Legislature(2009 - 2010)BARNES 124

03/27/2010 10:00 AM House RESOURCES

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10:06:11 AM Start
10:06:31 AM HB337
11:05:15 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
         HB 337-OIL AND GAS PROD. TAX: CREDITS/INTEREST                                                                     
                [Contains discussion of HB 308]                                                                                 
10:06:31 AM                                                                                                                   
CO-CHAIR JOHNSON  announced that  the only  order of  business is                                                               
HOUSE  BILL NO.  337  "An  Act relating  to  interest on  certain                                                               
underpayments  or overpayments  for  the oil  and gas  production                                                               
tax,  to certificates  for  certain oil  and  gas production  tax                                                               
credits for  qualified capital  expenditures, and  to alternative                                                               
tax credits for expenditures for  certain oil and gas development                                                               
and exploration  activities for the  oil and gas  production tax;                                                               
relating  to the  use  of the  oil  and gas  tax  credit fund  to                                                               
purchase certain  tax credit certificates;  and providing  for an                                                               
effective date."                                                                                                                
10:07:56 AM                                                                                                                   
MARCIA DAVIS,  Deputy Commissioner,  Office of  the Commissioner,                                                               
Department of  Revenue, noted  that most of  the elements  in the                                                               
governor's  bill,  HB  337,  have   already  been  discussed  and                                                               
incorporated  into HB  308.   A key  provision in  the governor's                                                               
bill would allow  the Department of Revenue to  waive interest in                                                               
those cases  where a taxpayer has  failed to pay the  full amount                                                               
of tax because of a retroactive change in regulations.                                                                          
MS. DAVIS said another key provision  of HB 337 is aimed at those                                                               
taxpayers allowed to  cash in their credits  because they produce                                                               
50,000 or  less barrels  per day of  oil equivalent.   Currently,                                                               
for  these  taxpayers to  receive  the  monetary value  of  their                                                               
credits  the  credits must  be  spread  over  two years  and  the                                                               
taxpayer  must demonstrate  that it  has spent  in the  following                                                               
year the same  amount of money it  is seeking to get  as cash for                                                               
the  credit.   She related  that the  department has  now learned                                                               
from experience that  there is a hitch in  getting cash infusions                                                               
into  the  hands of  new  entrants.    Projects require  a  large                                                               
investment  in  capital  costs  to  get  as  far  as  production.                                                               
However, once at production, the  extra expenditure of large sums                                                               
of  money is  no  longer needed.   Because  many  of the  smaller                                                               
producers  undertake  only  one  project,  this  results  in  the                                                               
smaller producers being  unable to monetize their  credits at the                                                               
very time necessary to kick off production.                                                                                     
10:09:56 AM                                                                                                                   
CO-CHAIR  JOHNSON  asked whether  it  is  dollar for  dollar  and                                                               
whether this is sufficient.                                                                                                     
MS. DAVIS  responded current law  does not require that  the same                                                               
amount  of capital  be  spent as  previously  spent; rather,  the                                                               
taxpayer  must spend  an amount  that  equates to  the amount  of                                                               
credit money it  is trying to get  back.  She noted  that not all                                                               
new  entrants have  this problem  because some  have a  number of                                                               
projects  and the  timing  of  projects allows  them  to work  in                                                               
phases.   However, it does  affect how these taxpayers  phase the                                                               
spending of  their money and  might sometimes cause them  to hold                                                               
back  on spending  so they  have  money for  the following  year,                                                               
which can affect the efficiency and  timing of the projects.  She                                                               
said the  credits have been  a success because they  are bringing                                                               
in new  entrants that are  staying, but these entrants  need this                                                               
capital  to  stay in  Alaska  and  further development  by  these                                                               
companies has been constrained.   Additionally, given the current                                                               
economy,  it has  been  difficult for  these  companies to  raise                                                               
capital for advanced funding.                                                                                                   
10:12:00 AM                                                                                                                   
CO-CHAIR NEUMAN understood  it is the Department  of Revenue that                                                               
determines  the  taxes  owed.     He  surmised  it  is  also  the                                                               
department that  determines whether  additional tax is  owed when                                                               
regulations are changed retroactively.                                                                                          
MS. DAVIS replied correct.                                                                                                      
CO-CHAIR  NEUMAN  further  understood   that  credits  cannot  be                                                               
received unless the  taxpayer spends money and  a taxpayer cannot                                                               
receive  more  money  back  in   credits  than  what  it  had  in                                                               
MS. DAVIS answered correct.                                                                                                     
10:12:54 AM                                                                                                                   
CO-CHAIR NEUMAN  inquired whether it is  the department's opinion                                                               
that a  taxpayer should be able  to use its credits  in the first                                                               
year.   He  presumed there  is  less exploration  because of  the                                                               
downturn in the economy.                                                                                                        
MS. DAVIS responded  it would absolutely be  easier for taxpayers                                                               
to use  their credits in  the first  year.  Receiving  this money                                                               
sooner gives  a taxpayer  more options  for its  next move  as an                                                               
investor and developer.   Regarding the downturn  of the economy,                                                               
she said  she is referring to  the global downturn since  that is                                                               
basically  where  equity  money  flows.   She  related  that  the                                                               
department has had  conversations with new entrants  that are not                                                               
