Sources of Alaska Oil and Gas Government Revenue

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Noreen Dean
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1 Surces f Alaska Oil and Gas Gvernment Revenue Alaska Oil & Gas Assciatin AOGA Educatinal Seminar December 11, 2012

2 Majr Surces Oil & Gas Revenues Fur cntinuus surces f il and gas tax revenues Ryalty Crprate Incme Taxes Prperty Taxes Prductin (Severance) Taxes (PPT/ ACES) Nn-cntinuus surce f il and gas tax revenue Bnuses

3 Quiz! Majr Surces Oil & Gas Revenues Petrleum Crprate Incme Tax Oil & Gas Ryalties Can Yu Match Labels with Slices? Oil & Gas Prductin Tax Petrleum Prperty Tax

4 Ttal State Revenue by Majr Cmpnent, 2012 ($ Millins) Ttal State Revenue = $13,564 Designated GF $303 Federal $2,460 O&G CIT $569 O&G Ryalties (Bnus, Rents & Int) $2,032 O&G Prperty Tax $111 Other Restricted $1,316 Includes $1,022 frm O&G Ryalties and CBRF Unrestricted GF $9,485 O&G Prductin Tax $6,146 Nn Petrleum $627 Ttal Unrestricted GF O&G Rev = $8,858 Surce: Alaska Department f Revenue, Fall 2012 Revenue Surces Bk.

5 Oil & Gas Revenues, FY (Unrestricted GF Oil and Gas Revenue, $ Millins) 12,000 10,000 8,000 Petrleum Prperty Tax Petrleum Crprate Incme Tax Oil and Gas Ryalties, Rents, Bnuses Prductin Tax 6,000 4,000 2, Surce: Alaska Department f Revenue, Fall 2012 Revenue Surces Bk.

6 Oil & Gas Revenues, FY (Unrestricted GF Oil and Gas Revenue, $ Millins) 12,000 Petrleum Prperty Tax 10,000 8,000 Petrleum Crprate Incme Tax Oil and Gas Ryalties, Rents, Bnuses Prductin Tax 6,000 4,000 2, Surce: Alaska Department f Revenue, Fall 2012 Revenue Surces Bk.

7 Bnus Prceeds Nt a tax Upfrnt cash payment made fr exclusive right t enter nt a prperty and explre fr il r gas Mst cmmn bid variable used under Alaska Leasing Law Alaska has held ver 50 majr Nrth Slpe and Beaufrt Sea Lease Sales since December 1964 Over 10 millin acres leased $1.9 B in Bnus Bid prceeds received; Over $6 B in current dllars Permanent Fund created in minimum f 25% f all bnus payments depsited int the Permanent Fund

8 Ryalty Part 1 State, as landwner, has right t enter int lease cntracts t cnduct il and gas explratin -- Alaska Lands Act f 1958 Building blcks f the lease cntract: Oil cmpany btains the right t use land fr il and gas purpses, and State f AK, as Landwner, receives percentage f prductin Mst Nrth Slpe leases require 1/8 ryalty, but terms can vary - Sme newer leases have higher rates/ sliding scale/ prfit share leases Terms fixed by cntract, neither party can unilaterally alter Ryalty bligatin is cntractual; des nt arise ut f State's svereign right t levy and cllect taxes Landwner has tw ways t receive ryalty: Ryalty in Kind (RIK) - receive physical il/gas Ryalty in Value (RIV) - receive mney Value measured at pint f prductin AK Cnstitutin requires 25% mineral lease rentals, ryalties and ryalty sale (including Fed) prceeds t Perm Fund

9 Ryalty Surces Part 2 State wned land - state ryalties - exempt frm taxes; balance f prductin subject t all applicable state taxes Federally wned land within state - federal ryalties - exempt frm state taxes; balance f prductin subject t all applicable state taxes Mineral Leasing Act has 90/10% State/ Federal Revenue-Sharing split Separate 50/50% arrangement NPR-A ANWR is uncertain 90/10% vs 50/50% Federally wned land nt within state (OCS) - federal ryalties -exempt frm state taxatin; balance f prductin als exempt S 1560 (Sen. Begich) prvided fr 37.5/62.5% split like GOM states $9 B bnus prceeds s far, Alaska Federal OCS Privately wned land in state - private ryalties - subject t special prductin tax rates; balance f prductin subject t all applicable state taxes

10 Crprate Incme Taxes Part 1 All crprate entities in Alaska pay incme tax Apprtinment methdlgy t determine Alaska slice f incme pie Nn-il and gas taxpayers Based n Water s Edge incme (US bundaries) Apprtinment frmula : Alaska Taxable Incme = U. S. Taxable Incme AK Prp U. S. Prp + AK Sales U. S. Sales + AK Payrll U. S. Payrll 1 3

11 Crprate Incme Taxes Part 2 Tax rate: 1% f first $10,000 2% n secnd $10,000 9% n ninth $10, % n amunt abve $90,000

12 Crprate Incme Taxes Part 3 Oil and gas taxpayers Tax is basically the same except fr tw majr differences: Wrld-wide incme subject t tax, nt just water s edge Payrll factr replaced by prductin factr Apprtinment frmula : Alaska Taxable Incme = Wrldwide Taxable Incme AK Prp WW Prp AK Sales AK Prductin + + WW Sales WW Prductin 1 3 Explratin & Develpment Tax Credit

13 Prperty Taxes Part 1 Similar t taxes paid by hmewners Methdlgy varies depending n type f il and gas prperty Explratin Prperty (1% f tax rle) - sales value, prevailing market cnditins, between willing buyer and seller Prductin Prperty (~2/3 f tax rle) - replacement cst new, less depreciatin based n ecnmic life f prven reserves Pipeline Prperty (~1/3 f tax rle) Replacement cst new less depreciatin based n estimated ecnmic life f reserves; Incme methd (net present wrth f future incme stream) als used; Sales value cnsidered when data available Tax rate equals 20 mills r 2% f assessed value A lcal Brugh and City tax is levied n State s assessed value subject t limitatins under AS The State s effective mill rate is 20 mills minus the lcal rate.

14 Prperty Taxes Part 2 Nt a self assessed tax Assessments and payments n yearly basis Industry and municipalities are bth interested parties Bth sides can appeal t State Assessment Review Bard Municipality prtin creditable against ttal State prperty tax due

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Cuyahoga County, Ohio 2012 First Quarter Budget Update

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