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Home My WebLink AboutCoal Policy Paper-Coal Leasing And Taxation 19812 Cova Policy Paper “COAL LEASING AND TAXATION ROPERTY OF: Alaska Power Authority DIG 334 W. Sth Ave. horage, Alaska 99504 Anchorage, / HOUSE RESEARCH AGENCY ALASKA STATE LEGISLATURE January 1981 House Research Agency Report 80-4 LEGISLATIVE INFORMATION OFFICE 1024 W. 6th Ave. Anchorage, Alaska 99501 Coal Policy Paper: LEASING AND TAXATION Susan E. Brody Anne H. DeVries HOUSE RESEARCH AGENCY ALASKA STATE LEGISLATURE January 1981 House Research Agency Report 80-4 INTRODUCTION A growing interest has been expressed in the expanded development of Alaska's coal resources, both for export to West Coast and Far East markets and for instate use. In light of this anticipated increase in coal production in Alaska, the Department of Natural Resources is revis- ing the State's leasing regulations and the Department of Revenue is considering changes to the Mining License Tax. This paper presents background information on current and proposed approaches to coal leasing and taxation, at both the State and federal levels. In addition, it discusses both the governmental objectives and probable economic effects of various combinations of leasing and taxation policies. This is the second in a series of papers being prepared by the House Research Agency for the State Legislature on the public policy implica- tions of coal development in Alaska. An earlier paper described poten- tial markets for Alaska's coal; subsequent papers will examine the use of coal to meet rural energy needs and surface mining and reclamation regulation at the state and federal levels. Page 2 SUMMARY OF FINDINGS Objectives and Impacts of Leasing and Taxation Policies + Leasing and taxation policies are structured to achieve a variety of objectives, such as: to generate revenues, in order to mitigate adverse social and environmental impacts of coal development to compensate the public for the depletion of a non- renewable resource to affect the timing and rate of development to encourage or discourage particular types of competition (small vs. large companies) and/or product development (such as encouraging value-added products over raw pro- ducts). + A number of factors influence what combination of leasing and tax policies Alaska adopts with respect to its coal industry: . the amount of desirable land it owns, for lease, versus the amounts owned by private citizens or the federal govern- ment the existence or non-existence of a well-established indus- try, including the necessary infrastructure the State's revenue requirements and the estimated cost of coal-related social and environmental impacts the competitiveness of Alaskan coal in the marketplace + The coal industry has several alternative ways of coping with the tax or royalty burden; firms may pass the taxes on to the consumers, absorb the costs in the form of lower profits, or shift it backwards to the resource owner (in the form of lower net profits bidding, for instance). + High taxes and royalty rates might delay development of Alaska's coal by rendering the coal less competitive with other energy sup- ply alternatives. On the other hand, low taxes and royalties may encourage development by shifting the burden of social and envi- ronmental costs away from the coal user to the State. Page 3 Resources * Estimates of Alaska's coal resources vary widely depending on the source. The State's Division of Geological and Geophysical Survey . estimates that there are 1.4 billion tons of measured reserves, 110.6 billion tons of indicated and inferred reserves, and 1.9 tril- Tion tons of hypothetical resources in Alaska, equalling 1.9 tril- jon tons. ere are additional reserves offshore, under the Cook Inlet. This is twice the amount of resources estimated by the U.S. Geological Survey. * Of Alaska's 1.9 trillion tons of onshore coal resoures, over 96% is located in the North Slope Basin. The other 4% is concentrated primarily in the Susitna Basin, which includes the Kenai, Beluga Yentna and Matanuska fields, and the Nenana Basin. However, most of Alaska's measured or indicated and inferred resources are in these fields. * The Usibelli Coal Mine is the only operating coal mine in the state, it is located within the Nenana Basin, south of Fairbanks. This mine produces between 700,000 and 800,000 tons of subbituminous coal annually. There is also a high level of interest in the development of the Beluga field, on the west side of Cook Inlet. The North Slope Basin is considered to be a difficult area in which to mine coal and from which to ship coal to market. * (Coal resources are owned by the Federal and State governments and by the Native Corporations. Although ownership data is incomplete, it appears that the federal government owns coal resources primari- ly in the North Slope Basin. The State's holdings include portions of the Susitna Basin. Native Corporations own some coal resources on the North Slope and on Beluga field. Revenues 5 For FY 80, the State received a total of $287,236 from a combination of lease royalties, rents and the Mining License Tax. The future taxable revenues generated by the coal industry, even assuming it is developed and reaches a 20 million ton/year level by the year 2000, is likely to be a small fraction of the current taxable reven- ues of Prudhoe Bay production. Page 4 Leasing Four federal coal leases are in effect in Alaska covering 2,593 acres. Two of these have been tentatively approved for conveyance to the State (1,915 acres) and two are being cancelled for nonpay- ment of rentals (678 acres). The State has 52 coal leases covering 102,989 acres; 63% of this leased acreage is in the Susitna Basin (including the Beluga field) and 31% is on the Nenana field (including the Usibelli Mine leases). Ninety-one percent of the State leased acreage is controlled by five companies: Mobil 0i1 Corporation (22%); the Bass/Hunt/Wilson group (20%); the Beluga Coal Company--owned by Placer Amex (17%); Meadowlark Farms--own yy ); and the Usibelli Coal Mine, Ince( 15%) The State's Department of Natural Resources (DNR) is proposing revisions to its leasing regulations. Public hearings on the draft regulations will probably be held in March and April of 1981. The regulations would establish criteria for competitive and non-com- petitive leasing, require that leases be producing in commercial quantities 15 years after issuance, allow the formation of "coal mining units" to increase efficiency, and set higher minimums for royalty and rental rates. Royalty rates will probably be established at a minimum of 5% of gross value at the mine mouth under the new regulations. Royalty rates are currently required to be at least 5 cents/ton of coal mined and marketed or used. Existing State leases have royalty rates ranging from 5 cents to 35 cents/ton, with the majority (60%) in the 5 cents to 15 cents range and another 33% at 35 cents/ton (including most of the recent leases). Thirty-five cents/ton is equivalent to approximately 1.5% of mine-mouth value. Taxation The only coal industry-specific tax levied by the State is the Mining License Tax. The marginal rate of this tax is 