publicly-traded  companies.    These  companies must  go  to  the                                                               
private  equity market  to  generate capital.    That capital  is                                                               
tighter, but that equity market  is also hungry because investors                                                               
are  looking for  something  beyond the  stock  market that  will                                                               
provide  a  payoff.    However,  these  investors  are  generally                                                               
looking for  single projects, not a  company to invest in  for 20                                                               
years, and  they therefore want to  know what the payout  will be                                                               
and  how soon  the  return  of capital  will  occur  so they  can                                                               
balance that against the risk.   This is different than the large                                                               
international corporations that  have corporate headquarters that                                                               
dole out the money globally.                                                                                                    
10:14:58 AM                                                                                                                   
CO-CHAIR  NEUMAN  understood the  market  is  flooded with  these                                                               
transferable credits and offerings to  purchase them have been as                                                               
low as 50 cents on the dollar.                                                                                                  
MS. DAVIS  replied correct, the  taxpayers that cannot  use these                                                               
credits against their  own bill are stuck and they  are forced to                                                               
go to  the market if  they need money  faster than the  two years                                                               
allows.   Other taxpayers in  this market may already  have their                                                               
own credits  and not need any  more; or, other taxpayers  may not                                                               
be  that  concerned about  it  and  will  buy  the credits  at  a                                                               
discount if they can.                                                                                                           
10:16:16 AM                                                                                                                   
REPRESENTATIVE  OLSON asked  what the  form looks  like that  the                                                               
companies must fill out to apply for their credits.                                                                             
MS. DAVIS  answered she has  not personally seen  the application                                                               
form,  only the  Excel  spreadsheet.   She  deferred  to Mr.  Dan                                                               
DAN E. DICKINSON,  CPA, Consultant to the  Legislative Budget and                                                               
Audit  Committee,  responded  to  the question  because  Mr.  Dan                                                               
Stickel  was not  on line,  saying  he will  immediately mail  an                                                               
electronic copy of the form to the co-chairs.                                                                                   
10:17:50 AM                                                                                                                   
REPRESENTATIVE  SEATON  inquired  whether   there  is  a  way  to                                                               
prioritize  the processing  of credits  for the  small producers,                                                               
given Ms.  Davis's [3/26/10  statement that  when up  against the                                                               
statute   of  limitation   for   audits   the  department's   tax                                                               
specialists  must  process  the  audits  first  and  the  credits                                                               
MS. DAVIS  replied that HB  337 would  not change the  status quo                                                               
for the statute  of limitation, which is currently  six years for                                                               
those audits  being conducted under Alaska's  Clear and Equitable                                                               
Share  (ACES) and  the petroleum  production  profits tax  (PPT).                                                               
While the  Department of Revenue  can always use  more production                                                               
auditors,  she  said staffing  is  such  that with  the  six-year                                                               
statute of limitation a priority can  be put on the credits.  The                                                               
department  has been  working to  ensure there  is not  a lag  in                                                               
getting credits  out and the  only time  this does not  happen is                                                               
when the statute of limitation is reached for audits.                                                                           
10:19:13 AM                                                                                                                   
REPRESENTATIVE  SEATON  asked  whether  a  section  needs  to  be                                                               
included in  HB 337  that requires the  Department of  Revenue to                                                               
prioritize the  processing of credits for  small producers, given                                                               
the example provided by Ms. Davis on 3/26/10.                                                                                   
MS.  DAVIS  answered the  situation  she  described yesterday  is                                                               
currently a  unique circumstance because the  department has very                                                               
few three-year statute of limitation  audits remaining.  She said                                                               
she was using that as an  example of what would happen across the                                                               
board if  all of  the statutes of  limitation became  three years                                                               
[as proposed by HB 308].   She understood that the tax specialist                                                               
in  the circumstance  she  described would  be  through with  the                                                               
audit this week and able to process the credits early next week.                                                                
CO-CHAIR  JOHNSON inquired  what the  problem is  with three-year                                                               
statutes of  limitation if the  department is bumping  up against                                                               
very few of them.                                                                                                               
MS.  DAVIS responded  the department  is not  bumping up  against                                                               
them because looking  down the pike the statute  of limitation is                                                               
six  years,  not  three  years, and  the  department  is  staffed                                                               
accordingly.  The department has  been processing credits knowing                                                               
it is not hitting a wall.                                                                                                       
10:20:59 AM                                                                                                                   
MS. DAVIS  resumed her overview  of HB  337, stating that  HB 337                                                               
would change  the wait for  credits from two  years to one.   She                                                               
said the tax credit in the  governor's bill is similar to aspects                                                               
of HB 308.  In the governor's  bill the credit is housed under AS                                                               
43.55.025, which is the exploration  credit that would cover both                                                               
operating and  capital expenditures associated  with exploration.                                                               
A  development  section is  being  proposed  for addition  to  AS                                                               
43.55.025.   The credit amplification for  infield drilling would                                                               
expire July 2016.                                                                                                               
10:22:01 AM                                                                                                                   
