Bradners'

Alaska Legislative Digest

October 29, 2007     

Oil and Gas Bulletin

Comments? E-mail: timbradner@pobox.alaska.net

House O&G moves “progressivity” surcharge to gross production

HB 2001, Gov. Palin’s oil tax bill, was voted out of the House Special Committee on Oil and Gas shortly before 6 p.m. Sunday. A major change was a new progressivity surcharge based on gross oil production that differs from the existing formula in the Petroleum Profits Tax and the formula proposed in the administration’s proposal. The committee did not amend the PPT tax rate, which remains at 22.5 percent of net revenues.

The new monthly surcharge rate is 0.225 percent of monthly gross production value at the point of production and the trigger price is $50 per barrel. The bill does not allow deduction of
operating or capital expenditures in the calculation of the surcharge. Projections from legislative consultants said the bill would yield more state revenue when oil is in the $70 to $80 price range than either PPT or the governor’s ACES. The bill was sent to the House Resources Committee for hearings that will begin Monday. The bill went without a fiscal note, which is the estimate of the fiscal effect of a statute change. The bill got “do pass” recommendations from Reps. Olson, Samuels, Neuman and Ramras in the committee report. Doogan gave it no recommendation and Kawasaki and Dahlstrom recommended "amend," meaning they recommend further changes.

The House bill also extends the statute of limitations on tax audits to six years as requested by the Palin administration and includes other provisions the governor wants on information reporting by companies producing or exploring in the state. It reduced the look-back period to claim "transitional investment expenditure" credits from six to three years. Also included in the substitute is the administration's proposal to move Revenue Department auditors into the “exempt” class of state employees. Rep. Mike Doogan (D-Anch.) opposed the idea but acknowledged he has been unable to develop an alterative response to the auditor shortage.

The new draft sets taxes on natural gas produced anywhere south of the North Slope from the end of this year through 2022 at the same rate set in PPT for Cook Inlet. Ramras said this was an effort to provide relief from escalating prices for the 1,000 customers, including his hotel, served by Fairbanks Natural Gas LLC. Ramras proposed an amendment to limit the tax on natural gas sold as LNG in the state to the average tax levied on all gas production from the Cook Inlet basin. Chairman Olson objected on grounds that the amendment could be the first “bud” in the conversion of the bill to a “Christmas tree” (meaning a bill that attracts amendments on other issues, like ornaments on a Christmas tree.) He and others applauded the LNG concept, however, and said it would receive proper attention during the regular session, including some tightening to assure the tax break would be passed on to consumers. The amendment failed 2-5 with only Fairbanks Democrat Rep. Scott Kawasaki supporting Ramras.

Senate Resources CS ends 'TIE' credits for prior investments

The Senate Resources version of SB 2001 left the existing PPT in place but terminated the "transitional investment expenditure" credits as of Jan. 1, 2008. Field operators with production and taxes to pay, as well as explorers with expenses but no credits, must claim or lose their credits for prior work by the end of the year. Although no changes were made in any tax rates, comments by Sen. Charlie Huggins (R-Wasilla), chairman of the committee, were apparently sufficient to satisfy the administration that its net tax rate hike and proposed changes to the progressivity surcharge on the Petroleum Profits Tax will be favorably considered in the Senate Finance Committee, where several members of the Resources committee also sit.

Huggins emphasized that the 30-day limit on the special session is forcing committees to address only the areas under their immediate jurisdiction and “narrow our appetite as to what we were going to take on.” He added that if tax rates and the progressivity remain at issue they would be dealt with in the Finance Committee. Sen, Tom Wagoner (R-Kenai) complained that the bill is incomplete without changes to the PPT rate and progressivity computation. He offered three amendments, consecutively, to raise the PPT rate to 25 percent, to 22.8 percent and to lower the progressivity trigger from $40 to $30 per barrel. Only Sen. Bill Wielechowski (D-Anch.) backed the 25 percent rate hike. He and Sen. Lesil McGuire (R-Anch.) voted with Wagoner on the trigger change. Sen. Bert Stedman (R-Sitka), a cochair of the Finance Committee said progressivity would be addressed in that committee. "It's going to be far more complex than moving the trigger," Stedman said. The new draft includes all the changes proposed in the ACES bill relating to information reporting by tax payers but does not extend the statute of limitations on audit from three to six years as requested by the administration.

Following the one-hour meeting Revenue Commissioner Pat Galvin said he was “encouraged by the words that were used at the hearing” and took them as a commitments by Sen. Huggins “and by extension the Senate president,” Sen. Lyda Green, that the tax issues would be addressed in future committees. The Resources Committee report on SB 2001 included no "do pass" recommendations. Sen. Green gave it "no recommendation." All other members recommended "amend,” meaning they suggest changes.

Monday's schedule

• 9 a.m. Senate floor session.
• 9 a.m. Senate Judiciary Committee: SB 2001, pending referral, bill overview; penalties/Qui Tam, auditors on personnel issues and itemization of returns.
• 11 a.m. House floor session.
• 1 p.m. House Resources Committee: HB 2001, pending referral, bill overview; Don Bullock, legislative drafting attorney; Steve Porter, legislative consultant; Pat Galvin and Marcia Davis, Dept. of Revenue.
• 1 p.m. House Republican majority news conference.

Legislative Digest is a paid-for private subscription service. Our special session Bulletin is distributed free as a public service, and is supported by special grants from a group of subscribers. Editors: Mike and Tim Bradner. Contributing writer: Bob Tkacz.  Interested in getting the regular Legislative Digest and Alaska Economic Report? Contact: mbradner@GCI.net or fax at: (907) 522-1761.