I call Senate Resources Committee to order.
Today is Friday, February 6th, 2026, and the time is 3.30 PM.
Please turn off your cell phones.
Committee members present today.
Senator Rauscher, Senator Dunbar,
Senator Myers, senator Clayman,
and Vice Chair Senator Wilakowski.
I'm Senator Giesel.
We have a quorum to conduct business.
Thank you to Heather and Susan,
who are keeping the minutes and helping us out with the audio.
We've two things on today's agenda.
You may have seen Senate Bill 180, LNG import facilities, that bill is being set aside today.
We're going to prioritize Senate bill 227, the title of which is tax, compact, sales tax and oil and gas tax.
We are asking the Department of Revenue to
prioritize two sections of Senate bills.
That being the section on the corporate tax and on oil and gas tax.
So for committee members and for the public, those will be the sections they begin with.
If we have time at the end, we can certainly go back to sales tax, so I would welcome today Janelle Earls.
She is the acting commissioner of the Department of Revenue, Brandon Spanos is acting tax director, department of revenue.
Department of Revenue.
So I will invite you forward to the table, whoever is going to do the presenting here, committee members.
We are going wait until the end of the section, the topic.
So first is the corporate tax, I believe, in the order of slides, to take questions, okay?
So that they can complete the whole topic and then take our questions.
So welcome, thanks for coming.
Thank You Chair Giesel and members of the committee. My name is Janelle Earls. I'm the acting commissioner and
Administrative Services Director for the Department of Revenue
here with me today is
Acting tax director Brandon Spanos and chief economist Dan Stickel
We are here today to introduce the governor's tax bill house bill
As you had stated
Chair Geisel we have a pretty long presentation and we'll try to get through
Each slide as quickly as we can. I would just amend one of your comments and that is the Senate bill
227 sorry, no worries. It's okay
All right, I'm right from yesterday I apologize
So this presentation will first go through policy goals
Talk about each component of the bill then if there's time move on to the fiscal note and sectional analysis
The governor's policy goals are to provide a plan for fiscal stability limit spending
Improve Alaska's long-term appeal for families and businesses to ensure a predictable PFD and require agency operations
be reviewed on a regular basis. And slide five is the fiscal plan in more detail.
I don't feel like I need to read it to everybody.
And now I will turn the presentation over to professionals from our tax division,
Acting Director Spanos and Chief Economist Stickle, each have 20 years of experience in
to answer your questions on tax.
Thank you, Commissioner.
So Chair Giesle for the record.
Brandon Spannos, Acting Director with the Tax Division.
And I'll just pull this a bit closer.
I've been trying to get over a cold here,
so my voice is a little lower than normal, which I'm told
is hard to pick up on these mics.
So I will try to make sure everyone can hear me.
So the Omnibus Bill has three main components.
We'll first in our slides, but we're going to skip for today is a proposed seasonal sales tax
second updates to the and eventual elimination of the corporate income tax and third two changes to
the oil and gas production tax
the first of that is the
raising of The floor the minimum floor from four to six and adding a new fee from for the pipeline corridor maintenance and
so we'll go through the
corporate Income tax changes first and then the Oil and Gas and
whether you want to go to the fiscal note or back,
or we'll see where we're at at that point.
And thank you for, as you mentioned, holding questions
until we are done with each section.
As I'm sure, it's hard to get through the whole section,
otherwise.
And while you're pausing,
I want a welcome, Senator Kawasaki,
who arrived several minutes ago.
Thanks.
And just reviewing for committee members
who might have been slightly late,
we gonna wait till the end of the section to ask questions.
So we're going to slide 18. Is that correct? Correct. Excellent. So
There are two proposed changes to the corporate income tax first is modernizing the sourcing rules and then to take the rate to zero in
So moving on to Slide 20
This this slide provides some history for the Corporate Income Tax and
If you want me to speed up just let me know because there is a lot of history here the tax itself
States pre-statehood to 1949.
The tax rate was 10% of the federal tax liability
for individuals and businesses.
And then in 1959, we adopted the Uniform Division
of Income for Tax Purposes Act, which
texts professionals called you dipta.
So if I refer to as that, that's what I'm talking about.
And that is incorporated into our statutes in 43.
In 1970, Alaska adopted the Multistate Tax Compact, which is that 43-19 that I just talked
about, and which was the restatement of Yudhpa with some minor changes established as standards
for three-factor apportionment of property payroll and sales.
tax was repealed and re-implemented with major revisions.
It adopted the internal revenue code by reference.
So basically instead of defining the entire income
in the state law, we piggyback the federal tax code,
which is what most states do,
and just set our own rates.
Alaska's rate was 5.4% plus 4% surtax
based on Alaska taxable income
and not federal, federal taxes liability.
This is called rolling conformity, so some states have static conformity where they adopt
a specific date and time for the internal revenue code.
We went with rolling, conformity which examples include changes that can happen at the federal
level depreciation schedule, treatment, and net operating losses.
There were additional major changes, that came in 1978 through 1981, excuse me, 1981.
and debate on over how to tax the oil companies and share wealth with people ensued.
In 1978, we enacted separate accounting for oil and gas on the corporate income tax level,
tax-level, still just for sea corporations, passed through entities.
We're not an issue at the time. We didn't have any pass-through entities in the
corporations. In 1980, Alaska was flush with oil money and we repealed the individual income
tax and that's where the past throughs would have been captured anyway. And since S-corps
follow flow through to individual tax returns, this effectively created an exemption for S
corpse from the corporate income tax. Separate accounting was repealed effective January 1 of 1982
There was a legal challenge to separate accounting that went to the courts and the state ultimately
prevailed in 1985 in the Supreme Court, but the State kept the apportionment methodology
that we had established with the three-portrait formula for the oil and gas companies.
In 2014, current tax brackets were established, the top rate being 9.4 percent, and it remains
until now.
That now applies to income over 222,000 versus 90,00 previously.
So thank you for bearing with me on that slide.
We're now on slide 21, looking at our current tax situation.
Generally Alaska follows the internal revenue code
when determining an entity's taxable nexus.
Our, our, and status Alaska has no personal income tax, the state's corporate income
tax supply is only to see corporations.
And for non-patrolling corporations, corporate-income tax is based on a water jet, water's
edge activity, which really just means the US nation.
And we add up all the income from all affiliated entities in the United States and a portion
Our corporate income tax for oil and gas is based on the worldwide apportionment of
income and is base on property production and sales.
So we took out the payroll and replaced it with production for
oil companies.
Several tax brackets, and we'll show those on
the next slide with, I'll just go there now, with the top being 9.4% and you can see that's
with a zero bracket for anything less than $25,000 of taxable income.
And moving on to slide 23.
This is the main change in the bill.
Our current sourcing rules are cost of performance, which are in our statutes.
And then we have regulations on them as well.
What cost to performance really means is that you would source your.
sales for the sales factor. So the factors are, what do you have in Alaska
versus what you do have everywhere else? So for an oil company that would be
worldwide sales, so your sales.
Well, most cost performance isn't going to be really oil and gas, so for a sea corporation
doing business in Alaska, there are sales in Alaskan over their sales everywhere in
the U.S.