CO-CHAIR JOHNSON asked whether  infield drilling and/or workovers                                                               
would need to be finished by 2016 or begun by 2016.                                                                             
MS. DAVIS  replied it would be  the cost incurred; the  cost must                                                               
be incurred after  June [30], 2010, and before July  1, 2016.  In                                                               
further  response, she  confirmed the  window to  receive credits                                                               
for infield drilling would be five to six years.                                                                                
CO-CHAIR  JOHNSON  stated  he will  ask  representatives  of  the                                                               
industry whether that is enough  time to plan, execute, and spend                                                               
the money  when they come  before the  committee on 3/29/10.   He                                                               
further  inquired  whether  the  administration is  firm  on  the                                                               
sunset date.                                                                                                                    
MS.  DAVIS  answered  she will  discuss  this  with  Commissioner                                                               
Galvin and get back to the committee.                                                                                           
CO-CHAIR  JOHNSON added  that  if the  provision  is working  the                                                               
state would want to continue it.                                                                                                
MS. DAVIS said this provision is in  Section 8 at the top of page                                                               
6  under subparagraph  (A), which  states  that it  "must be  for                                                               
exploration  or for  development well  expenditures incurred  for                                                               
work performed after June 30, 2010, and before July 1, 2016".                                                                   
10:24:08 AM                                                                                                                   
MS. DAVIS  continued her overview,  explaining that HB  337 would                                                               
give  the  Department  of  Revenue  the  authority  to  implement                                                               
retroactive regulations  that deal  with those provisions  of the                                                               
bill that reach back into the past.                                                                                             
REPRESENTATIVE   SEATON   requested   an   explanation   of   the                                                               
retroactive regulations.                                                                                                        
MS. DAVIS  responded the retroactive regulations  would relate to                                                               
the  provision  for waiver  of  interest  and  would go  back  to                                                               
February  27,  2007, when  ACES  became  effective.   Retroactive                                                               
regulations  would  also apply  to  the  area of  capital  credit                                                               
expenditure  and the  section that  changes net  operating losses                                                               
and credits from two years to one year.                                                                                         
10:25:57 AM                                                                                                                   
REPRESENTATIVE SEATON  understood the  capital credit  portion of                                                               
that  retroactivity would  be  on the  one  year versus  two-year                                                               
MS. DAVIS replied yes.                                                                                                          
REPRESENTATIVE  SEATON surmised  it would  not go  back and  give                                                               
capital credits.                                                                                                                
MS. DAVIS  answered no, the new  capital credit, which is  the 30                                                               
percent increase  for infield, would  be effective July  1, 2010,                                                               
the start  of the  next fiscal  year.   In further  response, she                                                               
said this effective date was  chosen for purposes of establishing                                                               
no change to what people felt  were the fiscal revenues that were                                                               
going to flow  over fiscal year 2010.  As  far as regulations, it                                                               
is  helpful to  have the  regulations be  able to  be retroactive                                                               
where the law goes back in time.                                                                                                
10:27:37 AM                                                                                                                   
REPRESENTATIVE  SEATON  noted that  when  HB  337 was  previously                                                               
heard, he requested a written analysis of the fiscal impact.                                                                    
CO-CHAIR JOHNSON said  that has not yet been received.   He asked                                                               
Ms. Davis whether it could be received by 3/29/10.                                                                              
MS. DAVIS agreed to do so.   She asked whether the request is for                                                               
a  retrospective  view of  the  governor's  bill and  what  these                                                               
credits would have cost in 2008 and 2009.                                                                                       
REPRESENTATIVE SEATON responded correct.                                                                                        
10:28:23 AM                                                                                                                   
CO-CHAIR  NEUMAN  recalled  that  such  fiscal  comparisons  were                                                               
looked at for  HB 308 [on 3/26/10] and he  believes they would be                                                               
substantially the same.                                                                                                         
MS.  DAVIS replied  that the  information she  provided yesterday                                                               
was only for the impact of  the progressivity; it did not include                                                               
the impact of the credits.   She agreed that the credit piece for                                                               
the  bills  is  shared  in   common.    She  explained  that  the                                                               
Department  of Revenue  is challenged  for  tracking the  credits                                                               
because  it does  not have  a tracking  system and  will have  to                                                               
manually pull  the returns  to look at  them.   Additionally, she                                                               
said   the   department   is   challenged   with   ensuring   the                                                               
confidentiality  of  Cook  Inlet  data because  there  are  fewer                                                               
taxpayers involved there.                                                                                                       
10:29:25 AM                                                                                                                   
REPRESENTATIVE  SEATON clarified  he is  not asking  for in-depth                                                               
information, just  a thumbnail estimate  of the  projected fiscal                                                               
impact to  the state.  He  said he also requested  an analysis of                                                               
what the interest provision would do.                                                                                           
MS. DAVIS answered  the department does not  factor interest into                                                               
its  revenue  projections, so  this  would  have a  zero  revenue                                                               
impact.   She explained the  department has no way  of estimating                                                               
who has or has not complied  with tax liability.  While she could                                                               
go back  to old years,  she said she  is unsure that  those years                                                               
