Legislature(2015 - 2016)BARNES 124
03/25/2015 01:00 PM House RESOURCES
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|Confirmation Hearing(s): Board of Game|
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 100-UREA/AMMONIA FACILITY TAX CREDIT 1:03:08 PM CO-CHAIR NAGEAK announced that the first order of business is HOUSE BILL NO. 100, "An Act establishing a credit against the net income tax for an in-state processing facility that manufactures urea or ammonia; and providing for an effective date." 1:03:23 PM REPRESENTATIVE SEATON moved to adopt Amendment 1, labeled 29- LS0423\H.3, Nauman, 3/18/15, which read: Page 1, line 10, following "delivered": Insert "in the taxable year of the taxpayer" Page 1, line 13, following "zero.": Insert "An unused tax credit or portion of a tax credit received under this section may not be carried forward for use in a taxable year of the taxpayer after the taxable year in which the credit is earned." CO-CHAIR TALERICO objected for the purpose of discussion. 1:04:28 PM REPRESENTATIVE SEATON explained Amendment 1 would ensure that the credits are available for that year in that if the royalty credits are greater than the corporate tax credit it cannot be carried on for future years. He explained this is a 10-year program that is available and those credits each year are available, but must be used in that year. CO-CHAIR TALERICO removed his objection. There being no further objection, Amendment 1 passed. 1:05:58 PM REPRESENTATIVE SEATON moved to adopt Amendment 2, labeled 29- LS0423\H.6, Nauman, 3/24/15, which read: Page 1, line 10, following "to": Insert "the in-state processing facility owned by" REPRESENTATIVE JOHNSON objected for the purpose of discussion. 1:06:20 PM REPRESENTATIVE SEATON indicated that Amendment 2 clarifies language and asked the sponsor to address the amendment. DONALD BULLOCK, House Majority Staff, Alaska State Legislature, explained that the purpose of Amendment 2 is in response to a concern expressed by the Department of Revenue to narrow the credit to the gas delivered to a taxpayer for the processing into urea of ammonia. He offered the scenario that an owner of a plant bought gas to heat another facility and they bought the gas to be used in the processing plant, only the gas delivered to the processing plant owned by that taxpayer would be eligible to generate the credit. 1:07:45 PM REPRESENTATIVE JOHNSON removed his objection. There being no further objection, Amendment 2 passed. 1:08:08 PM REPRESENTATIVE SEATON moved to adopt Amendment 3, labeled 29- LS0423\H.7, Nauman, 3/24/15, which read: Page 1, line 2, following "ammonia;": Insert "relating to establishing the value of the state's royalty share of gas production based on contracts with certain in-state processing facilities that manufacture urea or ammonia;" Page 1, following line 3: Insert a new bill section to read: "* Section 1. AS 38.05.180 is amended by adding a new subsection to read: (ll) For a contract that is entered into on or after the effective date of this subsection, within 90 days after the written request of a lessee of a lease issued under this section, in order to establish the value of the state's royalty share of gas production sold by the lessee under the contract, the commissioner may enter into an agreement with the lessee to use or accept as a price for the gas an amount that is not less than the price established in the contract between the lessee and an in-state processing facility whose primary function is the manufacturing and sale of urea or ammonia to third parties in arm's length transactions, not to exceed the amount that would otherwise be due under the lease. The commissioner may enter into an agreement under this subsection if (1) the commissioner makes a written finding that (A) it is in the best interest of the state; and (B) based on clear and convincing evidence, the contract price is not unreasonably low; and (2) the primary function of the in-state processing facility is to engage in the production of urea or ammonia, and the owner of the in-state processing facility with which the lessee has entered into the contract is not affiliated with the lessee or with a subsequent purchaser of more than 10 percent of the urea or ammonia produced; for purposes of this paragraph, the parties to a contract or purchase are affiliated if, in the judgment of the commissioner, one of the parties to the contract or purchase exercises substantial influence over the policies and actions of the other as evidenced by relationship based on common ownership or family interest or by action taken in concert without regard to whether that influence is based on stockholdings, stockholders, officers, or directors." Page 1, line 4: Delete "Section 1" Insert "Sec. 2" Renumber the following bill sections accordingly. Page 1, following line 13: Insert a new subsection to read: "(c) To claim a credit under this section, the taxpayer shall report to the department the name of each lessee delivering natural gas to the in-state processing facility, the identification and quantity of natural gas from each state lease that is the source of the natural gas, and the price for the natural gas established in a contract between the owner of the in-state processing facility and the lessee delivering the natural gas." Page 2, line 3: Delete "sec. 1" Insert "sec. 2" Page 2, line 6: Delete "Sections 1 and 3" Insert "Sections 1, 2, and 4" Page 2, line 7: Delete "Section 2" Insert "Section 3" 1:08:23 PM REPRESENTATIVE JOHNSON objected for the purpose of discussion. 