And cost-performance looks at where your cost center is.
So if your costs center in another state, you would source sales made into Alaska to
that other state.
And most states have moved to market-based sourcing.
And that's what's being proposed in this bill.
That modernizes the sourcing rules and
apportions the sales in the numerator to the sale where the market is.
So basically where that customer is located.
And this mostly applies to internet type businesses,
streaming services, online sales, things like that.
Or historically, that we're thought of as.
mail order type of businesses and that's when cost performance really was created in the
mail-order time period. We're in a new world and market-based sourcing makes a lot more
sense. So moving on to the next slide, 24.
Moving to market-based sourcing would modernize our corporate income tax and
capture sales that are currently reported to other states.
This is an approach that acknowledges the realities of today's modern world and
how goods and services are often brought and bought and sold online.
The cost of performance model no longer makes sense as the sourcing role for the sales.
This proposal does not include the separate carve out of highly digitized businesses that was in SB 113 and is in another bill which
Number, I'd have to look up, apologize, but another one that's been introduced recently
in the Senate and, or I believe maybe it's in-house now that I think about it.
But one who looks very similar and has a highly digitized portion, this does not.
This proposal is a market-based sourcing approach that in this bill, it would capture sales
of highly-digitized businesses but it wouldn't set a single sales factor for those businesses.
So, a business, the method definition in that bill would still be apportioning its sales to Alaska.
If it was only appertaining to another state under cost and performance today.
Moving to slide 25.
The revenue impact is estimated to be around $15 million.
That's, there is a range, and that's the midpoint in that range that we chose for this fiscal note.
The governor wanted a hard number in our fiscal notes, so we picked that, but it is arranged,
and there's some uncertainty.
There will be winners and losers with this approach.
So what companies would pay more tax under this
approach, multi-state companies, and technology,
professional services and finance, transportation,
and e-commerce businesses delivering goods and
service into Alaska.
Primarily, these are lower 48 companies with little or
no physical presence in Alaska,
and then what company's would be paying less.
These would companies be with physical
presence presence
in Alaska.
But a few Alaska customers, so these are Alaska-based businesses servicing mostly out-of-state
customers.
And then for no change, this would be Alaska based companies that are doing business solely
in Alaska.
They wouldn't have any effect to this cost of performance change to market-base sourcing.
And moving – this is our last slide under the corporate income tax section, moving to
slide 26.
The governor believes that having a lower corporate income tax rate will increase investment in Alaska and currently Alaska is the fourth highest corporate
income taxes in the nation. By reducing the tax rates to zero, we become more competitive to see corporations looking to do business investments in
Alaska. And this is consistent with the governor's fiscal plan.
And I will pause there for questions on the corporate tax.
Do you have a sense if we were to go to a single sales factor for highly digitized businesses? How much that would raise?
We do we have
a fiscal note for
previous SB 113 and the current
version that looks similar and that range I believe is
25 to 60
65 25-65 million is the is-the-range and again if were put a midpoint to that
We'll keep that range for that because it is a bit more uncertain in that highly digitized space since
we don't have other states that we can look at and try to assist with.
Follow-up is
Is that on top of what you expect your changes in this bill to do on the top 15-16 million?
So through the chair, Vice Chair Wolkowski
that know that the $15 million is also in that span of $25 to $65.
Okay.
Yes.
Follow-up.
Senator Wieckowski.
Some legislators have suggested that we go to a single sales factor for all non-oiling
gas corporations in Alaska, and I'm curious your thoughts on that and what the revenue
impact of that would be if you have any sense.
So, a lot of states have gone to a single sales factor, it was popular at one time to
go to double and triple weighted sales factors and keep the other two factors, and then they
eventually said, why are we doing triple-weighted sales-factor?
Let's just throw out the two other factors to go single-sales factor.
The intent behind that was to encourage businesses that were in a neighboring state to move their
headquarters to your state, or maybe the company was talking about opening a very large warehouse
they were going to build a skyscraper and they're like, you know, trying to encourage
that particular company to come to your state. If you had a single sales factor,
under cost of performance, it made a lot of sense. Or rather, with only a
single-sales factor made, a lotta sense to have that company based in your
state because you've had no property or payroll that would hurt your factor.
remained under the three-factor formula that one state would be very enticing. What happened
was all the states around them did the same thing, and it was a race to the bottom. In
Alaska, we still have a lot of property and payroll for large businesses, especially certain
industries like oil and gas and mining, fishing. To me personally, it doesn't make a
something that you could consider, and what it would do to the revenue. I'm sure we've modeled
that, but do you have an idea off the top of your head on what that would be?
Yeah, Dan Stickel, Chief Economist, for the record,
to Senator Wilkowski through the chair.
We have looked at the revenue impacts
of single sales factor.
It would not be an increase to revenue.
It'd be either neutral or a decrease.
And like Acting Director Spano said,
that has to do with kind of the concentration of these companies,
particularly in the resource industries that are heavy on property
and payroll and light on sales in this state.
Senator Klayman.
Just so I have a clear distinction, there's parts of what is in the governor's proposal that was in Senate bill 113 that he vetoed.
Tell me what's in what was, in, what, is,
in governor s proposal, that wasn't 113 in
what isn't in 113,
that is not in a governorís proposal.
And then as part of that, the cost difference, or not the costs, but the revenue difference between those.
Sure, through the chair, Senator Clayman, the parts from 113 that are in this bill are
the majority of the sections, because most of these sections were making changes to Alaska
statutes 4319, where the multi-state tax compact lives, and those were updating those
different words in order to change from cost to performance to market-based sourcing,
business income. It's a portionable income and so most of the if you look at the number
of pages and the numbers of words on the two bills the majority of those are kept but what's
not kept are just one main section which is going to a single sales factor for highly
digitized businesses and that is not in the governor's bill. The difference in in
Maybe I'll pass that over to Dan, because I can't remember the range for the market-based
sourcing.
Sure.
Again, Dan's take over the record to Senator Clayman through the chair.
So for Senate Bill 113, with the highly digitized, plus the Market-Based Sourcing, we had estimated
a range of $25 to $65 million of incremental revenue with midpoint being $45 million.
It's about one-third market-based sourcing, so 15 million dollars and about two-thirds
of the highly digitized, which would be the $30 million.
And so I think for the higher and the lower end of range, if you think in terms of about
two thirds of impact of 113 was the high digitised component and one third is the market based
sourcing.
That's a good rule of thumb.
The midpoint is 45 million and the first 15 of that is the
Is the market-based sourcing in the second two-thirds the next 30 million is coming from the highly digitized businesses?
Senator Clayman through the chair, that's correct
And do you have any just the governor have a reason why he didn't include the high include?
The highly-digitized business
And what I know is what he wrote in his veto, which is that he believed that a portion of
the bill was potentially unconstitutional.
And I can only imagine the highly digitized, since that's not what, he did not conclude
that portion in this bill.
Follow-up, Senator Clayman.
Thank you, Madam Chair, and let's tell you a different, so when this is about sea corporations,
Do we have, at least from the Department of Revenue's perspective, how many business entities do we actually have in the state?