would be indicative of the current or future years.                                                                             
REPRESENTATIVE  SEATON said  that if  an amount  of interest  had                                                               
been assessed to  date, it would indicate  the difference between                                                               
that assessment and the change in rate.                                                                                         
MS. DAVIS said she will look  into whether the department has any                                                               
interest assessments and, if so,  she will bring that information                                                               
to the committee.                                                                                                               
REPRESENTATIVE GUTTENBERG commented he does  not want to know who                                                               
pays what, but  he does not feel comfortable being  asked to make                                                               
a decision on policy when it is shrouded behind confidentiality.                                                                
MS. DAVIS said she understood.                                                                                                  
10:33:25 AM                                                                                                                   
CO-CHAIR  JOHNSON moved  to adopt  Conceptual Amendment  1, dated                                                               
3/27/2010, suggested  by the Department  of Revenue,  and written                                                               
by the department as follows:                                                                                                   
     Page 1, following line 7                                                                                                   
          Insert new bill sections to read:                                                                                     
          "*Sec. 1. AS.05.15.095(c) is amended to read:                                                                       
               (c) A delinquent fee bears interest at the                                                                       
     rate set by AS 43.05.225(2) [AS 43.05.225].                                                                                
          Sec. 2. AS 34.45.470(a) is amended to read:                                                                         
               (a) A person who fails to pay or deliver                                                                         
     property  within the  time prescribed  by this  chapter                                                                    
     may be  required to pay  to the department  interest at                                                                    
     the annual  rate calculated  under AS  43.05.225(2) [AS                                                                
     43.05.225] on the property or  the value of it from the                                                                    
     date the property should have been paid or delivered.                                                                      
          Sec. 3. AS 43.05.225 (1) is amended to read:                                                                        
               Sec. 43.05.225. Interest. Unless otherwise                                                                     
               (1) When a tax levied in this title becomes                                                                      
     delinquent, it bears interest in  a calendar quarter at                                                                    
     the  rate of  five percentage  points above  the annual                                                                    
     rate charged member  banks for advances by  the 12th 15                                                                    
     Federal Reserve  District as of  the first day  of that                                                                    
     calendar  quarter,  [OR  AT   THE  ANNUAL  RATE  OF  11                                                                    
     PERCENT,  WHICHEVER IS  GREATER,] compounded  quarterly                                                                    
     as of the lst day of that quarter;                                                                                         
          Sec. 4. AS 43.50.570 is amended to read:                                                                            
               Sec. 43.50.570. Interest. A licensee who                                                                       
     fails to pay  an amount due for the  purchase of stamps                                                                    
     within the time required                                                                                                   
               (1) is considered to have failed to pay the                                                                      
     cigarette taxes due under this chapter; and                                                                                
               (2) shall pay interest at the rate                                                                               
     established  under AS  43.55.225(1)[AS 43.05.225]  from                                                                
     the date on which the  amount became due until the date                                                                    
     of payment.                                                                                                                
          Sec. 5. AS 43.55.020(g) is amended to read:                                                                         
     (g)  Notwithstanding  any   contrary  provision  of  AS                                                                    
     43.05.225, an  unpaid amount of an  installment payment                                                                    
     required under  (a)(1)-(3) of this section  that is not                                                                    
     paid when due  bears interest (1) at  the rate provided                                                                    
     for  an underpayment  under  26  U.S.C. 6621  (Internal                                                                    
     Revenue Code),  as amended, compounded daily,  from the                                                                    
     date  the installment  payment is  due  until March  31                                                                    
     following the  calendar year of production,  and (2) as                                                                    
     provided for a delinquent  tax under AS 43.05.225(1)[AS                                                                
     43.05.225] after that March  31. Interest accrued under                                                                    
     (1) of  this subsection that remains  unpaid after that                                                                    
     March 31  is treated as  an addition to tax  that bears                                                                    
     interest  under  (2)  of  this  subsection.  An  unpaid                                                                    
     amount of tax due under  (a)(4) of this section that is                                                                    
     not  paid when  due bears  interest as  provided for  a                                                                    
     delinquent tax under AS 43.05.225(1)[AS 43.05.225].                                                                    
     Page 2, lines 5-10:                                                                                                        
          Delete language and insert the following:                                                                             
          "effective, if                                                                                                        
               (A) the department determines that the                                                                           
     producer's    underpayment    resulted   because    the                                                                    
     regulation was not in effect  when the payment was due;                                                                    
               (B) the producer demonstrates that it made a                                                                     
     good faith estimate  of its tax obligation  in light of                                                                    
     the  regulations then  in effect  when the  payment was                                                                    
     dues and paid the estimate tax;"                                                                                           
     Page 3, line 7:                                                                                                            
          Delete "AS 43.55.025(f)[AS 43.55.025(f)(2)]"                                                                      
          Insert "AS 43.55.025(f)(2)"                                                                                           
     Page 3, line 9-10:                                                                                                         
          Delete "AS 43.55.025(f) [AS 43.55.025(f)(2)]"                                                                         
          Insert "AS 43.55.025(f)(2)"                                                                                           
