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Senate passes PPT
Kristen Nelson Petroleum News
Two weeks to the day after dying an ignoble death in the Senate at the end of the regular session of the Alaska Legislature the production profits tax sailed through that body in special session 15-4.
The Senate actually passed PPT for the second time in a month. It passed Senate Bill 305 April 25, but refused to concur with House changes. The tax rate approved May 23 was the same rate the Senate sent to the House in the regular session. The House made a number of changes in the Senate bill, including a reduction in the tax rate, and the Senate split 10-10 on a concurrence vote at the end of the Legislature’s regular session May 9.
The special session bill, revising the state’s production severance tax, was passed by the Senate 15 to 4 May 22 and again May 23 on a reconsideration vote.
That tossed the ball back into the lap of the House. The Senate bill sets the tax rate at 22.5 percent, the rate the Senate approved during the regular session, and includes a progressivity surcharge on net profits. The House had passed a 21.5 percent tax rate.
The Senate bill includes the 20 percent capital credit proposed by the administration, which applies to capital costs upstream of the point of production, and an allowance of up to $12 million per company which expires in 2016. There is a 20 percent transition credit provision for capital costs incurred April 1, 2001, through April 1, 2006, recoverable at $1 for every $2 in capital expenditures, and expiring in 2013. The 2 for 1 recovery on the transition credit was introduced in the Senate during the regular session.
Next stop House Finance House Finance is scheduled to take the bill up May 31, after legislators return from a Memorial Day weekend break.
The earlier versions of the bill expired at the end of the regular session and the administration introduced a new version May 20.
Revenue Commissioner Bill Corbus told Senate Finance at a hearing that day that the administration’s new bill, Senate Bill 2001, contained improvements developed by the House and Senate during the regular session, but returned to the administration’s recommended 20 percent tax and 20 percent credit, included a July 1 effective date and no progressivity surcharge.
Senate Finance amended the bill to a 22.5 percent tax rate, added progressivity back in and set the effective date back to April 1.
The committee also eliminated a section the administration had added which referred to the Alaska Stranded Gas Development Act. That provision specified that the tax would “not apply to oil or gas for which a producer is obligated to make payments in lieu of taxes or oil surcharges. A payment in lieu of taxes includes delivery of gas to the state in lieu of taxes.”
Sen. Ralph Seekins, R-Fairbanks, told the committee May 21 that he wanted it clear on the record that the terms of the gas contract stand alone and don’t appear in the PPT, and proposed removing the section; the committee agreed.
Governor pushes 20/20 Alaska Gov. Frank Murkowski said May 23 that he appreciated the Senate’s expeditious consideration of the PPT, but urged the House to focus on a 20 percent tax in its deliberations.
“We firmly believe the right combination of taxes and incentives is 20/20,” the governor said in a statement.
He said that the producers fought for a 12.5 percent tax rate with a 20 percent credit rate, and said it “was not an easy task to get them to agree to 20/20.” The companies have recently advocated a 10-15 percent rate, he said.
The 20 percent tax and 20 percent credit rates, the governor said, will double the oil severance tax and “it will get us the gas pipeline.”
Murkowski said the gas pipeline will bring the state more than $100 billion in revenues over 35 years and will add 20 years to the life of the trans-Alaska pipeline because companies looking for natural gas will always find oil.
“The gas pipeline is the big prize here, and it will usher in a bright future for Alaska,” he said.
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