And how much of those are C corporations?
Senator Clayman, through the chair, again, Dan Stickel for the record.
So we according to our most recent data of corporate tax filing, there were about 19,000 tax filers.
Of those, about 6,00 were C Corporations.
about 1,270 had a tax liability to the state.
So we follow?
Follow-ups in the country.
In rough terms, about a third of the corporate entities
that are the taxable entities that revenue is aware
of are our C corporations, but only 1.200 of those
actually pay taxes to this state of
Why do so many not pay taxes to the state?
Sure, Senator Clayman, through the chair.
So the S corporations have a filing requirement with the State.
But they are not, we don't apply a tax to them.
We also have home owners associations that are required to file a return with
the States.
The ones that would have tax liability fall into that first $25,000 of taxable income
bracket that has a 0% tax rate.
And then for the corporations that do have a positive taxable income that's about 2,800
of the 6,000 corporations in any given year, a little bit more than half of that fall into
that first $25,00 bracket, which is essentially a small corporation exemption.
Senator Clayman through through the chair, so that is C corporations filing a tax return and
Then on top of that there's about 12,000 S corporations
filing the tax returned enter the S corporation's all LLC's are different kinds of business entities
Senator claiming through to chair there would be different business entity's that fall to the s corporation as their
final filing status federally
Thank you, Madam chair senator kosaki
Thank you, Madam Chair. I actually wanted to go back a couple slides when they initially
started. You talked about the fiscal plan itself. On page four of the slides, it was just sort of
a background of a plan. And I'm just curious how, because we're talking about three elements of
the revenue side of picture, I think it's important.
I am glad that the governor has introduced revenue as part of this picture because
we have a multi-billion dollar deficit. We've lived with a multibillion dollar
Why was it these three taxes that have been introduced, or these types of revenue measures that were introduced?
Is it something that the governor came up with, his policy team?
Did it come from Department of Revenue, Department National Resources, I mean, which?
Through the chair to Senator Kawasaki, there were a lot of things modeled, a
lot different options modeled.
and all of these items together on slide four bring together that balance of where we need to be.
And through the, oh, pardon me please go ahead.
Through the chair I was just going to add Senator Kawasaki that ultimately was the governor's choice
to put the fiscal plan together, Department of Revenue modeled many options and the
Follow-up, Senator Costa. Thank you, Madam Chair.
Okay, not to defend big oil, but oil companies do pay a lot of taxes when you look at the total revenues coming into the state
gross, wise, they're right around 13% of our entire
income stream, revenue stream. But like, mining's at a percent.
Fisheries is even that smaller than that.
Was there any thought to look, at those or were they looked at? Were they modeled?
Sure, I'd dance to go for the record to Senator Kawasaki through the chairs.
So we have modeled and provided information about a wide variety of taxes,
including what the impacts of changing any of the state's existing taxes would be,
and a variety new taxes.
So those were all available for consideration.
two out of these three is
Sort of modifying what's existing currently the big one is the first part that we're not really talking about the sales tax
That is one that particularly hits
Residents of the state versus the other two that don't there was a recent ISER study just a couple weeks ago
And ISERS said something to the effect that the easiest policy decision or the
I can't remember exactly not, maybe not easiest was the word but basically that oil and gas
tax was sort of the where to look to try to solve the fiscal, the deficit and the
fiscal gap. Was that taken into effect or concerned with the governor's team?
That's through the chair. Representative Callie,
The, now you'll have to repeat the question, I'm trying to speak.
Thank you.
Senator Costa.
Thank You, Director Spannas.
It's the Institute of Social and Economic Research just gave that presentation a couple
weeks ago to the legislators and the governor.
It says that raising oil and corporate taxes is the least painful option to reduce Alaska's
deficit.
And there were a lot of different caveats to that.
So was that part of the decision and why was sales tax, which does not seem to be
One of The least painful options to reducing the deficit. Why was That part?
Of the inclusion into this three-part system
Through the chair senator kao-saki, I won't reintroduce myself, so I don't forget the question
the
the ISER study was
At the request of the governor, so certainly knew what was in the study
He did consider all the results. He considered all of them. All and our own modeling our
own economic research group the Dan stickle leads had very similar outcomes to the ISER study
So certainly though that information was before him
Why he chose specifically a sales tax?
It's as we stated before there really is no
a fiscal solution that can make everyone happy.
The governor felt that this was the best solution for the state.
Thank you.
Since you're done, Bar.
Thank You, Madam Chair, and I'll try to keep this quick because I do want to go on to the,
I think very interesting discussion about the oil taxes and the thing GVR that he has in here.
the single sales factor and how we digitize business.
I understand why we wouldn't want to do that
with regards to the companies that have large presence here,
like mining, oil, but there are almost no highly digitized
companies, that are headquartered here.
And if two thirds of the potential revenue of that change
come from that portion, the Single Sales Factor portion
on digitised companies.
I am puzzled as to why, we would not do it.
I know that the governor said that it's unconstitutional, but I'm curious, do other
states do it? That is, a single sales factor as applied to highly digitized businesses.
Does that exist in any other states around the country?
Through the chair, Senator Dunbar, we did look and fairly
in-depth research on that and could not find any state that had anything like that.
Interesting so follow-up. Yeah, thank you, madam chair
Well, I guess we'll just I like that in writing if possible that that research because I I
I'm surprised to hear that and I want to know what other states are doing
You know,
I think the number was 36 or 37 other States that are adopting a portion of this
But I thank are you saying that those states only did the market-based sourcing and not the single sales factor?
Is that what?
Your research is concluded through the chair
Senator Dunbar the market-based sourcing is yeah, there's plenty of information out on that the multi-state tax commission has
Has model language and that's really where we started so that that language in the governor's bill and in SB 113 came from my staff
We we've been asking for market based sourcing for a while
it it's been
It's taken up and I believe the first time introduced was an SB 113, but now it's in the governor's bill.
That's language that exists in other states, that the tax division has seen how cost of performance is.
That we're not capturing sales to Alaska that we could with a simple change.
The highly digitized piece, I'm not sure exactly who crafted that or where it came from.
When you say you, you mean the executive branch, and I understand that that's possible, but
I personally don't know who in the Executive Branch crafted that.
And so it is unique to that bill and, uh,
and
So our research was really just looking at other state's statutes, and we didn't see anything that referenced highly digitized business.
So what I would give you is pretty much an email that says we looked at all the states and didn' t find that language anywhere.
Thank you, thank you Madam Chair.
Senator Myers.
Thank You Madame Chair, so go back to the ice your study.
And Mr. Steckel, I wasn't aware you had your own modeling version as well,
from what I remember from both the presentation,
and then I had some of the gentlemen come speak
to me in my office.
In the short term, the effects on the job losses
were the least coming from the corporate taxes,
but the effect's over the long term.
They were some the worst.
It looked like, according to their modeling,
when they went out to 2050, that if you had a sales tax
and most of your other broad-based taxes the jobs.
More or less came back at that point, but the corporate taxes, the jobs stayed gone.