1:08:45 PM MR. BULLOCK described Amendment 3 as an interesting credit as unlike an investment tax credit, where the taxpayer buys something and they know what they paid for it and can figure out what the credit is. This credit is based upon the royalty due on the leases that produce the gas that the taxpayer will use in the processing plant. He advised this is similar to existing law in the oil & gas leasing statute. Currently, the statute addresses gas that is sold and contracts for sale to certain electric utilities, and there is another provision allowing the contract to set the price for agricultural chemicals. Amendment 3, he noted, parallels the existing language in that the lessee first of all negotiate with the processing plant, which he describes as an arm's length transaction with the goal to set a reasonable market price, or a price the state would otherwise use to value the gas royalty purposes. By doing this ahead of time, the lessee selling the gas to the processing facility submits the contract to the commissioner of the Department of Natural Resources (DNR). The commission then would review it and determine whether it is a reasonable contract with no games being played, the parties aren't too close, and with the goal to get it to the price that would have resulted if the gas was later audited for royalty purposes. He described it as a check in determining that it is a legitimate price. He explained that by doing it this way, rather than subjecting the royalty to a later audit, the taxpayer knows what the credits will be as there is a contract price and a percentage of the contract price represents the royalty. The taxpayer knows that the producer, the lessee, has some stability in knowing what their royalty will be on that gas and the commissioner would have reviewed it and determined it is the price that makes sense. He opined it is better than the alternative to try and say that the taxpayer takes a credit and then down the road, it turns out that the gas wasn't worth as much, or worth more. He opined that raises the question of, what should be done with the credits since the credit is based on the royalty, and the royalty has changed. He commented that Amendment 3, deals with that issue upfront as everyone know what the credit is and the lessee selling the gas knows what their royalty is. 1:11:48 PM [The committee treated the objection as removed.] There being no further objection, Amendment 3 passed. 1:12:37 PM CO-CHAIR TALERICO moved to report HB 100, labeled 29-LS0423\H, as amended, out of committee with individual recommendations and the accompanying fiscal notes from committee. 1:13:09 PM REPRESENTATIVE SEATON objected for the purpose of discussion, and offered that there is discomfort with credits across the industry. He pointed out that this is fairly small, targeted specifically to the amount of corporate income tax offset by gas that would be purchased for instate use. He noted it has a 10- year window and if not used within 10-years, or any portion of that 10-years, it is not a rolling 10-years so he is comfortable that sideboards are tight enough that it would be a benefit to the state to get the additional work done and add to the benefits of restarting an industry. He expressed his general feeling is that broad tax credits are a problem to the state, and this bill is not as it is based on actual profitability. He described the bill as a well-crafted tax credit as opposed to those that could put the state at risk as being very broad based, based upon the amount of investment someone makes. 1:15:10 PM REPRESENTATIVE JOSEPHSON said he fully associates himself with Representative Seaton's comments, and added he doesn't understand why the applicant says they will spend $275 million and want just a few million dollars of assistance in the form of a credit. He opined the case made is compelling and will not object to the bill leaving committee. 1:15:55 PM REPRESENTATIVE TARR said she shares in the comments of Representative Josephson and appreciates how the bill is targeted. She recalled in previous budgets there was a consideration of funds to help support the plant when it was having difficult times. She researched the issue, and in 2007 the legislature gave the plant a $5 million capital project to help the company continue when there was a natural gas shortage. She opined that the investments being made sound substantial and other issues have been resolved so going forward the committee will not have to consider some of the same options again should they find themselves in trouble. She said she looks forward to a number of jobs and the $275 million of investment in Alaska. She expressed her hope that the legislature plans better in the future for potential gas shortages and it won't have to come back on this issue. 1:17:18 PM REPRESENTATIVE SEATON removed his objection. There being no further objection, HB 100, as amended, with individual recommendations and the accompanying fiscal notes was reported from the House Resources Standing Committee.