DOR looks to simplify regs, reducing taxpayer, state burden
Steve Sutherlin Petroleum News
The Alaska Department of Revenue has proposed changes to existing regulations governing the administration of the oil and gas production tax and oil surcharge regarding depreciation, and the weighted average cost of capital for transportation of oil by a vessel and for liquefied natural gas transportation facilities.
In an Oct. 4 public notice the department said existing regulations regarding the return on investment or cost of capital for transportation costs are extremely complex, and the calculation model requires in excess of 2,000 inputs.
The proposed changes “restructure the cost of capital calculation by eliminating calculations over multiple time periods in calculating the cost of capital allowance,” the department said. “As a result, the scope of the input data is reduced and the calculation is simplified. This should also work to reduce the administrative burden on both taxpayers and the state.”
“Additionally,” the department said, “the weighted average cost of capital rate previously obtained from third-party sources has been replaced with a U.S. Treasury yield rate coupled with a set risk premium.”
All the proposed changes under the notice affect 15 AAC 55 of the Alaska Administrative Code, dealing with the oil and gas production tax.
Written comments regarding the proposed changes must be received by the department Nov. 7, no later than 4 p.m.
15 AAC 55.193 to be amended Under 15 AAC 55.193, the calculation of costs of transportation for oil and gas produced after June 30, 2007, is proposed to be amended to change the reference from 15 AAC 55.195 to 15 AAC 55.196 in regards to the cost of transportation of oil by a vessel, or for LNG transportation facilities, that are owned or effectively owned by a taxpayer.
Under the proposed amended terms, if transportation of oil is by a vessel that is owned or effectively owned, in whole or in part, by the producer of that oil, the transportation cost for the oil would be the sum of voyage and port costs incurred with respect to that transportation; the positioning cost, amortized over 36 months, for that vessel; and the depreciation of the vessel and a cost of capital allowance calculated under 15 AAC 55.196(d).
15 AAC 55.195 to be repealed The department proposes to repeal 15 AAC 55.195, return on investment or cost of capital allowance to be used in calculation of costs of transportation for oil or gas, other than certain LNG or vessel transportation costs for oil or gas produced on or after Jan. 1, 2003.
15 AAC 55.196 to be amended 15 AAC 55.196. Cost of capital allowance to be used in calculation of costs of vessel transportation for oil or gas produced on or after Jan. 1, 2003, other than certain costs pertaining to vessels placed in service before Jan. 1, 1995, and in calculation of transportation costs for gas by an LNG transportation facility placed in service after Dec. 31, 2010, is proposed to be amended to replace and simplify the current model which is used to calculate a Cost of Capital Allowance that incorporates both the depreciation cost and the after-tax return on capital for vessels transporting oil, or for LNG transportation facilities, that are owned or effectively owned by a taxpayer.
Under the proposed amended terms of 15 AAC 55.196(a), a producer may elect to expense the first $2 million in costs incurred with respect to improvements during a calendar year.
Under the proposed amended terms of 15 AAC 55.196(d), a cost of capital allowance under this section must be calculated using the methodology set out in the department's publication Computation of a Cost-of-Capital Allowance under 15 AAC 55.196, Incorporating Depreciation and Return on Invested Capital for Marine Vessels and Improvements, Edition 4.0.
15 AAC 55.192, 15 AAC 55.800 to be amended 15 AAC 55.192. Monthly share of annual transportation costs; and 15 AAC 55.800. Retroactive application of regulations, are proposed to be amended to make conforming changes to references to other regulations affected by this notice.
Comments on the proposed regulation changes, including the costs to private persons of complying with the proposed changes, may be submitted to: John Larsen, audit master, Alaska Department of Revenue, 550 W. 7th Ave., Ste. 500, Anchorage, AK 99501, by email to [email protected], or by fax to 907-269-6644.
- STEVE SUTHERLIN
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