Effectively, is that correct?
Was that your impression as well?
Sure, Senator Myers through the chair.
So I believe one thing that ISER did is they used two different models and
two differently modeling techniques to look at the short term and the long term impacts.
one of the issues there.
I know specifically with corporate income taxes,
one the things that they said is that
there's a smaller immediate impact,
but then over the long term,
the impacts are more persistent.
And that has to do with,
you may not cut jobs now,
but as you have a higher tax rate,
you would, over time,
that would influence your investment decisions,
and that could influence corporate.
corporate revenues and activity over time.
And then vice versa, if you eliminate the tax,
you may not add a bunch of jobs immediately,
but over-time, that would influence your investment,
your investments activities.
Okay, thank you.
Senator Klayman.
Thank you, I'm glad you got page four.
One of the interesting parts of
the governor's comments were that he described our current
tax structure that was very much resource-based is unstable, and yet the plan that he's presented
is he is going to what he describes as more stable income sources, but then in five to
seven years he gets rid of all the more-stable income resources and goes back to revenue-base,
which he described as unstable.
And I'm just wondering why, if our problem is that we're going from an unstable method
essentially drop all the more stable methods and go entirely back to the unstable method.
I mean, what's the logic with that?
Through the chair, Senator Clayman, so we asked the same question to
the globe and the response was that there's an opportunity
in seven years to look at the tax again and determine whether it's still necessary or not.
The plan has a sun setting and normally like with the education credit, it sunsets regularly
and you reconsider whether you want to carry it forward or not.
And so the purpose of zeroing out the tax isn't so much to say it might not ever be
necessary again because we're going to 100% rely on oil.
the needs of the state and perhaps we re-look at it and determine whether it needs to be
adjusted or maybe sunset or or just the rates changed or whatever the legislature deems necessary
at that time.
Follow-up, Sandra Klayman.
Your answer doesn't really say why the governor thinks we should go from a system that he
to something more stable and then return to unstable.
Why is he suggesting we should go?
What our long-term path should be the unstable method
of having support for the government?
Through the Chair, Senator Clayman,
if the sales tax were not sunset,
then it wouldn't be unstable with a single resource.
Payer again.
Right, but that's not what the governor's proposing he's proposed we go back to the unstable and you're not really answering why he wants to go
Back to unstable. Maybe you don't know that that might be the answer
But I'm I'd get trying to get understanding of why the Governor wants
To go from unstable to stable and back unstable
Through the chair to senator claim in general earls again acting commissioner
the government thinks
We the administration and the legislature need to be looking at where Alaskas at
like all the time and it could be that
The rates need go up or down and that's why it was going to zero now. I
Don't think anybody really wants taxes, you know anything that is affecting
residents pocketbooks, but but if we need
turn that back on when it does go to zero, you know, raise it, see if we need a need for a 1% or
something, then we have that ability to do that.
Senator Wilkowski. Yeah, thank you. Well, a couple of points. The
the highly digitized language, as you note,
that was then sent about one third and came from the Department of Revenue, just to be clear.
I didn't make that language up. That came directly from
the department of revenue. Maybe you weren't there at the time, Renan. I don't know.
But that's where that
language came. And I think when you say it doesn't,
other states don t do it exactly that way, I
don' t know that I disagree with that. Other states have actually a somewhat broader
language where they address all intangibles.
And maybe that s the solution going forward.
And if you're worried about constitutionality, if I were the states
intangibles. I think that was an attempt my guess is that
was in attempt at the time by the Department of Revenue to
craft something that is a little bit more narrow and so maybe
we need to just expand it slightly and say make it
intagibles and I'm curious your thoughts on that.
Through the Chair, Vice Chair Wilkowski, I did take a
break from the department of revenue during the COVID
years and when worked for the internal revenue services, the
that, that that was first talked about. I did come back in time for SB 113 to be introduced,
but I like that's why I don't know where that language came from. But I
did inquire of my, my corporate income tax folks and, and they didn't
know. So they both, they did know, where
that market-based sourcing language, came
from, I came, from from them. Now, if we were to look and it, you asked me today to craft
I might like I don't know what I would draft it might look similar, but then I
would ask, you know, department of law to review it and and they would have to
tell me whether they think it's constitutional or not. And and since the
governor has already stated that he feels that there there's a question some
questionable constitutionality there. You know I
don t want to misspeak here and state something that
he disagrees with. So I just have
Follow-up, Senator Wilkeskin.
We had our legislative attorneys look at the language
after becoming aware that the governor was concerned about it.
They didn't have any concerns at all
with the legality, with a constitutionality.
I think I provided that legal opinion
on the deaths of every legislator.
Happy to get that to you if you don't know that.
I would like to ask, though, kind of Senator Kawasaki's
point, a couple other items, and maybe why they weren't
things that the governor had previously said through his last revenue.
Well, I guess a couple revenue commissioners ago listened to Mahoney.
She testified that there were a number of items the Governor would support
if the legislature supported them. One of them was Senate Bill 113, which he vetoed.
The other two were lowering the oil tax credits by three dollars from eight to five.
When we passed Senate bill 21 in 2013, out of the Senate, it passed with a five dollar
tax credit cap. It changed in the house, very limited testimony to eight. There's 154 million
barrels of log on through the pipeline and multiply that by three. That's a potential that cost us
$450 million in tax credits. Your department, the Department of Revenue testified several
years ago and sent it finance that they did an analysis that cutting those three dollars
In fact, when Senate Bill 21 passed the Senate,
there was universal support for it at the time
with a $5 tax credit, went to eight mysteriously.
And that's costing us potentially hundreds
of millions of dollars every year.
We had Gaffney and Klein analyze that,
that three potential cutting it from eight to five.
They said it would have no impact on investment.
The gut, and that was again one of the things
that Lucinda Mahoney testified,
the governor would support if it were passed.
Would the Governor still support that change
put in this bill and could I get a copy of that document that analysis that was
done I know that's for this multiple times that documents that that your
department or DNR did showing that we have no impact on investment. Through
the chair device chair Willow Kowski I the Janelle Earls again acting
for sense or anything.
So I would need to defer to Director Spanos
or Chief Stickle on some of those items.
But a change in any other form I can't speak to whether
or not the governor would accept that or
not but we can find out.
And since that was during that period that I wasn't here,
I'm not going to speak to it at all.
But if Dan, you know, have any analysis, feel free to share.
Any further questions?
All right, let's move on then to slide 27 and 28,
which begins the oil and gas production tax.
All Right, again, Dan Stickel for the record.
So before we get into the details of the tax proposal around production tax, slide 28 starts with a little bit of background information as a refresher for the folks watching at home.
When we eliminated that tax, the average gross tax rate was up around 7% on an effective basis,
slope-wide. There was a 12 and a half or 15% gross value, but for each individual field,
there was an economic limit factor that adjusted that down to a lower tax
rate for certain fields.
We switched to a net profits tax with a gross minimum tax
floor in 2006.
That was the petroleum production tax.
And at the time, when we switched
to the net profit tax, they left a 4% of gross value,
minimum-tax floor, as a way of really ensuring
that the state would get some baseline share of revenue
in a low-price environment.