     Page 4, lines 5-31                                                                                                         
     Page 5, lines 1-31                                                                                                         
     Page 6, lines 1-31                                                                                                         
     Page 7, lines 1-31                                                                                                         
     Page 8, lines 1-31                                                                                                         
     Page 9, lines 1-25                                                                                                         
          Delete all material and insert new sections:                                                                          
          Sec. 9. AS 43.55.023(g) is amended to read:                                                                         
               (g) The issuance of a transferable tax                                                                           
     credit  certificate under  (d) of  this section  or the                                                                    
     purchase of  a certificate under AS  43.55.028 does not                                                                    
     limit  the department's  ability to  later audit  a tax                                                                    
     credit  claim to  which the  certificate relates  or to                                                                    
     adjust  the claim  if the  department determines,  as a                                                                    
     result  of  the  audit,  that  the  applicant  was  not                                                                    
     entitled  to the  amount of  the credit  for which  the                                                                    
     certificate  was  issued.  The  tax  liability  of  the                                                                    
     applicant   under   AS  43.55.011(e)   and   43.55.017-                                                                    
     43.55.180  is increased  by the  amount  of the  credit                                                                    
     that exceeds that to which  the applicant was entitled,                                                                    
     or the applicant's  available valid outstanding credits                                                                    
     applicable against  the tax  levied by  AS 43.55.011(e)                                                                    
     are  reduced by  that  amount. If  the applicant's  tax                                                                    
     liability  is  increased  under  this  subsection,  the                                                                    
     increase  bears  interest  under  AS  43.55.225(1)  [AS                                                                
     43.05.225] from  the date  the transferable  tax credit                                                                    
     certificate   was   issued.   For  purposes   of   this                                                                    
     subsection,  an  applicant  that   is  an  explorer  is                                                                    
     considered a producer  subject to the tax  levied by AS                                                                    
          Sec. 10. AS 43.55.023 is amended by adding a new                                                                    
     subsection to read:                                                                                                        
               (m) A producer or explorer may take a tax                                                                        
     credit for a well-related expenditure                                                                                      
     incurred after June  30, 2010 and before  July 1, 2016,                                                                    
     as follows:                                                                                                                
                    (1) notwithstanding that a well-related                                                                     
     expenditure  may  be  a  deductible  lease  expenditure                                                                    
     under  AS 43.55.165  for  purposes  of calculating  the                                                                    
     production  tax   value  of   oil  and  gas   under  AS                                                                    
     43.55.160(a), unless  a credit  1 for  that expenditure                                                                    
     is taken  under (a)  of this section,  AS 38.05.180(i),                                                                    
     AS  41.09.010,   AS  43.20.043,  or  AS   43.55.025,  a                                                                    
     producer  or   explorer  that  incurs   a  well-related                                                                    
     expenditure may also elect to  apply a credit against a                                                                    
     tax  levied by  AS  43.55.011(e) in  the  amount of  30                                                                    
     percent of that expenditure;                                                                                               
                    (2) a producer or explorer may take a                                                                       
     credit  for  a  well-related  expenditure  incurred  in                                                                    
     connection with  geological or  geophysical exploration                                                                    
     or in connection  with an exploration well  only if the                                                                    
     producer or explorer                                                                                                       
                         (A) agrees, in writing, to the                                                                         
     applicable provisions of AS 43.55.025(f)(2); and                                                                           
                         (B) submits to the Department of                                                                       
     Natural Resources  all data that  would be  required to                                                                    
     be  submitted under  AS  43.55.025(f)(2)  for a  credit                                                                    
     under AS 43.55.025;                                                                                                        
                    (3) in this subsection, "well-related                                                                       
     expenditure" means a lease expenditure                                                                                     
                         (A)   directly    related   to   an                                                                    
     exploration   well,  a   stratigraphic  test   well,  a                                                                    
     producing  well,  or an  injection  well  other than  a                                                                    
     disposal  well,  if  the  expenditure  is  a  qualified                                                                    
     capital  expenditure  and  an intangible  drilling  and                                                                    
     development cost  under 26  U.S.C. 263(c),  as amended,                                                                    
     and 26 C.F.R 1.612-4,  regardless of the elections made                                                                    
     under  26  U.S.C.  263(c);  in  this  subparagraph,  an                                                                    
     expenditure  directly related  to  a  well includes  an                                                                    
     expenditure for well  drilling, well sidetracking, well                                                                    
     deepening,   well  testing,   well  stimulation,   well                                                                    
     completion   or   recompletion,   or   well   workover,                                                                    
     regardless  as to  whether the  well is  or has  been a                                                                    
     producing well; or                                                                                                         
                         (B) for seismic work conducted                                                                         
     within the  boundaries of  a production  or exploration                                                                    
     Page 9, following line 26:                                                                                                 
          Insert new bill sections to read:                                                                                     
          Sec. 12. AS 43.77.020(d) is amended to read:                                                                        
               (d) A person subject to the tax under this                                                                       