7% on mining net income over $100,000, 5% on net income between $50,000 and $100,000 and 3% on net income under $50,000; this tax applies to all mining companies which have a net income over $40,000. The Department of Revenue is considering revisions to the Mining License Tax for possible introduction in the first session of the Twelfth Legislature. The three major proposed revisions would: clarify who is subject to the tax and how the tax is to be calcu- lated; change the terminology in the bill from "net income" to "net Page 5 proceeds," and change the allowable method of calculating depletion from the percentage method to the cost method. The proposed tax rate changes would also make all mines earning under $40,000 sub- ject to the Mining Licence Tax. : There are three types of industry-specific taxes a state might levy on the coal industry: production taxes (severance taxes), income taxes, and property taxes. The Alaska Mining License Tax is an example of an income tax. Severance taxes are used by other west- ern coal producing states such as Montana and Wyoming. There have recently been proposals at the federal level to limit state sever- ance taxes to 12.5% of mine-mouth value. Page 6 COAL RESOURCES AND OWNERSHIP In 1979, the Division of Geological and Geophysical Survey of the Alaska Department of Natural Resources (DGGS/DNR) compiled data on Alaska's coal resources from a number of different reports and developed a "best estimate" of the extent of coal resources in the State. These statistics will form the basis of this brief discussion of Alaska's coal resources. In dealing with coal statistics, the following definitions are used: * Coal reserves (or measured resources) indicate that some drilling has been done on a field to determine the thickness of coal seams and their extent. * Indicated and inferred resources reflect a geological assessment of coal that geologists expect to find, based on limited data provided by outcroppings, etc. . Hypothetical resources reflect a geological assessment of resources that geologists expect to find based on analysis of the general geol- ogy of the land. Coal estimates are further divided into economic and subeconomic resources, based on a subjective evaluation of the economic viability of development. Coal estimates vary widely, particularly in Alaska. The State DGGS esti- mates are twice as high as those provided by the U.S. Geological Survey (USGS).! This disparity reflects the lack of extensive geological research in Alaska. Using the DGGS data, the following matrix illustrates the distribution of Alaska's resources, based on definitional category: TABLE I Coal Reserves and Resources in Alaska (millions of short tons) Reserves Resources peculative Economic Increasing Degree of Sub- Economic Economic Feasibility ffncreastng Degree of Geologic Assurance 1 McGee, D.L. and K.S. Emmel, Alaska Coal Resources, State of Alaska, Department of Natural Resources, Division of Geological and Geophysical Surveys, April 1979. Page 7 Major coal deposits are located on the North Slope, in the Interior, in Southcentral Alaska, and along the southern side of the Alaska Peninsula. Within each of these regions, coal occurs in major basins, lesser basins and in many scattered small deposits. A map of principal coal deposits (See Figure 1) shows the locations of the major basins and fields. The three major basins are the North Slope Basin, the Nenana Basin (where the existing Usibelli mine is located), and the Susitna Basin. The Yentna, Beluga and Kenai and Matanuska fields are all located within the Susitna Basin. The North Slope Basin has approximately 96% of Alaska's total coal resources (measured; indicated and inferred; and hypothetical). At least 60% of the coal beds are more than 3-1/2 feet thick, 10 foot beds are common, and 20 to 40 foot beds are known to occur. The coal underlying the Arctic coastal plain is a low-sulfur subbituminous coal with a low heating value. Closer to the Brooks Range, the coal becomes bituminous with a heating value of 11,000 Btu/1b. According to the recent National Academy of Sciences report, Surface Coal Mining in Alaska 2, North Slope coal resources will be difficult to mine: The difficulty of access, the general absence of human settlements and transport facilities, and the harsh environment of the North Slope will make coal mining there, particularly surface mining, difficult. Surface mining could have a severe environmental impact on the region's vegetation and permafrost, and perhaps on the wildlife. Optimum methods of controlling environmental impacts of surface-disrupting operations in Arctic areas, however, are not yet known; it may ultimately turn out that underground mining will be the most effective way to develop North Slope coal while achiev- ing the public goal of environmental protection. As noted above, the Susitna Basin has four fields: Beluga, Yentna, Kenai and the Matanuska. Coal in the Kenai field is subbituminous, low in sulfur, high in moisture, and has a heating value of 5,000 to 8,000 Btu/1b. As noted in Surface Coal Mining in Alaska "the Kenai field has not been mined in recent times because the coal beds are too thin for commercial development." The Beluga coal field also has subbituminous coal with a heating value between 7,000 and 9,000 Btu/1b. Three deposits within the Beluga field 2 Surface Coal Mining in Alaska, An Investigation of the Surface Mining Control and Reclamation Act o in Relation to Alaskan Conditions. Prepared by: Committee on Alaskan Coal Mining and Reclamation; Board of Mineral and Energy Resources, Commission on Natural Resources; Natural Research Council; National Academy of Sciences. 1980. Page 8 are the Chuitna, the Capps and the Threemile. Coal seams 10 to 40 feet thick run along the Chuitna River. A 50-foot thick bed, including clay partings, is located near the Capps Glacier. The Chuitna and Capps deposits are currently the subject of intense development interest. The Nenana Basin, the smallest of the three major Alaskan Basins, is estimated to have over 15 billion tons of coal resources, with about 6.8 billion tons measured, indicated and inferred and about 8.7 billion tons of hypothetical resources. According to the report, Surface Coal Mining in Alaska, coal of the Healy Creek field within the Nenana Basin is subbituminous, with an average ash content of 25%, a low sulfur content of .2%, and an average heating value of 8,200 Btu/1b. Table II provides a further breakdown of the reserves and resource estimates by major fields; Figure 2, which follows the table, summarizes all of the geologic characteristics of Alaskan coal deposits. TABLE II DGGS Estimates of Alaska's Coal Resources millions of short tons Indicated % of Measured & Inferred Hypothetical Total Total Kenai Beluga/Yentna Nenana Other** Sub-total North STope Basin Li Placer Amex estimates that there are about 1.5 billion tons of measured reserves on the Beluga field alone. ** Includes Bering River, Chignik/Herendeen Bay, Matanuska, Broad Pass, Eagle Circle, Jarvis Creek, Nation River and Yukon River. Of these, only the Matanuska field has a measured resource estimate of approxi- mately 100 million tons. Source: Alaska Coal