There's been several changes to tax since then.
Alaska's clear and equitable share, or ACEs in 2007, and then the Senate Bill 21 in 2013 being the two largest changes.
There's been a couple of changes since then, but the senate bill 21 has been essentially the law of the land for over a decade now.
Slide 29 shows some of the key elements of that Senate Bill 21 tax system.
So we have a production tax rate at 35% of production
tax value, which is essentially our definition of net profits.
We do have that 4% gross value minimum tax floor.
Companies are able to apply tax credits based on oil production. There's a $5 per barrel credit
for qualifying new oil that qualifies under the incentive known as the gross value reduction,
and then a sliding scale credit of zero.
up to $8 per barrel for all other oil.
That sliding scale, the $ 8 applies at prices below $80.
And so at currently prevailing prices for the non-GVR oil,
it is the eight dollar per taxable barrel credit that applies.
And then the gross value reduction itself is an incentive for those new fields that applies
for the first several years of production.
So as a new field comes online, they earn this gross-value reduction that's an offset
against their production tax calculation and the differential perp-taxable barrel credit
calculation.
And as those fields have been in production for a while,
they eventually graduate out of that gross values reduction.
Slide 30 goes into a little bit more detail on that tax calculation with a high-level overview of how the North Slope Oil Production Tax is calculated.
So the gross value is the total value of the oil produced after subtracting royalties and transportation costs.
calculated by subtracting company expenditures
from that gross value.
There's two calculations that are essentially done
as a side-by-side calculation.
There is the 35% net profits tax based on production tax value
and then the 4% gross minimum tax floor
based upon the gross-value.
And the tax calculation takes the higher of that gross minimum floor or the net profits tax.
And then per taxable barrel credits can be applied against that tax before credits.
If a company uses sliding scale credits for the non-GVR oil, that's the zero to eight dollar per barrel credit, there's a hard floor.
and the company cannot pay below that minimum tax calculation.
However, if the Company does not use any sliding-scale credits,
they forego those completely, then it's a soft floor,
and they can use credits for GVR-eligible oil
to reduce the tax below the minimum-tax floor.
So under our current Fall 2025 forecast,
we're actually expecting most companies to pay at or...
at or close to the minimum tax floor throughout the 10-year time horizon of our forecast.
We do forecast that some companies will be able to use the per-taxable barrel credits for the GVR
eligible fields to go below the Minimum Tax Floor. And this situation really has to do with the
price and cost environment that we're in right now. We have a number of new fields coming online
the gross value reduction, we're in a relatively lower oil price environment and costs have
been increasing significantly on the slope for operating costs at the same time that
companies are spending many billions of dollars in capital expenditures on bringing new fields
online.
So slide 31, after we've talked about how the tax works very briefly, what would this
So the change is actually fairly simple.
It would increase the minimum tax floor
from the current 4% up to 6% for five years.
And then the floor would return to 4%, in 2032.
There is a provision that allows for a potential
for an earlier return if oil
into the Trans-Alaska pipeline averages.
$650,000 per day or more by 2030 than the floor would revert to the 4% earlier.
And what that means is that if production significantly exceeds the expectations in
the current revenue forecast, companies wouldn't get some tax benefit from that.
Under our current revenues forecast the $350,00 barrel threshold comes after the reversion
And then finally, last slide, in this section, the bill would also create a new $0.15 per barrel fee on taxable oil production in the state.
The fee would be paid along with the oil and gas production tax, similar to the existing nickel per barrels hazardous release surcharge.
And similar to that surcharge, no credits or deductions could offset the new infrastructure fee.
And proceeds would be used to provide a sustainable and permanent funding source for maintenance costs for the Al Dieska pipeline corridor, including maintaining the Dalton Highway.
I'm happy to take questions on this section.
Thank you.
Senator Dunbar.
Thank You, Madam Chair.
No comments on the last one, I think that's a great idea.
Governor I agree on Dalton highway. I'm sure Senator Meyer has more detailed thoughts. Can we go back to
page 30
So I think this is something that
Most folks in Alaska don't understand it. Um, I am really glad that you have laid it out like this
I
Think the degree to which companies can now get below the 4% floor the floor isn't a floor anymore
The floor is sort of suggestive and you said
Most companies will pay out or below the floor, but I'm not really interested in a number of companies
I mentioned interest in number barrels. So how many barrels are going to be taxed below
The floor and down to zero. Oh, that's my first question if you can and
The second question is even at 6%
How close to 0 can companies or barrels get and the last one is maybe a little more hypothetical
But rather than raise the rate. Why not harden the flow?
What's the, I guess, what will be the policy costs or benefit of?
We leave it at the 4% rate, which provides more of the stability that we've talked about.
We don't go up and down, but we harden that floor.
And we stay at where most Alaskans think it is at 4%.
I don t think most Alaska's understand, you can get all the way down to zero.
Senator Dunbar through the chair, so there's a number of questions there.
I'll take a stab at a couple of them and maybe.
Maybe you have to have a couple rephrased for me.
So in terms of the number of barrels,
we, two places I can direct you to,
one is we have this table six-eight
in our fall 2025 revenue sources book,
and we do break out the expected forecast production
from GVR eligible fields.
Those would be the fields that generate the $5 credits
that would, that could potentially be used
to go below the minimum tax floor.
Um, production from those fields is expected to increase as a share of total production
quite a bit, um, peaking at 40% of expected production in fiscal year 2033.
And this represents just the massive amounts of new production that we're expecting from
that's kind of the peak is in fiscal year 2033 and then that share of GVR eligible oil
would decrease in subsequent years as those new fields graduate into the the non-GVR category.
As to setting a hard floor that certainly a policy decision up for consideration that would
potentially increase the taxes, especially at lower oil prices, for the
companies that are developing the new fields. But then if you coupled that with
a lower gross tax rate, you know, obviously the companies
that're not developing those fields would pay a
lower tax rates. So that's certainly a policy option to be considered. And happy
to address the other questions if could rephrase those.
Follow-up, Senator Dunbar.
No, I think those are good answers.
I'm sure my colleagues have more followers.
Thank you, Madam Chair.
Senator Myers.
Thank You, madam chair.
So Senator Dunbar was correct.
My question is going to be on the fee for the pipeline corridor.
So I am assuming that since we're talking
not just the entire quarter, the length of the pipe line,
I was assuming we were talking about the Dalton Highway
and the Richardson Highway while in the Good chunk
of The Elliott Highway as well.
Is there any other infrastructure along the way that would also qualify besides those highways?
Senator Myers through the chair, so that'd be something we'd need to get back.
We could coordinate with office of management and budget on how the appropriations piece would work.
From the revenue standpoint, we would administer the tax and appropriate it to the.
to the infrastructure the pipeline infrastructure fund I know the governor has stated that the
The intent is to support
Maintenance and infrastructure along the Aliasca pipeline corridor
Okay follow-up center Myers. Thank you. Is there so obviously the state
You know has run mostly on oil money up until relatively recent history, you know for most things, but is there a
precedent
anywhere else in our tax code or anything else and statute, where we're directly looking at a specific industry to directly support infrastructure that is open to the public.
