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Both houses scrutinize PPT amendments Alaska House Resources has bill assigned to a subcommittee and Senate Resources, just done with AGIA, will take bill up again soon By Kristen Nelson Petroleum News
Proposed amendments to the petroleum profits tax passed by the Alaska Legislature last year are jostling with the governor’s Alaska Gas Inducement Act for committee time. A committee substitute for the House version, House Bill 128, passed out of Oil and Gas in early March and has been heard in House Resources and assigned to a subcommittee, as Resources clears its decks for AGIA.
On March 28 Resources Co-Chair Carl Gatto, R-Palmer, named Resources Co-Chair Craig Johnson, R-Anchorage, to chair the subcommittee, and assigned Bob Roses, R-Anchorage, and David Guttenberg, D-Fairbanks as members. Johnson said at the March 28 Resources meeting that he was uncomfortable deciding anything until the tax numbers are in and would like to have more information before making any decisions.
The companies’ “true ups” — additional production tax liability for April 1 through Dec. 31, 2006 —were due April 2.
Guttenberg said April 4 that since the tax returns are confidential, the subcommittee will need to get a review of the returns.
Senate Bill 80, the companion legislation, was heard in Senate Resources in February, and has been on the backburner since as Resources worked on AGIA, which it passed out April 1.
Resources Chairman Charlie Huggins, R-Wasilla, said April 3 that Sen. Tom Wagoner, R-Kenai, the bill’s sponsor, has made two changes to the bill.
The committee has heard the bill twice, Huggins said, and will take it up again after the Legislature returns from its Easter break.
Revenue will review model The fate of the bills has drawn questions since April 2, when true-up payments were due, since the amounts received were less than what the Department of Revenue had projected.
Revenue received some $813 in true-ups, the additional tax liability due to the PPT for the period between April 1, 2006, when PPT took effect, and the end of 2006. Since taxpayers have been required to calculate their tax liability under PPT since Jan. 1, there will be no further true-up payments, the department said in an April 3 statement.
Revenue said it had anticipated total true-up payments of around $950 million, but said its estimating job for the true-up payments “required a complex model with multiple moving parts” which forecast not only the probable PPT tax, “including new credits and classes of cost reductions,” but also what payments would have been under the previous tax system on the gross, based on the ELF or economic limit factor.
“On top of this challenge,” the department said, “came the unique complexities of 2006, with the backdrop of unusual production losses and higher costs” at Prudhoe Bay.
The department said it is “reviewing the tax returns submitted with the payments and will have a better understanding of why the actual payments were lower than anticipated once these have been fully analyzed.”
The department also said that based on the information it received in the PPT tax returns, “we will be looking closely at our models to continually improve our revenue forecasting ability.”
But “because of the nature of a net profits tax, decision makers can anticipate greater volatility in revenue forecasts under the PPT” as compared to the ELF, perhaps as much as a 5 percent to 10 percent error factor, the department said.
The department noted that production tax amounts are subject to audit for three years and refund claims for three years after a return is filed. It also said that the amount paid by individual taxpayers is confidential by statute.
Maintenance the issue PPT, a tax on the net, replaces a tax on the gross. What companies would be allowed to write off before calculating their taxes has been a concern to legislators, especially after corrosion problems surfaced at Prudhoe Bay last year.
The PPT as passed prohibits deductions for 18 categories of items, including spills and events due to gross negligence.
After the August spill at Prudhoe Bay the Legislature added a provision to the PPT that disallowed 30 cents per barrel of crude oil from deductions to cover maintenance.
The bills under consideration would add specific disallowances from deductions taken before the tax is calculated for costs due to lack of maintenance or improper maintenance.
Pedro van Meurs came up with the 30-cent solution last year and there has been discussion around a memo he wrote which described the 30 cents as a way to get around the state having to examine specific maintenance costs.
In addition to arguing that the 30 cents already covers maintenance issues, the companies have told legislators that because it takes time for the state to audit all the returns, it may be difficult to prove whether specific items were replaced due to improper maintenance or lack of maintenance.
While the issue of going from a gross to a net tax was hotly debated in the Legislature last year, both Wagoner, and Kurt Olson, R-Kenai, the sponsor of the house bill, have said that this year’s legislation is not an effort to return to a tax on the gross.
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