The Alaska Department of Revenue is soliciting comments on possible changes to state tax regulations. Advice is being asked on two sets of potential new regulations, one on a change in the state oil and gas property tax statute made in 2014 in Senate Bill 138 and a second on the changes in state oil and gas exploration and development incentive tax credits made in the 2016 session, in House Bill 247.
Written comments are being accepted by the department through Aug. 16, and a public workshop - not a formal hearing - is planned on Aug.12 from 1:30 p.m. to 3:30 p.m. at the state’s Atwood Building in downtown Anchorage.
Ken Alper, director of the Tax Division in the Revenue department, said there are no drafts of either sets of regulations yet and that the notices were published to advise the public and to solicit suggestions. This will be the first major rulemaking undertaken by the department in some years, he said.
“The purpose of this notice is to ask the public and other interested parties for ideas and suggestions for possible changes and additions to these regulations before the DOR (Department of Revenue) drafts specific revisions to the regulations for comment and review,” the notice issued by the department said.
Alper said advance notice of rulemaking is required under an Administrative Order put in place by former Gov. Sean Parnell.
Municipal ‘tax cap’The change in the property tax is in a municipal “tax cap” in the statute that limits the amount a municipality can levy against oil and gas company property for operations.
The previous limit, which applied mainly to the North Slope Borough, had been in place for decades and had become obsolete. The change made in 2014 retains the limit but allows for more flexibility.
Another change in the property tax is a revision of the current requirement that “replacement cost” for purposes of property assessment be done annually. The law change in 2014 requires the department to recalculate the replacement cost no more often than once in five years.
Also, the department will solicit comments on how proven oil and gas reserves are calculated as a factor in the determination of oil and gas property valuation. Proved reserves are important in calculating the economic life of a production facility, a factor in the tax valuation.
HB 247 changesOn HB 247, which made complex changes in the oil and gas tax incentive credit program this spring, the department is seeking suggestions on, “an array of changes to confidentiality, credits, gross value reductions, purchases from the oil and gas tax credit fund, and calculation of interest for delinquent taxes, among other things,” the department’s notice said.
Alper said one area that particularly needs clarification by regulations is a provision that ranks a company’s priority for tax credit cash refunds according to the percentage of Alaska resident workers hired.
“This is a new tool and we need to spell out how it will be done,” he said. Current law has the credits paid for on a “first-in, first-out” basis, meaning companies that have their applications in and approved by the department first get paid first.
This will still be the case but the local-hire factor will apply if there are companies with the same dates on their approvals, Alper said. This could happen because the tax credit applications are usually reviewed and approved in batches.
Revenue officials review the applications to ensure that applicants are entitled to reimbursement for expenses because only certain kinds of expenses are covered in the program.
Alper also said the department expects a substantial number of comments on the definitions of intangible drilling and development costs in the statutes.
“We expect to learn a lot on the 12th (in the public meeting) and we anticipate a substantial regulation-writing process to be underway this fall,” Alper said.
Regulations vs. statutesRegulations are prepared by state agencies to provide more detailed guidelines on the implementation of a bill passed into law by the Legislature.
Legislators write bills that are as specific as possible but typically require agencies to spell out more detail in how they are to be administered, which is done in regulations. Lawmakers are always concerned that state administration officials interpret statutes differently than what they intended, or even go beyond the apparent limits of the law to in effect make law by regulation. However, there is little legislators can do except to change the governing statute.
Proposed rules are made public in advance and undergo a formal public comment period, and are approved in final form by the lieutenant governor.