Not closed off to that industry, but open the entire public if they so wish.
One example that comes to mind and my boss might have another example
But one example, that come to my would be cruise passenger vessel fees
Where actually by federal law we're required to use those in direct support of the industry and those maintain things like?
Things like dock facilities and you go down and walk on the docks here in Juneau and a portion of those have been paid for through those fees
Follow-up senator Myers no, I'm gonna think about thank you senator kosaki
Thank you. Going back to the original start of the section, you go over a brief history
and historical review. I think it's important because some of us have not been here today
and I'm reminded because the older guys, Senator Stedman, senator Stevens were talking
about having to spend an entire summer talking about PPT with the then Commissioner Corbus.
and Pedro van mirrors and a bunch of other people.
So they did that.
We've been through PPT.
Then we went through the economic limit factor in PBT.
I started when ACEs was around.
So did Senator Wielikowski.
That was full year, like nine months.
I mean, it was more special sessions
than we've ever had under that during that time in a GIA.
And then we did this.
was this more Alaska Production Act in Senate Bill 21.
So I pulled some of the old files that I had originally
saved from the time that we were there.
And I'm looking at slide 29, just the one just before this
in particular.
And under the goals of Senate bill 21,
it talks about this.
It's in slide 11.
2013 says enhancing the global competitiveness and investment climate, you've listed that there,
talking about permitting process, structured and efficient, facilitating and incentivizing
the next phase in our slope development. I think it's on there promoting the resources and making
a positive investment for the world market also listed on here. The one thing that's not is that
the title of the slide is Securing Alaska's Future Oil so it says the state's
comprehensive strategy to increase taps throughput to 1 million barrels per day.
And that's not part of this goal list but it was part
of a goallist in 2013.
You know I don't know that we're near anywhere near a billion or a million
barrels a day but I will say if Senate Bill 21 was contingent on that
to get to the million barrels so that we we would have revenues coming in as the other
things indicate then maybe we wouldn't be here today trying to balance the budget with sales tax.
I'm just I just needed to point that out because that's not one of the bullets that're here
and I don't know who created this slide but one the goals of Senate Bill 21 was to
and it is again this is the slide that was introduced to us at the very beginning
of session in 2013. Senator Sullivan, Commissioner, Senator Dan Sullivan and Commissioner at
the time the Department of Natural Resources was the presenter and I got to say I'm really
unhappy that we're talking about fiscal gap concerns and trying to fill this huge multi-billion
with the sales tax which I think will hurt individuals thank you thank You
senator kosaki any wish anyone wish to comment on his comments I'll leave you
open to do that if you'd like mr. sickle I sure senator Kawasaki through the
chair so I was around during during SB 21 I remember that the debates we have
Background and presentation on that topic would be happy to bring before the committee today. We're talking about the governor's proposal and
Really intended intended the historical background is just a an extreme TLD are
You know you point out there was an aspirational goal of a million barrels per day that that was
Certainly part of the discussions back then
Senator Wilakowski. Yeah, thank you on on That point
promises that were made by the industry and there were promises of more jobs, more investment,
more revenue, save the PFD, still see signs around Anchorage saying vote no on changes
that the voters were trying to change to our taxes and it would save PFT and save jobs.
And I think it's important to look back that there was 15,000 jobs roughly in the oil industry
there's now 9,000. There were investments been roughly cut in half. And if you look at Prudo,
we had about $850 million of investment in 2013, and it had dropped to as low as around $86 million
in 2021 for which they got $720 million in tax credits. I understand it's up now to a couple
hundred million, but it is still a third what it was back in 2015. We were promised more revenue
and our revenue has plummeted.
We're getting probably a third of the revenue
that we should be getting.
We were promised it would save the PFD.
And of course, that has not happened.
So a lot of promises were made
and the promises we're not kept.
And I share the concerns that instead,
what's happening is the people of Alaska
are being asked to pick this up
in the most progressive way possible.
by a sales tax and as we've seen the taking of the dividend.
Now, I think one thing we could look at and one
thing which I'd think we should maybe focus more on is what's the share that we
should get in our Constitution says we
should the maximum value for the resource.
And Governor Hammond years ago said, well, it's a third, a
third a Third, third.
Third for The State.
Third of The Feds.
The Third For The Oil Industry.
Well, the FEDs cut their share by cutting the
corporate taxes down to I think 21 percent. And the state share now if most of the fields
are paying a 12.5 percent royalty of which it's not really 12 and a half percent because they
get the right off of about a 1.2 percent or a percent and we're at the and are
paying the minimum of four percent for probably the next 10 years. So when you add those two up
and you added on a little bit for maybe corporate income tax and property tax it is about 16 and
that's half of a third. Historically, we've gotten, in years past,
we have gotten 28 to 37, 38 percent in their races. If we simply got 30 percent, 33 percent
like Governor Hammond suggested, like, I mean, you look at Texas and North Dakota, they have a
They have taxes, gross taxes of 10, 12 and a half percent.
That's 35 percent right there.
They've got sales tax on top of that.
They got corporate income tax
ontop of them in some places.
So when you compare us to other states,
when we compare to our historical average,
we're getting probably half what we should be getting.
That is your budget gap.
We got a $1.5 billion deficit next year.
If you simply got what a third of the value of oil,
our budget deficit goes away.
You don't have to have a sales tax.
Maybe some people would still advocate for that.
But I think this discussion of, well, we're going to just start to tax the people of Alaska
while we are taking virtually nothing, 4%, and in a lot of cases now much lower than 4%.
I hear there's proposals to cut property taxes.
proposals now to drop the corporate taxes to zero, we'll be giving it all
away. So I'm just curious why there's not more of a focus on maximizing the
value for our resource, getting a fair share, and instead of taxing the people of
Alaska. Through the chair to Vice Chair Willakowski, I
apologize I am not good with oil and gas taxes at all so to speak to that I
will have to lean on Chief Stickle but I just wanted to remind you this is the
the comprehensive fiscal plan that the governor has put together but i will
turn it over to Chief stickle to talk about oil
Sure, Dan Stickel for the record to Vice Chair Wilkowski through the chair.
I did want to add, we do have an appendix to this presentation that walks through a chair
of profits with and without the governor's proposal and we'd be happy to go through that
now or at another date.
Mr. Sico, I would like you to do that.
I was looking at the appendix and I think it would be informative, first of all, for
Yeah, so this starts at slide 59
And we actually have a a number of
Supplemental slides that we've put together and madam chair
We actually based these slides on a presentation that. We gave to this committee last year on Senate bill 92
And so, we kind of used that same subset of slides and recreated them here, looking at the current proposal and we'd be happy to...
We have lots of additional analysis we would be happier to come back with as well.
Thank you.
So, slide 60 is our usual disclaimer we like to give as we go through these oil and gas illustrations.
I'm an economist, not an auditor, and so anything I say is not
an official tax interpretation.