     chapter  shall  make  quarterly  payments  of  the  tax                                                                    
     estimated to  be due  for the  year, as  required under                                                                    
     regulations adopted by the  department. A taxpayer will                                                                    
     be subject  to an estimated tax  penalty, determined by                                                                    
     applying   the   interest    rate   specified   in   AS                                                                
     43.05.225(1)  [AS 43.55.225]  to  the underpayment  for                                                                
     each quarter,  unless the taxpayer makes  estimated tax                                                                    
     payment in equal installments that total either                                                                            
                    (1) at least 90 percent of the                                                                              
     taxpayer's  tax liability  under this  chapter for  the                                                                    
     tax year; or                                                                                                               
                    (2) at least 100 percent of the                                                                             
     taxpayer's  tax liability  under this  chapter for  the                                                                    
     prior tax year.                                                                                                            
     Sec. 13. AS 43.90.430 is amended to read:                                                                                
               Sec. 43.90.430. Interest. When a payment due                                                                   
     to  the state  under this  chapter becomes  delinquent,                                                                    
     the payment bears interest at  the rate applicable to a                                                                    
     delinquent tax under AS 43.05.225(1) [AS 43.05.225].                                                                   
     Page 9, line 29:                                                                                                           
          Delete both occurrences of "1" and insert "6"                                                                         
     Page 10, line 2-6:                                                                                                         
          Delete all material.                                                                                                  
     Page 10, lines 9-10:                                                                                                       
          Delete all material                                                                                                   
          Insert the following:                                                                                                 
               "RETROACTIVITY OF SECS. 6-8 OF THIS ACT. (a)                                                                     
     Section 6  of this Act  is retroactive to  February 28,                                                                    
               (b) Section 7 and 8 of this Act are                                                                              
     retroactive to January 1, 2010.                                                                                            
     Page 10, line 17:                                                                                                          
          Delete "1, 2, or 3"                                                                                                   
          Insert "6, 7, or 8"                                                                                                   
     Page 10, line 19:                                                                                                          
          Delete "Sections 4 - 12"                                                                                              
          Insert "Sections 1 - 5, and 9 - 13"                                                                                   
     Renumber the bill sections accordingly.                                                                                    
REPRESENTATIVE P. WILSON objected to the conceptual amendment                                                                   
for discussion purposes.                                                                                                        
CO-CHAIR JOHNSON  said he  is moving  Conceptual Amendment  1 for                                                               
review  purposes  only  and  no  action  will  be  taken  on  the                                                               
amendment  until  it has  been  properly  drafted by  Legislative                                                               
Legal and Research Services.                                                                                                    
10:34:09 AM                                                                                                                   
MS. DAVIS  spoke to the  amendment, explaining that the  work and                                                               
discussions  on HB  308 made  it clear  there were  some ways  to                                                               
improve the governor's  bill, given that HB  308 includes several                                                               
provisions  found  in HB  337.    The  amendment would  clean  up                                                               
Sections 1,  2, 3, 4, and  5 from the time  when the department's                                                               
interest statute,  AS 43.05.225, was  split into two parts  - the                                                               
first  for  delinquent taxes  and  the  second part  for  blatant                                                               
nonpayment  of  taxes.   Other  provisions  in  the  department's                                                               
purview also  referenced AS 43.05.225  when it was just  a single                                                               
item, so those  provisions do not specify which of  the two parts                                                               
of the  current AS 43.05.225 apply.   Thus, Section 1  deals with                                                               
gaming  interest, Section  2  with  unclaimed property  interest,                                                               
Section  3 with  the  Department of  Revenue interest  provision,                                                               
Section 4  with the tobacco  stamp interest, and Section  5 deals                                                               
with the ACES monthly installment interest.                                                                                     
10:36:19 AM                                                                                                                   
MS. DAVIS pointed  out that Section 3 is the  provision the House                                                               
Resources Standing Committee amended [in  HB 308] by removing the                                                               
11 percent  interest rate and changing  it to 3 points  above the                                                               
Federal Reserve  rate.  The  governor's bill did not  address the                                                               
interest rate,  but in retrospect the  administration agrees that                                                               
11 percent is too steep and in HB  337 is now proposing a rate of                                                               
5 percent  above the  Federal Reserve  rate.   The administration                                                               
believes 3 percent  above the Federal Reserve rate is  too low to                                                               
prevent the  state from becoming  the banker, given  that today's                                                               
Federal Reserve rate is 0.75 percent.                                                                                           
CO-CHAIR JOHNSON  appreciated the  administration's consideration                                                               
of this issue.                                                                                                                  
CO-CHAIR  JOHNSON,  in  response  to  Representative  Guttenberg,                                                               
confirmed  that  the  committee should  receive  the  Legislative                                                               
Legal and  Research Services' version  of Conceptual  Amendment 1                                                               
on 3/29/10.                                                                                                                     
10:37:52 AM                                                                                                                   
MS. DAVIS, in response to  Co-Chair Neuman, agreed that gaming in                                                               
Section 1 relates  to the lottery [and not gaming  of the state's                                                               
