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CS drops inlet oil tax exemption, sets term for North Slope ‘new oil’
The House Finance Committee released a committee substitute for House Bill 247 April 6. HB 247 is the governor’s oil tax credit bill. Finance has been taking testimony on the House Resources Committee version of the bill, which dropped out a lot of the portions of the administration bill designed to raise revenue.
In response to testimony from its consultant that Cook Inlet oil production no longer needs to be incentivized, the CS drops the production tax exemption for Cook Inlet crude oil effective Jan. 1, 2017.
The Finance CS also sets a length of time for new oil to benefit from the gross value reduction.
But the largest financial impact comes from hardening the floor for North Slope production taxes so that no credits can reduce that floor below 2 percent of the gross value at the point of production for any producer, including those qualifying for small producer status because they produce fewer than 50,000 barrels per day.
The revenue change from the Finance CS is about halfway between the administration’s bill and the House Resources version, Tax Division Director Ken Alper told the Finance Committee, largely due to the hard floor for the North Slope being set at 2 percent as opposed to the hardening at 4 percent and increase to 5 percent proposed by the administration.
Other changes Changes to the Resources’ version of HB 247 also include the interest rate on delinquent taxes to be compounded quarterly at 5 percent above the rate charged for members banks of the 12th Federal Reserve District for the first four years after the tax becomes delinquent; the rate will not be compounded after the first four years.
Qualified capital expenditures are reduced from 20 percent to 10 percent beginning Jan. 1, 2017.
The CS keeps the Middle Earth carried-forward annual loss credits at 25 percent, but reduces Cook Inlet net operating loss credits from 25 percent to 10 percent effective Jan. 1, 2017. If the producer or explorer has not taken a credit prior to Jan. 1, 2017, they are not eligible.
Cook Inlet NOLs are consistent with the House Resources version of the bill.
Cook Inlet well lease expenditure credits are reduced from 40 percent to 30 percent effective Jan. 1, 2017, and to 20 percent on Jan. 1, 2018. Middle Earth credits reduce from 40 percent to 30 percent on Jan. 1, 2017.
Under the Finance CS small producer credits conform to the floor, so even companies eligible for the small producer credit will pay production tax.
The CS also changes the limit on the amount of tax credit certificates that the Department of Revenue may purchase in a single year from a single company. The amount was $25 million in the administration bill, was raised to $200 million in the Resources CS and is set at $100 million in the Finance CS.
As to how much would actually be paid in a single year, Revenue Commissioner Randall Hoffbeck told House Finance that is a combination of how much the Legislature appropriates and how much the governor leaves in the appropriation. On that issue, Hoffbeck said the governor has indicated it will depend on what the entire revenue and tax package looks like.
And, dealing with an issue which has been of considerable concern to some legislators, the gross value reduction for new oil is capped at five years for oil and gas first produced after Dec. 31 of this year, and capped at Jan. 1, 2021, for oil and gas first produced prior to Jan. 1, 2017.
House Finance is scheduled to consider amendments to the CS April 8.
- KRISTEN NELSON
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