And to point out that we're using aggregate data
for this presentation, each taxpayer
has a unique portfolio of investments and production.
in Alaska and that is actually more true now than ever where we have
you know some companies that are very large new entrants and some existing producers that
are developing very huge new fields and other existing produce producers
that primarily reinvesting and existing.
Slide 61 is just a recap of the three main impacts
on oil and gas companies that we just talked about,
which is the increase of a minimum tax floor,
the new infrastructure fee to support the pipeline corridor
and then eliminating the corporate income tax.
Slide 63.
Our first slide shows an aggregate calculation of how the gross minimum tax floor and the
net profits tax relate.
What we did for this analysis is we used fiscal year 2027 forecast data for our modeling.
Under current law, which is the blue lines, the net tax exceeds the Gross Minimum Tax
Floor at around $72 per barrel.
and then the gross minimum tax floors in the dashed line
and the net tax is in solid line.
For individual companies, however, like I said,
we have companies in very different situations
and that crossover ranges from around $65
to well over $100 for individual company.
With a 6% minimum floor,
that crossover would increase to around
$89 per barrel.
within companies ranging from around $70 to again well over $100 per barrel.
And so you can see around the current forecast, we're forecasting $62 per
barrel for the fiscal year that we are in the gross tax regime overall in our forecast.
Moving on to slide 65. So this chart shows the total change in state revenue under this bill.
At a range of oil prices and over a 10 year a ten year period, and I apologize
There is an updated version of this slide that may not have been to the committee
And actually that maybe slightly
Could we get it at ease please madam chair at these?
We're back on the record.
All right, again, for the Record Dan Stickle.
So we do have an updated version of this presentation,
Madam Chair, and we will be providing that to the committee.
So for slide 65 and 66, there was an error
at the $40 and $50 price ranges where the minimum tax
was not being shown,
and you've corrected that.
For some of the other,
once we get into the rest of these appendix,
There was a slight error in that the infrastructure fee was not being properly
counted against federal corporate income tax, that's also been corrected, and then
we made some additional changes to the final conclusion slide.
And so we'll provide that.
That's the version that I'll be speaking to, we will provide the updated slides to
the committee I think for discussion purposes, I take we're good to go.
Very good.
Looking at slides 65 which shows a range of oil prices and the the impacts over the ten-year time horizon
We're looking just at the minimum for increase in the new infrastructure fee in this slide
We see impacts ranging from about a hundred and fifty to two hundred million dollars of additional revenue
per year
And then about $25 to $30 million per year after the minimum tax
reverts to the 4%.
And note that fiscal year 27 and fiscal
year 32 have a half year of the higher minimum
tax, so why those are a little bit lower.
In general, the impacts of minimum
tax increase go up with price.
So higher prices equal higher value.
But those impacts peak at around $80 per barrel
and start to decrease once you get above $ 80 per
barrel, because above 80 dollars per
barrel more companies are paying above the minimum tax.
So that increase becomes less impactful at higher oil
prices.
point out you may note those odd negative bars at the $70 and $90
scenarios.
And we saw those and said, what's going on there?
What's gone on?
There is the higher minimum tax, actually,
while it increases revenue overall,
it actually shifts around some of the decision-making,
around when to use carried forward lease expenditures.
And so carried-forward lease expenitors
cannot be used against the minimum taxes.
And so, you actually have some carried forward lease expenditures that would be used up through
2032 that are deferred and used in later years.
And, so that's where we get those negative bars in a couple of years there, really just
an isolated modeling scenario as we run it through the detailed modeling and, again, an overall tax increase.
Slide 66 is a similar chart, but layering in the elimination of the corporate income tax midway through fiscal year 2031.
And you can see for the oil and gas industry, the bill is the tax increase at all prices for
the next few years,
but then it's a significant tax decrease to the Oil Industry and Fiscal Year 20-31,
especially at forecast prices in higher due to elimination in corporate tax.
So the next set of slides we refer to as distribution of profits starting with slide 68 is kind
of an overview of this section.
This is also known as government take.
So we do an analysis of how profit is shared for a typical barrel of production on the
north slope.
There's a lot of assumptions that go into that and we can tweak any of these assumptions
We've based this on the fall 2025 forecast for fiscal year 2027.
We're assuming that the production is non-GVR production from state land with a 12.5% royalty
rate and we assume an average level of lease expenditures that we see for companies across the
slope. We assume a typical average of property tax and the top 21% marginal tax bracket for federal
That's a key assumption for pass-through entities.
We could use a different assumption, but just to keep the modeling simple,
we use that 21 to allow for an apples-to-apples assumption there.
For state corporate income tax,
we assume a typical effective tax rate of about 4.25 percent.
And we show all of these slides with and without corporate income tax that allows you to look at the impacts of companies that are and are not subject to corporate
income taxes currently as well as the impact for the companies
that our subject of corporate-income tax from repealing or lowering that tax rate to zero as
the governor's proposing.
Question, Senator Wilkowski.
When you're calculating those numbers, is that based on total North Slope expenditures,
or is it based upon, explain that to me?
Senator Wieckowski, through the chairs, so these are based
on the average deductible lease expenditures for a producing company.
that a company can apply in their tax return against a gross value.
This would not include investments from a new entrant, and it would
not
include
investments for an existing producer above and beyond the value of the oil
that they're producing.
Follow up.
Senator Wilkensky.
What would it be at Prudo, for example, I mean, you get 90% of
the off from the legacy fields.
What's the cap X cost in the
legacy field in
the apex cost?
It's nowhere near $35 a barrel.
Senator Wieckowski through the chair, I don't have those numbers off the...
I'm a figure tips. I know that Prudobe cost do tend to be a little bit lower
than slope-wide average. That said, there have been major investments and I
know, that is one field that we can and have released field-specific information
for. Thank you.
I'll let you proceed. Moving on to slide 69. So I will talk a
several slides that have a similar layout.
What we show here is the distribution of profits
for a typical barrel of oil in a neat little barrel shape,
showing this for fiscal year 2027.
After deducting all costs,
which are the average lease expenditures
and the transportation costs of getting the oil to market,
we're estimating that there is $19.08 per barrel
of
profit left. That's the divisible income after all the cost. There's about $19 left and that gets
divided among all of the stakeholders. The state government, the municipal government the federal
government and then whatever's left to the producer.
And in the baseline at $62 per barrel, the producer keeps about $6.63 or $60.67 or about 35%.
The state and municipal governments get about 10.68 per barrels or 56%.
And then the federal government through the corporate income tax gets the remaining 9%.
If a company is not subject to state corporate income tax,
the producer keeps about 36%, and the state and municipal
governments get about 54%.
So that would be the impact currently for a
company not paying corporate-income tax or with the proposal
of the 0% corporate in-come tax.
The barrel would look like the barrel on the right.
The state corporate income tax takes about 30 cents per barrel of profit currently
That's about one or two percent about 1 to 2 percent of the total divisible income
And transfers that from the producer to the state
And of that transfer the federal government end up ends up picking up about eight cents of
That transfer because state-corporate income taxes are deductible against federal taxes
Senator Dunbar did you have a question? Yes. Thank you madam chair
The lease expenditures, what kind of costs can go in there?