tax  system].   She further  agreed that  Section 1  continues to                                                               
give  the  Department  of  Revenue  the  authority  to  determine                                                               
whether  nonpayment of  taxes  was done  purposely  to receive  a                                                               
financial  benefit and  Section 3  changes the  interest rate  on                                                               
back tax payments that are due.                                                                                                 
10:38:47 AM                                                                                                                   
MS. DAVIS noted  that Section 1 of HB 337  would become Section 6                                                               
as  a result  of Conceptual  Amendment 1  and it  deals with  the                                                               
department's right to waive interest  where appropriate.  Page 2,                                                               
lines 18-24, of  the amendment proposes new  language in response                                                               
to the  committee's previous debate  about whose burden  of proof                                                               
it is  to determine  whether a  taxpayer did or  did not  pay the                                                               
correct tax  amount because of  reliance on existing  law without                                                               
new  regulations.   Under  this  language,  the determination  of                                                               
whether interest would  be waived would be dependent  upon:  "(A)                                                               
the  department  determines   that  the  producer's  underpayment                                                               
resulted  because  the regulation  was  not  in effect  when  the                                                               
payment was due;  and (B) the producer demonstrates  that it made                                                               
a  good faith  estimate of  its tax  obligation in  light of  the                                                               
regulations then  in effect  when the payment  was due...."   The                                                               
bill's original language would require  the department to prove a                                                               
lack of good faith, which  would be complicated.  The amendment's                                                               
language makes  it clear that  the producer must  demonstrate its                                                               
good faith, which is generally the way most laws are written.                                                                   
10:40:31 AM                                                                                                                   
MS. DAVIS explained  the suggested changes at the  bottom of page                                                               
2 and top of  page 3 in the amendment are  cleanups that came out                                                               
of HB  308.   Language in  HB 308 would  require the  taxpayer to                                                               
share data  with the Department  of Natural Resources  (DNR) when                                                               
the  state  gives  a  credit for  infield  drilling  and  seismic                                                               
activities.   The reference in  HB 308 is to  AS 43.55.025(f)(2),                                                               
which  is much  clearer  than referencing  just AS  43.55.025(f).                                                               
Thus, Conceptual  Amendment 1 would  result in HB 337  picking up                                                               
that more  precise reference  and would make  it very  clear that                                                               
the  obligation is  to  give data  after-the-fact  and that  pre-                                                               
approval is not required.                                                                                                       
10:41:23 AM                                                                                                                   
MS. DAVIS  said the  big change  is on page  3 of  the amendment.                                                               
The  governor's   bill  had  the  credit   for  infield  drilling                                                               
contained  in AS  43.55.025, which  is the  exploration incentive                                                               
credit section; HB  308 contained the credit  under AS 43.55.023,                                                               
which  is  the  capital  credit  section.    After  listening  to                                                               
committee  discussion  and testimony  by  Mr.  Dan Dickinson,  it                                                               
became clear that  putting this under AS  43.55.023 would provide                                                               
a brighter line  for identifying what types of  costs or expenses                                                               
get the credit.   Therefore, Conceptual Amendment  1 would change                                                               
HB  337  to  put  the   credit  for  infield  drilling  under  AS                                                               
43.55.023.  The governor's bill  would still maintain some of its                                                               
original  changes  which  are  focused  on  the  exploration  and                                                               
development  phase; HB  337 does  not have  a production  ongoing                                                               
credit for ongoing operations.   She said yesterday's discussions                                                               
clarified  what  things would  fall  under  this credit  and  she                                                               
estimates that  95-98 percent  of those  things would  fall under                                                               
the exploration  and development  phase.  Accessing  new reserves                                                               
and enhancing  reserve production  profiles are important  to the                                                               
governor, she related.                                                                                                          
CO-CHAIR NEUMAN  understood Ms. Davis  to be saying  that credits                                                               
under AS  43.55.023 will  provide taxpayers  with the  benefit of                                                               
fluid working capital.                                                                                                          
MS. DAVIS responded correct.                                                                                                    
10:43:46 AM                                                                                                                   
MS.   DAVIS   continued   discussing  the   proposed   conceptual                                                               
amendment,  noting that  the 4.5  percent overhead  would not  be                                                               
added to  the credit,  which is  different than in  HB 308.   She                                                               
said the  administration is very uncomfortable  opening that door                                                               
because  none of  the other  credits have  overhead contained  in                                                               
them;  this  helps  with  the  department's  administrative  work                                                               
easier  and provides  consistency with  the other  credits.   She                                                               
clarified that her reference to  HB 308 is regarding Amendment 3,                                                               
adopted  on  3/26/10, and  which  changed  that provision.    She                                                               
reiterated  that there  is a  sunset provision  for part  of this                                                               
10:46:01 AM                                                                                                                   
MS. DAVIS  explained that  Conceptual Amendment  1 would  add new                                                               
sections  to HB  337 -  Section  12 and  Section 13.   These  are                                                               
additional interest  provisions related to dividing  AS 43.05.225                                                               
into two parts, as discussed earlier.   Section 12 deals with the                                                               
fisheries  tax  and Section  13  deals  with the  Alaska  Gasline                                                               
Inducement Act  (AGIA) interest.   She noted  that page  5, lines                                                               
20-21, of the amendment would  correct the section numbers in the                                                               
bill,  and page  5, lines  23-24, of  the amendment  would delete                                                               