Resources, by D.L. McGee and K.S. Emmel, Division of Geological and Geophysical Survey, Department of Natural Resources, April 1979. The authors compiled statistics from published geological reports to determine their “best estimate." House Research Agency/AHD 11/10/80 North Slope Basin q Point Hope Ri t Eagle-Circl Nulato oe Vj cide FAIRBANKS f ‘Nenana-Basin xy S (Includes Healy Creek, Lignite Creek, x Healy Jarvis Creek, Wood River, tani lanika fi pror Brosd Pass a Tatlanika and Teklanika fields) —- Yentna 5 Matanuska ANCHORAGE Q s g* Kenai O Is , S Cook Inlet SS Basin Q oo X PM Herendeen Bay CS . ? SOURCE: Adapted from Energy Resource Map of Alaska (1977). FIGURE } Sketch map showing location of principal coal deposits in Alaska. This chart is reproduced from Surface Coal Mining in Alaska: An Investigation of the Surface Minin Control and Reclamation Act of 1977 in Relation to Alaskan Conditions, National Academy Press, Washington, D.C., 1980. FIGURE 2 Geologic Characteristics of Alaskan Coal Deposits INDICATED AND INFERRED REGION | BASIN + FIELD AGEOF STRATA | RANK OF COAL | GEOLOGICSTRUCTURE | prcources (Short tons) 3 Arctic coastal plain | Mainly Cretaccous; | Subbituminous Fiat lying 60 to 146 billion 3 fields: Q Meade River & 2 Colville River, 5 4 ete. : zB Point Hope Mississippian | rn Highly deformed *. Unknown é , . = Healy Creek Tertiar; “i Moderately dipping a 440 million to 6 billion # a Lignte Gtk (Oligocene-Midcene) Supbieunineys + fault blocks and (ressrves estimated at = a Jarvis Creek gentle folds 120 million) 2 5 Wood River, = Ss Tatlanika 5 = Teklanika z ° a Zz EagleCircle Tertiary. Subbituminous to Open folds Unknown 5 dituminous ‘| 3° : Broad Pass Narrow graben 64 million Subbituminous Flat-lying to 2.7 to 10.2 billion 3 ios & to lignite gentle broad folds, a 3 minor faulting w < Beluga a S s Tertiary ‘Anthracite to | Complexly folded 108'to 130 million = 4 Matanuska subbituminous and faulted z 6 : . ¥ v Kenai Lignite to Predominantly 318 million tons in Z subbituminous Mat lying coastal areas; 200,000 5 Kenai offshore’ : teas of stripping coal ° - 2 Chignik Late Cretaceous Bituminous and Moderately folded ° and Tertiary subbituminous and faulted Herendeen Bay * Note: Includes coal occurrences at Nulato, Rampart, etc. Nothing is known about the extent of resources of these deposits; they are Late Cretaceous or Tertiary in age, bituminous and subbituminous in grade Source: Compilec from information provided by R.G. Schaff, Alaska Department of Natural Resources, Division of Geological and Geophysical Surveys. This chart is reproduced from Surface Mining in Alaska: An Investigation of the Surface Mining Control and Reclamation Act of 1977 in Relation to Reta Conditions, National Academy Press, Washington, D.c. 1980. FIGURE 2 (Cont.) REGION | BASIN + Unb pag RESOURCES | progaDLE MINING METHOD | THICKNESS OF COAL SEAMS Arctic coastal plain] © 402 billion to 4.0 Surface mining, possible 10-foot beds common; fietds: tillion (includes U.S. . underground mining in 20 to 40-foot beds Meade River Gevlogical Survey esti- permafrost known; most beds Colville River, mates for NPRA [National greater than $2 inches ete, Petroleum Reserve—Alaska} c : 5 Plus 22% added for coal Foothills fields ouiside of NPRA’ t, 7: = Point Hope Surface mining Maximum known 5 ° thickness 6 feet Healy Creek 8,7-billion, maximum Surface mining, possible Considerable variation Lignite Creek. based on area and underground mining between 2% and 60 feet Jarvis Creek outcrop patterns Wood River . Tatlanika * Teklanika 109 million Surface and underground One bed 22 feet thick mining ‘ . 27 villion 6 to 50 feet. Several : beds in excess of 20 fect + minin, Kenai 109 billion (to 2,000 | Surface mining, under: 2% to 10-foot beds foot depth) ground mining in sclected Kenai offshore’ . arcas Bering Riv 6 million to 3.6 billion Surlace and underground Inknown. Thick pod-like g-Rives ito depth of 3000 feet) minin; masses that thin rapidly % Small underground mines; Numerous beds less than 2 feet local small surface mines thick. Composite zones of cual and thin shale interbeds in : excess of 8.feet North Slope Basin Nenana Basin INTERION Cook Inict Basin SOUTHCENTRAL Page 9 There has not been a great deal of information compiled on coal resource ownership. Based on the limited information available, about 75% of the coal resources on the North Slope are owned by the federal government, with ownership of the remaining 25% split between the State and the Native Corporations. The State controls most of the land in the Susitna basin, with the excep- tion of acreage on the Capps deposit of the Beluga field which is owned by Cook Inlet Region, Inc., a Native Corporation. About one-quarter of the Nenana Basin is owned by the federal government with the rest held by the State. From this sparse information, it appears that the State controls most of the coal lands which are likely to be developed within this century. Page 10 FEDERAL AND STATE COAL LEASING POLICIES Existing Federal Leases In January 1981, after a ten year moratorium, the Department of Interior plans to resume competitive coal leasing on federal lands. The first lease sale is scheduled to occur in the Green River-Hams Fork coal region of Colorado and Wyoming, followed by lease sales in Uintna-Southwestern Utah and the Powder River region. An additional seven lease sales are planned in the western United States in 1982, 1983, 1985, and 1987. It is possible that the federal leasing schedule could be accelerated under the new Reagan administration. No plans have yet been announced for federal coal leasing in Alaska al- though this could occur on some federal lands in Alaska now that the ownership of Alaska's lands has been substantially clarified. As of January 1981, four federal coal leases were in effect in Alaska. Two of these leases are located in the Healy area. A patent was issued on December 2, 1980 for lands in one lease covering 880 acres. Juris- diction over the lease will be transfered to the State upon its removal from federal records (approximate date: March 1, 1981). Another coal lease of 1,035 acres will also transfer to the State upon relinquishment of a small Recreation and Public Purposes lease. The other two federal leases are being cancelled because payments are in arrears and the lease acounts are not in good standing. In addition to the leases, four preference right lease applications (PRLA's)3 were in effect in January 1981. A patent was issued to the State on December 2, 1980 for the subsurface estate of lands in the Healy area underlying a PRLA of 160 arcres, and the case will be transferred to the State shortly. On December 30, 1980, an ‘initial showing’ was filed ona PRLA located within the Jarvis Creek Coal Field; this lease application, encompassing 2,560 areas, will either be converted to a lease or rejected in 1981. The other two PRLA's are located near Point Lay and will be conveyed in FY 81 to either the State or to the Artic Slope Regional Corporation. A listing of all federal leases and preference right lease applications is included in Appendix A. 3 Preference Right Lease Application is an application for a lease which will be issued if the applicant