You know, is it all the company's salaries?
Is it subcontractors?
Is is at Holium subsidiaries?
What percentage of the CEO's salary, for example,
can they count in their?
What's in lease expenditure?
Sure, Senator Dunbar through the chair.
So lease expenitors, allowable lease
expenditures are defined in statute.
Generally speaking, these are the direct costs
of oil and gas production, so the cost of capital costs
on the North Slope of putting in pipe, drilling wells,
paying your, and then operating costs to pay your staff
and produce the oil.
We do have an allowance for overhead.
It's a four and a half percent overhead allowance.
And that, rather than
Taking some share of that CEO's salary and administrative costs and negotiating back and forth over that
We simply allow a flat allowance. So it's four and a half percent of the total lease expenditures is deemed to be an overhead allowance
Send you done, but yes, I'll just say that when we I don't like the term government take when were talking about net
revenues or net profits
Because I Don't think most people understand that intuitively
I think an Alaskan thinks, okay, here's all of the money.
And then the largest chunk of that stays within the industry.
And granted, it doesn't go to perhaps the shareholders,
it goes to someone else's industry, but it still stays in the
industry that almost all that lease expenditure, as you just
described, is going to folks that are working in industry or
own companies in an industry and four percent of it is for
people that don't even necessarily work on the North Sloper
So, again, I think it's a little misleading is a government take as if the government
is taking from the total revenues.
It's not because most of the revenues stay within the industry, and I mean, that's what
this indicates.
And that isn't necessarily a bad thing.
I just think is it a bit misleading when you start to talk about government taking a
way that ignores the fact that it is net, not gross.
But that is not blaming you, this thing is the way we talk these things.
Would you like to respond mr. Spinas sure just to just a respond senator Dunbar through the chair so government take
You know it is kind of an industry standard term that you'll see yeah, I bet
So we're not inventing that term by an amiens
Thank you senator willa keske and just
on that point
These government tick numbers I think highly deceptive because if you're in Texas, they don't get to write off these least expenditures
Is that right?
In fact, they get a 12 and a half percent gross tax.
They get no least expenditure deductions or very limited least expected expenditure
deductions.
They got a 25% royalty on private lands in most state lands.
So there's 35% of the gross of total amounts.
So if you have $10 billion of oil produced in Texas, the state's getting $3.5 billion.
We're getting $1.6 billion, we're
getting half what they're
getting in Texas.
It's probably less than half
what
they are getting
in those other states, Texas,
North Dakota.
Highly deceptive.
If you want to plug in North
Dakota, or rather Norway, as an
example, and most other
states that have net profits
taxes, they allow for the
recovery of the expenditures,
like we do, but then they tax
at a high rate.
You look at most countries that
have
net profit taxes.
Norway is taxing at, what, 78 percent?
So you allow the lease expenditures, you
allow complete recovery of the costs.
But then they're taxing the total of
the profits at 35 percent, or rather at 78%.
And so I look at these numbers, and I've seen government take numbers for years and
I know it's the industry standard.
Highly, highly, I don't want to say deceptive, but they just flat out, don t portray what's
Senator Kawasaki, you had a question.
Well, it is sort of more of a comment,
but I think it's important to know
what those allowable lease expenditures are.
And the example, is it says property taxes.
It's everything.
I mean, really everything to produce anything
indirect or directly ordinary and necessary costs
for exploring, developing, or producing oil and gas.
And like Senator Wilakowski said, I think the graph also is wrong.
I mean, the graphs also sort of shows stylized description of what it should look like.
But it really is.
The industry with all of its expenses and however it decides to use its
expenses is a big fraction of that barrel and the stage is just a small fraction
of the barrel.
If you just look at the...
The graph's not really right because it...
The percentage is I mean well one. They're just I think you use the same graphic in each one
So can you maybe explain a little bit more to that?
Sure senator Kelly Kawasaki through the chair and I'd be happy to
Work with you on why you feel the graph is wrong be. Happy to follow up and and go through that
in terms of in
terms, of least expenditures you're you are correct so the costs of producing the oil are
do represent the vast majority of the direct costs of oil production. This is the
the cost that you pay your employees and your service providers and for equipment and materials
to develop the fields and and operate the field. So what we're looking at here is after
after all of those costs are paid out by the producer and after they you know pay the
We include we exclude the property tax out of the the lease expenditures
It isn't allowable lease expenditure in the production tax calculation
The reason we excluded from this from the least expenditures is because it is part of a municipal take
And the state take and so we don't want to double count the
The property taxes in this graph so were showing the properties tax one time and we're showing it as state and municipal revenue and
And so out of the $62 per barrel that shows after the cost, there's $19 left for
the various governments and the producer of a standard barrel of oil production.
Senator Myers.
Thank you Madam Chair.
I kind of had this question before we got into the appendix, but I'll go back to it a little bit here.
We had a discussion about ACEs and what happened before SB 21.
I was curious about it a little bit, you know,
you go back to 2013 time frame when Aces is being discussed.
And I think that was the high point for oil prices,
at least since the, since a financial crisis.
topped out around 113 bucks a barrel in that time frame.
You adjust that for inflation.
You're sitting around 156, 157 currently.
Current oil price, when I checked this morning,
was about 68 bucks barrel, give or take.
I had asked our alleged finance division
before session started, if ACEs was still in place,
given the production and price projections
fall revenue sources book about how much more we'd be getting in the they
estimated somewhere in The Neighborhood of about an extra 130 million bucks which
I mean is material but does not close the gap anyway shape or form but
does that sound about accurate to you roughly 130 Million? Senator Myers
Comparison of what the ACES tax regime would look like today requires a multitude of assumptions.
And there's a lot of changes that have happened since Senate Bill 21 has taken effect.
Primarily, we are on a lower price, higher cost environment.
And ACEs having a ACE's had a soft floor
one of the important provisions of Senate bill 21 is that it did create a hard-ear floor and that
some the the per taxable barrel credits for
Non-GVR production cannot go below the floor. So based on our current revenue forecast
Senate Bill 21
would yield more revenue than ACEs under the 10-year forecast in every year.
Oh, okay. Thank you.
Thank You, Mr. Stickle.
So we're going to stop here. It's a few minutes before 5 p.m.
I do want to offer somewhat of a, perhaps call it a balancing comment related to these barrel illustrations.
I want to clarify for the public who are listening that our Department of Revenue is not attempting to deceive anyone here with these barrels.
What they're illustrating is what our laws say now.
And what numbers assign to those laws that we have in place now?
This body, the legislature, makes those law and can change them.
It's not the Department of Revenue that is attempting to deceive us or has made the laws they're working with.
So, just a little balancing there.
Thank you very much for being here today.
Great presentation.
I really appreciated you covering the history of the various tax laws that we have.
That was great.
So at this time we will.
conclude our meeting.
The next meeting will be Monday, February 9th at 3.30 PM, and the subject that day will
be Senate Bill 180, LNG import facilities,
and possibly bills previously heard.
So at this time, the meeting we'll stand adjourned.
Let the record reflect.
The time is 4.50 PM.