                                                    
explained  that a  net income  based  tax at  a zero  profit                                                                    
would  be  a zero  tax;  therefore,  anytime a  company  was                                                                    
losing money or  profits were low, the tax would  be lower -                                                                    
unless it was structured as Mr. Parady had discussed.                                                                           
4:17:43 PM                                                                                                                    
Representative  Gara had  been surprised  to learn  that the                                                                    
state's royalty  was profits  based as  opposed to  based on                                                                    
the value  of the commodity.  He asked what the  royalty was                                                                    
on mining.                                                                                                                      
Mr. Burnett deferred the question  to Mr. Goodrum. He agreed                                                                    
it was a  net tax based on the same  calculations as the net                                                                    
mining license tax. He did not have the rate on hand.                                                                           
Mr. Goodrum answered the rate was 3 percent net profit.                                                                         
Representative Gara  was not interested  in raising  the tax                                                                    
on struggling  mines (companies that  were not  making money                                                                    
or were making  very little money). He pointed  out that the                                                                    
bill  applied to  mining companies  making over  $100,000 in                                                                    
profit. He  was curious what  the fiscal impact would  be if                                                                    
there  were  a  slightly  higher tax  for  companies  making                                                                    
$250,000  per year  in profits.  He asked  about the  fiscal                                                                    
impact of an 11 percent tax on those companies.                                                                                 
Mr.  Burnett  replied he  had  answered  the question  in  a                                                                    
previous committee.  Generally speaking,  nearly all  of the                                                                    
income  above   $100,000  was  income  above   $250,000.  He                                                                    
clarified it was nearly all  above $1 million. The impact of                                                                    
2 additional  percent on mines  earning over  $250,000 would                                                                    
mean a doubling of the fiscal  note at about $14 million per                                                                    
year as opposed to the $7 million.                                                                                              
4:20:08 PM                                                                                                                    
Representative  Kawasaki  asked  for verification  that  gas                                                                    
prices and  motor fuel would  be rolled into the  net income                                                                    
tax. He surmised  companies would have the  ability to write                                                                    
the   increase  off.   Mr.   Burnett   responded  that   any                                                                    
expenditure for operating  the mine could be taken  as a tax                                                                    
deduction against profits.                                                                                                      
Representative  Kawasaki  recalled   a  previous  discussion                                                                    
related  to when  mining  taxes had  last  been changed  (in                                                                    
1955). He  asked if the brackets  in Section 6 had  been set                                                                    
at the time. He outlined  the brackets as $40,000 to $50,000                                                                    
at  3  percent, $50,000  to  $100,000  was 5  percent,  plus                                                                    
Mr. Burnett replied that the  brackets had been set in 1955.                                                                    
He  reminded the  committee  that there  had  been no  large                                                                    
mines operating in  Alaska at the time.  There were numerous                                                                    
large operating  mines in  Alaska prior  to WWII  and nearly                                                                    
all of the  current operating mines had been  started in the                                                                    
1980s, 1990s, and 2000s.                                                                                                        
Representative Kawasaki requested  additional information on                                                                    
why  the  discussions  about  the   brackets  had  not  been                                                                    
changed. He referred to a  Fairbanks resident working in the                                                                    
summer as  a placer  miner who made  $40,000 to  $50,000 per                                                                    
year  and paid  3  percent  of net.  He  continued that  the                                                                    
largest scale mines  paid 7 percent (or 9  percent under the                                                                    
proposed legislation).  He thought  the "mom and  pop" mines                                                                    
were getting  hit disproportionately compared to  the larger                                                                    
Co-Chair Thompson  relayed that in a  prior presentation for                                                                    
HB 4001,  a statement  had been made  that the  tax increase                                                                    
would not  impact mom and pop  miners at all other  than the                                                                    
$50 annual license fee. He asked  if the same applied to the                                                                    
current legislation.                                                                                                            
Mr. Burnett replied in the  affirmative; the increase in the                                                                    
legislation  only applied  to  mines  making over  $100,000;                                                                    
therefore, mom and pop organizations  would not be impacted.                                                                    