Section 14 of  the bill because it is no  longer needed since the                                                               
new credit will  now be applied under AS 43.55.023  instead of AS                                                               
43.55.025.   The  changes  on page  6 of  the  amendment are  the                                                               
renumbering of sections in the bill.                                                                                            
10:46:52 AM                                                                                                                   
REPRESENTATIVE SEATON noted  the state has a  number of different                                                               
interest  rates on  its different  taxes, such  as the  fisheries                                                               
tax.  He asked that the  analysis of the effective changes in the                                                               
interest rate  for the production  tax that he  requested earlier                                                               
also look at these other taxes, such as the fisheries tax.                                                                      
MS. DAVIS agreed to do so.                                                                                                      
REPRESENTATIVE  SEATON clarified  that he  is asking  only for  a                                                               
thumbnail  look.   Regarding  fisheries  taxes  and interest,  he                                                               
noted  the state  has  appealed a  lawsuit,  the "Carlson  case",                                                               
which is  based on interest  charges.  He  said he would  like to                                                               
get an opinion  from the attorney general as to  whether there is                                                               
any interaction with doing this  while at the same time appealing                                                               
that case.                                                                                                                      
CO-CHAIR JOHNSON said the bill does not change any fish taxes.                                                                  
10:49:05 AM                                                                                                                   
CO-CHAIR  NEUMAN  cautioned that  the  Department  of Revenue  is                                                               
being asked to provide a lot of information by 3/29/10.                                                                         
MS. DAVIS responded the department will do its best to comply.                                                                  
CO-CHAIR  JOHNSON suggested  the oil-related  information receive                                                               
first priority and the fish-related information second priority.                                                                
CO-CHAIR NEUMAN said he wants to  ensure the focus remains on the                                                               
contents of the bill and what the bill affects.                                                                                 
REPRESENTATIVE SEATON  clarified his  request is  specifically on                                                               
Conceptual Amendment  1 and the  tax provisions contained  in the                                                               
amendment,  and he  does  not  want to  move  forward without  an                                                               
understanding of what the effects would be.                                                                                     
10:51:32 AM                                                                                                                   
MS. DAVIS, in  response to Representative P.  Wilson, stated that                                                               
interest  on  cigarette  taxes  due   as  a  result  of  Internet                                                               
purchases would be  dropped from 11 percent to 5.75  percent.  In                                                               
further response, she said that  under Conceptual Amendment 1 the                                                               
effective  date for  this  drop in  interest  on cigarette  taxes                                                               
would be July 1, 2010.                                                                                                          
REPRESENTATIVE  SEATON  noted  that  if  the  effective  date  is                                                               
changed for interest on cigarette  taxes, the committee will need                                                               
to look at those numbers.                                                                                                       
10:54:40 AM                                                                                                                   
MS.  DAVIS, in  response to  Co-Chair Johnson  and Representative                                                               
Seaton, suggested  putting Conceptual  Amendment 1 into  the form                                                               
of  a committee  substitute for  HB 337  because this  would make                                                               
everything easier to read.                                                                                                      
CO-CHAIR JOHNSON agreed.                                                                                                        
REPRESENTATIVE SEATON also agreed.                                                                                              
10:55:33 AM                                                                                                                   
CO-CHAIR NEUMAN commented that he  thinks many of the differences                                                               
between  HB 308  and  HB  337 have  been  put  aside and  forward                                                               
movement is occurring where there is agreement.                                                                                 
CO-CHAIR  JOHNSON  stated  public  testimony  will  be  taken  on                                                               
CO-CHAIR   NEUMAN  requested   that  any   members  contemplating                                                               
amendments talk  to other members  about their intent  should the                                                               
paperwork not be available 24 hours in advance.                                                                                 
11:00:22 AM                                                                                                                   
REPRESENTATIVE  SEATON  advised  he  has  one  amendment  already                                                               
drafted that  would help  to make  the transferable  credits more                                                               
saleable through  the Alaska  Retirement Management  (ARM) Board.                                                               
He said he also wants to look at  the amount of tax credit on the                                                               
infield  versus exploration  tax credits  and whether  to provide                                                               
any different incentive, which would only be a number change.                                                                   
CO-CHAIR JOHNSON said  another way to look at  that is guaranteed                                                               
flow down  the pipeline versus  risky flow, with  infield credits                                                               
having  the  advantage  of  being a  more  guaranteed  source  of                                                               
revenue to the state.                                                                                                           
CO-CHAIR NEUMAN agreed  with trying to provide  an opportunity to                                                               
sell credits beyond  just the [three] companies that  can now buy                                                               
them.    He   said  well  workovers  are   keeping  the  pipeline                                                               
throughput  from  dropping  even  further.    New  technology  is                                                               
keeping the  state afloat and  the state  needs to allow  that to                                                               
continue.  He said he therefore believes that credits for well                                                                  
workovers are important.                                                                                                        
11:03:09 AM                                                                                                                   
[Members discussed having people available at the next meeting                                                                  
to answer questions about the possible purchase of transferable                                                                 
credits by the ARM Board.]                                                                                                      
[HB 337 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB 337 Amendment 3-27-2010 Final.pdf HRES 3/27/2010 10:00:00 AM
HB 337