has discovered commercial quantities of coal. The application can be made for lands under prospecting permit before enact- ment of the federal Coal Leasing Amendments Act of 1976. Page 11 Federal Leasing Policies The Federal Coal Leasing Amendments Act of 1976 (amending 30 U.S.C. 181 et. seq.) substantially revised federal coal leasing policies and proce- dures. New coal management leasing regulations, effective July 19, 1979, abolished prospecting permits that confer a preference right to a coal lease (43 CFR 3430.0-7). All PRLA's now on file shall be transferred, leased, or rejected by December 1, 1984, and in the future all coal on federal lands is to be leased competitively at not less than fair market value. In order to explore for coal, an exploration license must be granted. Commercial coal exploration may not be undertaken without such a license, which is issued for a two-year period. The license may not be extended, but may be terminated and then reissued covering the same lands for another two years. The license carries no preferential right to a lease. The other major provisions of the federal coal Teasing program are listed below. * Rentals of not less than $3/acre per year are required. * A minimum royalty rate of 12.5% is imposed for surface mining and a minimum royalty rate of 8% is imposed for underground mining. In certain cases of underground mining, a minimum royalty rate of no less than 5% may be allowed by the authorized officer. + Lease terms are for 20 years and for so long thereafter as coal is produced annually in commercial quantities. Leases not producing in commercial quantities at the end of ten years are terminated. + At least half of the acreage offered competitively in any one year must be leased under a deferred bonus bidding system, payable in five equal installments, making it easier for small companies to compete. + No person or corporation may hold more than 100,000 acres of leases. + A lease bond shall be furnished for each lease in an amount determined by the authorized officer. . A portion of all federal coal royalties must be paid to the State in which the leased lands are located to provide public services and mitigate community impacts. Alaska is the onl state which is entitled to 90% of all royalties collected by Page 12 the federal government on lands within the State; other states are entitled to 50%.4 . A reasonable number of leasing tracts must be reserved and offered for lease to public bodies and/or smal] businesses in compliance with the Small Business Act. Existing State Leases As of November 1980, the State of Alaska had 52 coal leases covering 102,989 acres. Of this leased acreage, 63% is on the Beluga field, 31% is on the Nenana field in the Healy area, 3% is on the Matanuska field, and 3% is at Upper Beluga Lake. In addition to the coal leases, there are six applications to convert prospecting permits to leases. These permits awaiting conversion represent a total of 15,849 acres and are located on the Kenai field. There are also 415 applications for prospecting permits which have accumulated over the last 5 years due to a moratorium on the issuance of new State coal prospecting per- mits. These permit applications cover 1,989,555 acres, 90% of which are located in the Yentna-Susitna area. A listing of all State leases and conversion to lease applications is contained in Appendix B of this paper. Five leaseholders control 91% of the coal acreage that is leased by the State, as shown in Table IV. Of the six, one lessee - Usibelli - is producing, two - Placer Amex and BHW Group - are known to be actively seeking markets for coal, and one - Mobil - is known to be involved in geologic research on thé lease resources. The intentions of Meadowlark Farms are unknown. 4 This allocation is established in PL-94-579, Federal Land Policy and Management Act of 1976, section 317. AS43.05.210 earmarks 37.5% of these revenues for the construction and maintenance of roads or for the support of public education. The other 52.5% may be allocated by the Legislature for whatever purposes it chooses. Page 13 The following table shows the current lessees of the State's leased acreage by field. TABLE IV State Coal Leases--by Field, by Lessee a Mobil BHW BCC Farms UCM Other Total Beluga 23,080 20,471 17,686 800 --- 2,390 64,527 Healy --- --- --- 12,820 15,832 3,520 32,172 Matanuska --- --- --- --- --- 3,170 3,170 Upper Beluga Lake --- --- --- 3,080 --- --- 3,080 Kenai --- --- --- --- --- 40 40 Key: Mobil - Mobil 0i1 Corporation, Denver, Colorado BHW - Bass/Hunt/Wilson group, represented by Starkey Wilson, Dallas, Texas BCC - Beluga Coal Company, owned by Placer Amex, San Francisco, California Farms - Meadowlark Farms, owned by AMAX, Cincinnati, Ohio UCM - Usibelli Coal Mine, Inc., Healy, Alaska Source: Department of Natural Resources, September 1980 In addition to the State and federal governments, the Native Corporations also own lands with potential for coal development. Cook Inlet Region, Inc. (CIRI) has acquired two of the State's leases, (totalling 8,240 acres), held by Placer Amex on the Capps deposit at Beluga. CIRI and Placer Amex are co-sponsoring a study of the feasibility of producing methanol from Beluga coals; the $3.8 million study is being funded by the federal Department of Energy as part of its program to accelerate the development of alternate fuels. ” State Leasing Policies A moratorium on the issuance of new State coal prospecting permits has been in effect for the last five years pending changes in the State's coal management program. A number of attempts have been made to modify both the coal leasing statute (AS 38.05.150) and the regulations (11 AAC 84.100). Regulations were revised, but never formally adopted by the Department of Natural Resources in 1978. HB 420, which was introduced in 1979, and then withdrawn by Representative Miles, would have incorpor- ated many of the new federal coal leasing standards into State law. In 1980, HB 955 was introduced and considered by the House Resources Committee. This bill would have retained some of the provisions of the existing sta- tute while incorporating many of the changes in the leasing regulations Page 14 proposed by DNR in 1978. After the bill died in committee, DNR decided to move ahead with revisions to their leasing regulations without propos- ing changes to the existing statutory provisions. Regulations are now in the process of being drafted and will be circulated for informal review in January. Public hearings on the new regulations are expected to be held in March and April of 1981.