He addressed Representative  Kawasaki's question and relayed                                                                    
it had been  discussed in the House  Resources Committee. He                                                                    
elaborated there  had been  discussions about  expanding the                                                                    
brackets, which  would have very  little impact in  terms of                                                                    
how much money the state  received. He continued it would be                                                                    
a policy decision to opt not  to tax people at lower levels.                                                                    
The primary  income to  the state from  the miners  was from                                                                    
the 14 to 20 taxpayers  making more than $100,000 in profits                                                                    
on an  annual basis (primarily  from the 6 large  mines). He                                                                    
referred  to a  spreadsheet the  department had  created for                                                                    
Representative  Kawasaki, which  had  been  shared with  the                                                                    
committee  in  2014. He  detailed  the  net profits  of  the                                                                    
taxpayers  making under  $100,000  totaled approximately  $1                                                                    
4:23:57 PM                                                                                                                    
Representative  Kawasaki referred  to  the discussion  about                                                                    
whether  it   was  possible  to  make   an  apples-to-apples                                                                    
comparison  of  the  mining industry  in  Alaska  and  other                                                                    
states. He  believed it  was fair to  ask the  questions. He                                                                    
wondered  if  any  analysis  had been  done  on  what  other                                                                    
countries  did.  He  reasoned Alaska  was  an  international                                                                    
mining  destination and  was ranked  number 6  worldwide for                                                                    
investment  attractiveness (just  behind Western  Australia,                                                                    
Saskatchewan,  Nevada, Ireland,  and Finland)  in a  Frasier                                                                    
report.  He noted  the committee  was familiar  with Frasier                                                                    
pertaining to oil and gas.  He continued that Frasier listed                                                                    
Alaska as number  2 worldwide for best  practices, number 11                                                                    
worldwide for best mineral  extraction potential, and other.                                                                    
He  asked if  the administration  had considered  the report                                                                    
when analyzing the mining license tax.                                                                                          
Mr. Burnett replied that the  issues were considered by DOR,                                                                    
DNR, and  probably by DCCED. He  affirmed the administration                                                                    
had  looked  at taxes  in  other  jurisdictions besides  the                                                                    
United States.                                                                                                                  
Vice-Chair  Saddler commented  that  the  most recent  large                                                                    
mine to  open in  Alaska had taken  a significant  amount of                                                                    
time  and   had  required  a  Supreme   Court  decision.  He                                                                    
questioned how  many new  mines were  opening in  Alaska. He                                                                    
referred to  page 3 of  the bill and asked  for verification                                                                    
the mining tax was on net income, not net profits.                                                                              
Mr.  Burnett  replied  that  net   income  and  profit  were                                                                    
generally considered the same thing.                                                                                            
Vice-Chair  Saddler  asked   for  verification  the  current                                                                    
mining  royalty was  3 percent  of net  profit. Mr.  Burnett                                                                    
answered in the affirmative.                                                                                                    
Vice-Chair Saddler had heard  in previous presentations that                                                                    
the $50 mining tax was in  lieu of a royalty. He referred to                                                                    
the 3 percent net profit royalty and a mining tax royalty.                                                                      
Mr. Burnett responded that the  $50 mining license fee was a                                                                    
recognition that all  other businesses in Alaska  paid for a                                                                    
business license. He continued  that companies with a mining                                                                    
license   were  exempt   from  regular   business  licensing                                                                    
HB  4005  was  HEARD  and  HELD  in  committee  for  further                                                                    
4:26:48 PM                                                                                                                    

Document Name Date/Time Subjects
HB4003 Sponsor Statement - Governor's Transmittal Letter.pdf HFIN 5/27/2016 3:00:00 PM
HB4003 Supporting Document - Sectional Analysis.pdf HFIN 5/27/2016 3:00:00 PM
HB4005 Sponsor Statement - Governor's Transmittal Letter.pdf HFIN 5/27/2016 3:00:00 PM
HB4005 Supporting Document - Sectional Analysis.pdf HFIN 5/27/2016 3:00:00 PM
HB 4006 - UFA comments for Hse Fin 052716.pdf HFIN 5/27/2016 3:00:00 PM
HB 4006 Alaska-Seafood-Industry-Taxes-Fees-UFA 2015.pdf HFIN 5/27/2016 3:00:00 PM
HB 4006 AWTA oppostion to HB251.pdf HFIN 5/27/2016 3:00:00 PM
HB 251
HB 4006 HB251 - CFEC Cap -Patrick Odonnell 050416.pdf HFIN 5/27/2016 3:00:00 PM
HB 251
HB4006 Sponsor Statement - Governor's Transmittal Letter.pdf HFIN 5/27/2016 3:00:00 PM
HB4006 Supporting Document - Sectional Analysis.pdf HFIN 5/27/2016 3:00:00 PM
HB 374 NEW FN DCCED 5-27-16.pdf HFIN 5/27/2016 3:00:00 PM
HB 374
HB 374 Fund code 1248.pdf HFIN 5/27/2016 3:00:00 PM
HB 374
HB 374 CS WORKDRAFT FIN vN.pdf HFIN 5/27/2016 3:00:00 PM
HB 374
HB 374 Conceptual Amendment 1 Gara - Thompson.pdf HFIN 5/27/2016 3:00:00 PM
HB 374