Tax News

CCH (cch.taxgroup.com) reports:

Alaska Governor Sarah Palin signed legislation revising the petroleum profits tax (PPT) on December 19. As previously reported, the Legislature passed the bill, entitled Alaska's Clear and Equitable Share (ACES), on November 16, the final day of the special session called by the governor to address oil taxation. (TAXDAY, 2007/11/20, S.1) The general effective date of the legislation is December 20, 2007, but many provisions apply retroactively.
The base tax rate is increased from 22.5% to 25% of the annual production tax value of taxable oil and gas. When a producer's average monthly production tax value per BTU equivalent barrel of taxable oil and gas is between $30 and $92.50, an additional tax of 0.4% is imposed on the difference between the average monthly production tax value and $30. Formerly, the additional tax was 0.25%. When a producer's average monthly production tax value exceeds $92.50, the additional tax is 0.1% of the difference between the monthly production tax value and $92.50. The new tax rates are effective July 1, 2007.
Credits allowed for qualified exploration expenditures are increased from 20% to 30%. In addition, the law is amended to provide that exploration credits may not be taken for costs associated with repairs and replacements, fraud, negligence, or violations of law, including the federal Clean Water Act. These provisions are effective July 1, 2008.
Another amendment provides that a producer or explorer may elect to take a credit of 25% (formerly, 20%) of a carried-forward annual loss. "Carried-forward annual loss" is the amount of the producer's or explorer's adjusted lease expenditures that were not deductible in the calendar year in which they were incurred because their deduction would have caused a production tax value less than zero. A statutory amendment provides that only the amount of adjusted lease expenditures remaining after the specified accounting procedure may be used to establish a carried-forward annual loss. These provisions are effective July 1, 2007.
A new provision allows a credit of 5% of an eligible expenditure for seismic exploration performed before July 1, 2003, provided the claim is filed before January 1, 2016. This provision takes effect July 1, 2008.
Effective April 1, 2006, the law is amended to provide that deductible lease expenditures do not include costs arising from violations of law or failure to comply with an obligation under a lease, permit, or license issued by the state or federal government. Lease expenditures also do not include costs incurred for repair, replacement, or deferred maintenance of a facility, pipeline, or other equipment, other than a well, that is related to a failure or event that results in disruption of oil and gas production. Similarly, lease expenditures do not include repair costs related to an unpermitted release of a hazardous substance or gas.
Effective July 1, 2007, lease expenditures generally do not include costs associated with construction, acquisition, or operation of a refinery or crude oil topping plant, nor do they include costs of lobbying and public relations.
Reporting requirements applicable to producers are amended to require additional information, and a new penalty of up to $1,000 per day may be imposed for each day a person fails to file a report at the time required. These provisions are effective December 20, 2007.
The Department of Revenue has issued an advisory bulletin regarding Sec. 71 of the legislation, which requires taxpayers to pay any additional production taxes arising from the retroactive application of certain provisions before April 1, 2008. The Department states that it believes the intended due date for those additional production taxes is March 31, 2008, and interest will not be owed if the taxes are paid by that date.
Subscribers to CCH Tax Research NetWork can view the legislation.
H.B. 2001, Laws 2007, Second Special Session, effective as noted; Advisory Bulletin, Alaska Department of Revenue, December 20, 2007.