~ Coal Leasing Statutory Provisions. The primary requirements of Alaska's existing coal leasing program, as contained in AS 38.05.150, are described below. A copy of the statute is included in Appendix C. It is within this statutory context that DNR will propose regulation changes. * Acreage Limitations. No person may hold more than 46,080 acres (2 townships) of coal leases and/or permits on State lands. Additional acreage (up to 5,120 acres) may be leased if the applicant can demonstrate that the additional lands are eco- nomically necessary to his business operation. Coal lands are divided into tracts of 40 acres or multiples of 40 acres for leasing purposes. + Prospecting Permits and Leases. Prospecting permits may be issued when prospecting or exploration work is necessary to determine the existence or workability of coal deposits. Prospecting permits may not exceed 5,120 acres and may not be issued for more than a 2-year term. If within two years, the permittee demonstrates that the lands contain coal in commer- cial quantities and submits a coal recovery plan, the permit is converted to a lease. No specified lease term is required by State statute; leases are continued indefinitely as long as there is diligent development and continued operation of the mine. If not obtained through conversion of prospecting permits, leases may be awarded to qualified applicants either through competitive bidding or other non-competitive means as determined by the Commissioner. * Royalties. The minimum royalty rate that may be charged is 5 cents/ton; no ceiling on the royalty rate is specified. Actual royalty rates charged have ranged from 5 cents to 35 cents/ton. Until 1978, royalty rates were usually 5 cents to 15 cents/ton; since early 1979, most royalties have been set at 35 cents/ton. Of the 52 leases currently outstanding, two are at 5 cents/ton, 20 are at 10 cents/ton, 9 are at 15 cents/ton, 1 lease is set at 30 cents/ton, and 17 leases have rates of 35 cents/ton. Royalty rates, once established, are effective for a period of not more than 20 years, at which time they must be re- assessed and may be renegotiated at the discretion of the Commissioner. Although several of the State leases have been in existence for over 20 years, their royalty rates have not been readjusted since the inception of the lease. Page 15 . Rentals. Rental fees may not be less than 25 cents/acre for the first year of the lease, increasing to a 50 cents/acre minimum for the second through fifth years, and with rentals not less than $1/acre for each year thereafter. Royalty/Rental Discretion. The Commissioner may waive, suspend or reduce the royalty or rental on an entire leasehold or any tract whenever, in his judgment, it is necessary to do so to promote development or when the lease cannot be successfully operated under its terms [AS 38.05.140(d)]. Allocation of Revenues. Lease revenues are allocated in the following manner: 25% to the Permanent Fund, 5% to the Renew- able Resource Fund, 1.5% to the Mental Health Fund, .5% to the Public School Fund, and the remainder to the General Fund. Prior to the fulfillment of the State's obligation on June 30, 1980, 2% had been allocated to the Alaska Native Claims Settle- ment. All monies allocated to the Permanent Fund go directly into that Fund; monies allocated to the other funds must, in turn, be appropriated to those funds by the Legislature. As noted above, DNR intends to work within these statutory provisions when revising the leasing regulations in the State's administrative code. Proposed Regulations. Although the Department of Natural Resources does not expect to have new regulations drafted until January, the Division of Minerals and Energy Management has issued a brief report outlining the probable content of the regulations. According to the report, the following issues will be addressed: Leasing Methods. Both competitive and non-competitive leasing of coal rights on State lands would be allowed under the new regula- tions, depending on the circumstances. The Commissioner would be allowed to offer land for competitive coal leasing if: the land contains commercial deposits of coal; substantial geological or geophysical evidence exists of the probable existence of signifi- cant commercial deposits; there is an interest in competitive leasing of the land. A variety of competitive leasing methods would probably be allowed, including cash bonus, royalty share, net profit share, or a combination thereof as the bid variable. Non-competitive leasing would be authorized if the lands do not qualify (by the criteria noted above) for competitive leasing, or if no bids are submitted for land offered for competitive leasing. Existing regulations do not currently contain criteria for the Department of Natural Resources to use in determining whether to lease through competitive or non-competitive means. Page 16 Lease Terms. Under the new regulations, leases could be issued for indefinite periods of time but diligent development and continuous operation of the lease would have to be demonstrated and the lease would have to be producing coal in commercial quantities within 15 years after the lease is issued. The requirement of production of coal in commercial quantities could be suspended if operation of the mine is delayed or interrupted because of "force majure" (strikes, climatic conditions, or other unavoidable or unforseeable circumstances); or, if the lessee makes payments in place of production in an amount determined by the Commissioner. Although diligent development and continuous operation are cur- rently required under existing regulations, a time limit within which the lease must be producing commercial quantities of coal is not specified. + Royalties. Royalties would be set at a minimum of 5% of gross value at the mine-mouth under the new regulations. The royalty payment would be subject to adjustment at intervals of not more than 20 years after coal production begins. Under the State's existing coal leasing regulations, royalty rates are set at a minimum of 5 cents/ton of coal mined and marketed or used. With a sale price today for coal of about $23/ton (average mine-mouth price for Usibelli coal in 1980), 5 cents/ton is equivalent to approximately .2% of value. The cents per ton method currently in use is considered to be easier to administer than the percentage of value method which is being proposed. The percentage of value approach is often difficult to use because the "value" of the coal (or sale price) cannot be readily determined in many instances. The majority of coal sales are through long-term contracts and the gross sales price may vary widely from contract to contract. Furthermore, the actual gross sales price is generally only available after the actual heating value of the coal is determined by the customer. An interim price could be used to estimate the gross sales price, but it would require a year-end adjustment when the actual heating value of the coal was determined. Aside from these disadvantages, the percentage of value method does provide an automatic way of tracking inflation. Rentals. DNR plans to establish rentals at higher rates than the minimums currently specified in the existing regulations, but they have not yet determined exactly what the proposed rates will be. As is currently the case, all rental payments would be credited against any royalties due to the State. Rental rates would be adjusted at least every 20 years. Page 17 , + Work Commitments. Under the new regulations, the Commissioner of Natural Resources would be allowed to impose minimum work; commit- ments on the lessee, with possible penalty provisions if the commit- ments are not fulfilled. Existing regulations do not mention work commitments, although there is a minimum expenditure requirement for mine development and operations; however, the minimum is not established in the regulations. + Conversion of Prospecting Permits to Leases. The new regulations would establish criteria to be used in determining whether commer- cial quantities of coal were being produced. The regulations would also clearly define what must be submitted in a mining plan in order to obtain approval for conversion of a prospecting permit to a lease. Under existing regulations, the term commercial quantities of coal is not defined, nor are the contents of the mining plan specified. * Coal Mining Units. The new regulations would encourage the establishment of coal mining units. This would allow or, in some cases, require the lessees of adjoining coal leases to form a coal mining unit to achieve a more efficient operation. Under such a unit, leases under separate ownership could be developed as one mine. No such possibility is provided for in the State's existing regulations. Coal Leasing Provisions in Other States Many states have not found it necessary to develop state leasing provi- sions because the coal lands within their borders are in federal or private (rather than state) ownership. Wyoming, Montana and Colorado are three of the western states which do have coal leasing statutes in place. We will briefly review their leasing requirements here so that the reader may compare them to the existing and proposed leasing require- ments in Alaska. In Montana,° the Board of Land Commissioners leases land for exploration and mining of coal. The principal provisions in Montana's leasing law are as follows: * Competitive bidding is required after the land has been evaluated to determine the fair market value of the reserves. Leases cannot be awarded for less than fair market value. 5 Much of the information on Montana and Wyoming's leasing requirements is taken from the October, 1979 Status Report of the House Lands Subcom- mittee, Alaska State Legislature, by David Rogers. Page 18 * Leases are issued for ten-year terms, with renewal as long as coal is produced in commercial quantities. If there is no commercial production the lease terminates after the primary term. * Royalty rates may not be less than 10% of the price or value of the coal produced and prepared for shipment at the mine. Royalty payments are set based upon the type and grade of coal to be mined, the characteristics of the reserve, shipping and marketing facilities and other factors. * Rental payments may not be less than $2/acre per year. * Rentals and royalties are subject to adjustment after the 10- year primary term and every five years thereafter. * Special coal permits may be issued--to individuals and school districts. For a family, not more than 30 tons may be mined, and a flat sum of $5 is charged. A school district is allowed a similar permit, with the provision that any coal over 30 tons will be charged at 12.5 cents/ton. In Colorado, the State Board of Land Commissioners has established a 10-year initial term for all leases. All leases may be extended by the production of minerals under the lease. Leases may also be renewed if the lessee has diligently attempted to begin production during the initial term. Other provisions of Colorado's leasing program are as follows: + $1/acre per year rental is charged on all leases. * Royalty rates are established at 12.5% of gross value for surface mined coal and 8% of gross value for coal mined underground. + Advance royalties must be paid to the State if there has been no production at the beginning of the sixth year of the lease. The advance royalty is $6/acre for the sixth year, increasing to $10/acre for the tenth and subsequent years. If production begins prior to the expiration of the initial term, the amounts paid as advance royalties may be credited against the production royalty. 6 Existing infrastructure in Montana makes it easier to bring a lease into production quickly; in Alaska a 10-year term would probably be too short a period in which to develop a lease. Page 19 In Wyoming, leases are also issued for ten-year periods. Lessees have a preferential right to renewal of a lease if mineral production is occurring. If there is no production from the lease, the Board of Land Commissioners may open up bidding for the lease and the existing lessee is allowed to meet the terms of the highest bid offered by someone else for the lease. Other leasing provisions are listed below. * Royalties may not be less than 5 cents/ton; the Board may set higher royalties. + Annual rentals are 50 cents/acre for the first five years of the lease and $1/acre thereafter. + Mineral leases for vacant prospecting lands (not known to contain a commercial deposit) can be issued at the discretion of the Commissioner of Public Lands; priority is given to the first qualified applicant filing an application. It is important to note that certain leasing provisions, such as the royalty rate, should not be evaluated in isolation from a state's taxa- tion policies. State revenues from coal leasing are often generated through a combination of leasing royalties and severance or other taxes. In addition, it is often difficult to compare leasing strategies in different regions because the economic factors influencing the leasing provisions and the land ownership patterns are different. Page 20 TAXATION POLICY Federal Taxation Policy There are two major aspects of federal tax policy which affect coal pro- duction: the coal depletion allowance and two “impacted-related" produc- tion taxes. A third, the proposed federal limit on state taxation of coal, will be considered later in this paper. Coal Depletion Allowance. The coal depletion allowance compensates a coal production company for the declining value of its property as coal is produced. Depletion is the conceptual equivalent of depreciation, as it is a non-cash ‘expense’ which reduces taxable income, hence a firm's tax liability. Because depletion reduces its tax payments, the firm has more cash to invest in its business; a company may be showing little or no income, but it may enjoy a strong cash position because of the deple- tion allowance. When a property is leased, the tax benefit of the depletion allowance is shared between the firm mining the land and the lessor. An example of how the depletion allowance is calculated is provided later in this paper. Depletion is calculated for federal taxes on a cost or percentage basis. The firm is required to use the method providing the largest aente tion. Under the cost method, an initial estimate of the maximum unit production of a coal property is determined. This amount is divided into the adjusted cost basis of the property to determine the amount of cost depletion per unit. This per unit cost is multiplied by the amount of annual production to determine the amount of depletion allowable for that year. For instance, if a property could be expected to produce 100 million tons of coal and the firm paid $100 million in lease bonus for the economic rights to the resource, the cost depletion allowed would be $1/ton. If the firm mines 10 million tons in its tax year, then it could reduce its income by $10 million in depletion. As estimates of the productive capacity of the field change, the amount of cost depletion per unit is adjusted. A much simpler method of calculating depletion is as a percentage of revenues. Using the percentage depletion method, an operator's allowance is defined as a specified percentage of his revenues. In the case of coal, the law specifies a depletion allowance of 10% for coal. In other words, 10% of a coal production company's revenues may be subtracted from those reve- nues in a calculation of taxable income. The State of Alaska has adopted the federal model in its Mining License Tax structure. Page 21 "Impact-Related Taxes". There are two coal production taxes levied by the federal government which are intended to relieve specific adverse impacts of coal production. These are the taxes for Black Lung Disease Fund and the Abandoned Mine Land Fund. Tax receipts from the former tax are dedicated to the relief of black lung victims; this tax is levied at a rate of 50 cents/ton for underground coal and 25 cents/ton for strip- mined coal. In addition, there is a 65 cents/ton reclamation tax. Pro- ceeds from this tax are applied to solving the problems created by unsound mining practices that were followed before the passage of the Surface Mining and Reclamation Act in 1977. State Tax Policy In addition to the state corporate income tax, Alaska has one other levy which directly affects the coal companies--the Mining License Tax. The provisions of the Mining License Tax (MLT) are found in Alaska Statutes 43.65 and are summarized below. A copy of the legislation is found in Appendix D. The law was enacted prior to statehood and only minor technical changes have been made since. The Department of Revenue has drafted proposed revisions to the MLT; these are reviewed in the next section. The MLT is a tax on the net income from mining operations and lease royalties. Conceptually, the MLT is more similar to Alaska's Oil and Gas Corporate Income Tax (AS 43.21) than it is to the severance taxes levied on coal production in the western states. Other taxing approaches will be reviewed in a later section. The MLT is levied on all the mineral resources extracted in the State, including "valuable metals, ores, minerals, asbestos, gypsum, coal, marketable earth, or stone." This summary will be limited to the pro- visions which pertain to coal operations. In the MLT, mining is defined as “an operation by which (coal) is extracted, mined, or taken from the earth" and includes "the ordinary treatment processes (defined as "cleaning, breaking, sizing, and loading for shipment") normally applied by mine owners or operators to obtain the commercially marketable product, but does not include the extraction or production of oil and gas." The MLT is levied on the net income from mining operations and lease royalties (to private parties) at a progressive rate. If a company or lessor has more than one income-producing property, they must be aggre- gated for tax purposes. No tax is levied on a firm with a net income Page 22 less than or equal to $40,000. For those firms with incomes over $40,000, the following schedule applies: That Portion of Net Income Tax Rate Applied Under $50,000 3% Between $50,000 and $100,000 5% Over $100,000 7% Net income is calculated differently for mining income and royalty income. The net income from a mining operation is equal to the revenues from coal sales less deductions ee operating expenses and an allowance for depletion of the resource. The lessor's net income from royalty payments is calculated as the revenues from royalties less the lessor's share 0 the depletion allowance. The total amount of depletion allowable under the Mining License Tax is 10 percent of the gross income (revenues) from the property, not to exceed 50 percent of net income calculated without respect to depletion. The total amount of depletion is divided between the mine operator and the lessor, based on the amount of royalty payments. The lessor is able to subtract 10 percent of royalty payments to compute his net income, he is allowed no other deductions. The mine operator takes the remaining depletion allowance. The following simplified example illustrates these provisions of the MLT; this example is for illustrative purposes and does not reflect _any assumptions about the profitability of a mine or Tease holding. Page 23 Mining License Tax Example (in thousands of dollars) Mine Operator Lessor Coal Revenues $100,000 --- Lease Income (Expense) (10,000) $10,000 Basis for Depletion Allowance 90,000 10,000 Depletion Allowance 9,000 1,000 Other Cash Expenses 65,000 --- Depreciation of PP&E 5,000 --- NET INCOME FOR MLT 11,000 9,000 MLT 767 627 Net Income for State Income Tax* 10,233 8,373 State Income Tax - 9.4% 962 787 Net Income for Fedeal Income Tax 9,271 7,586 Federal Income Tax - 46% 4,265 3,490 AFTER TAX INCOME $ 5,006 $ 4,096 * Assumes that the operator has 100% of his operations in Alaska and not subject to the provisions of the Multistate Tax Compact. House Research Agency/AHD 12/6/80 Both mine operators and lessors are exempt from the MLT for three and one-half years after production begins from a new mining operation. The Department of Natural Resources certifies when such production does begin. Private lessors, primarily the Native Corporations, would not be taxed for rents received prior to production or during production; their tax liability is limited only to royalties received after the three and one- half year exemption period. Obviously, none of these provisions apply to royalty income received by the State. Page 24 Possible Revision of the Mining License Tax The Department of Revenue is currently considering revisions to the Mining License Tax, for possible introduction in the first session of the Twelfth Legislature. There are three major changes incorporated in the draft revision; it clarifies who is subject to the tax and how the tax is to be calculated, it changes the terminology in the bill from “net income" to “net proceeds" and it changes the allowable method of calculating depletion from the percentage to the cost method. Other proposed changes include the following: + The imposition of an annual mining license fee of $25. None is required under the current law. + The inclusion of mines whose net income (proceeds) is less than $40,000. Under the current law, only those mines whose income is over $40,000 but under $50,000 are subject to a 3% tax. The revision makes all mines earning under $50,000 subject to the 3% tax. + The provision of a credit against MLT tax liability for 10% of expenditures made in Alaska during the tax year for the explora- tion of new mineral deposits. No credit is allowed in the current law. In addition, there are a number of procedural changes affecting such things as filing deadlines. Alternative Approaches to Coal Taxation Generally, there are three types of industry-specific taxes a state might levy on the coal industry, as outlined below: * Production taxes, levied either as a fixed amount per unit ($/ton) or as a percentage of value. + Income taxes, levied on any number of different income calcu- Tations which vary the allowable receipts and expenditures. + Property taxes, levied on the value of property, usually with allowances for local taxes. In addition, a state is able to generate tax revenues from the coal industry through corporate and personal income taxes and worker taxes, such as unemployment compensation. As none of these is an industry- specific levy, they will not be considered in this section. Page 25 Production Taxes. Montana has levied.a coal severance tax which is a combination of appoaches, including both $/unit and percentage of mine- mouth value. The tax is structured so that the company pays either a fixed amount per ton or a percentage of value, whichever is higher. The Montana tax is also designed to tax lower-value coals at lower rates. Neither of these methods of computing a severance tax considers the company's ability to pay. Nor do they consider the different production costs that might be incurred at different mines to produce coal of the same quality and value. In addition, production taxes may be set at levels which deter maximum recovery, even at lower cost mines. As the mine operation goes deeper, costs increase. If the company is unable to pass both the added mining cost and the tax along to consumers, it may close that seam or mine. It is for this reason that mine operators deem production taxes "anti- conservationist". Of the two approaches, the $/ton method has the advantage of computa- tional simplicity. It is more difficult to use a percentage of value approach because the selling price of coal to different customers varies according to the quantity of coal demanded and the length of the contract term. In addition, the customer pays for coal on a delivered Btu/1b. basis; as a consequence, there are periodic payment adjustments which reflect the actual heating value of the coal delivered. Consequently, state personnel would be required to monitor a company's calculation of mine-mouth prices. The percentage of value approach does have the advan- tage, however, of being automatically tied to inflation. Under a $/ton method, action would be required periodically to raise the tax, unless provisions for automatic indexing had been established. Income Taxes. Net income and net proceeds taxes fall within this cate- gory. The major difference between the two is in the deductions from gross revenues which are allowed. A net income tax is usually structured to allow the deduction of both direct’ and allocated expenses from one, or more than one, mine operation. With a net income tax, an operation with more than one taxable property can offset income from one mine with losses from another in its computaton of taxable income; for instance, Alaska's mining license tax requires the aggregation of mining properties in the tax computation. A net proceeds tax, on the other hand, limits the deductions to those directly associated with the mining operation of a single mine. Both of these taxes are more difficult to administer than either of the severance taxes mentioned earlier. Both require state personnel to monitor the accuracy of the tax return. They also benefit a high-cost mining operation, since the tax is figured net of some, if not all costs; whereas, the severance taxes are levied without regard to operating costs. Page 26 Property Taxes. A state also has the option of levying taxes on the property value of the coal production operation. As with any other property tax, this involves the problems of accurate assessment of the worth of amine. In addition, the state would have to determine whether or not it should tax the reserves in the ground, and if so, how their value could be determined. West Virginia taxes the property of the coal mines, rather than taxing production or income. In considering which is the appropriate tax to levy, clearly the state has to consider the amount of property that is privately owned. It would not gain much revenue from property taxes if it or the federal government owns the majority of the reserves in the state. Possible Federal Regulation of State Taxation In the past session of Congress, there were heated debates over attempts to limit state severance taxes on coal to 12.5% of value. Montana, with a 30% tax, and Wyoming with 17.5% tax are the targets of these legislative attempts. The following excerpts from the Los Angeles Times indicate the highly emotional tenor of the debate: For the Coal Consuming States: "But it is Alaska, not California, that critics of the energy- rich states are citing these days as the prime example of a tax-hungry area enjoying prosperity at the expense of others... (now quoting Rep. Philip R. Sharp, D-Ind.) ‘It is politically easy to bid up the rate of taxation,' he said, when the taxes are chiefly paid by people in other regions. Sharp acknowledged that the coal states will have major costs of social disruptién and environmental cleanup linked to their expanding output. But what is to prevent them from raising even more taxes than they need for their purposes? Sharp asked. ‘What's to prevent them from following Alaska?'" For the Coal Producing States: "The domestic energy producers respond (to the accusation of being a ‘new, home-grown OPEC' gouging consumers) with a fierce rhetoric of their own, denying that they will victimize their fellow Americans. Coal producing states ‘are not going to be made a national sacrifice area to air-condition Detroit and heat Minneapolis, and they are not going to allow the development of this energy without requiring the energy companies and the consumers to pay the full cost of that development,' said Byron L. Dorgan, state tax commissioner in North Dakota, an increasingly important source of western coal... Page 27 The country must pay the tab for the sacrifices the energy-rich states will make, Rep. Richard B. Cheney (R-Wyo.) insisted. His state is to have a massive synthetic fuels industry, with liquid and gas fuels produced from coal ‘because the folks at Seabrook and Harrisburg did not like nuclear power, and the folks in New Jersey do not like to drill for oil. . . A few folks in Wyoming would just as soon forget it, but we don't have that option.'" At this point, it is unclear whether the bill(s) will be resurrected again in the next session of Congress. In addition to this legislative action, the U. S. Supreme Court is hearing an appeal of a Montana court ruling upholding Montana's 30% severance on coal. Midwestern utilities originally brought the suit claiming that such a 'high' tax denies them the protection of the Interstate Commerce Act. The tax has the effect of increasing the monthly utility bills of affected utility customers by about 1% to 2%. Page 28 OBJECTIVES AND IMPACTS OF LEASING AND TAXATION POLICIES State mineral leasing requirements and taxes are intended to serve a variety of objectives from environmental protection to revenue generation. Some of these objectives are examined below. In a few cases, actions to achieve one objective may conflict with those needed to meet other objectives. In order to anticipate these possible conflict, this section analyzes how different taxation and leasing mechanisms may affect the behavior of the industry. It is important to note that although taxation and leasing policies have been considered together in this paper, there are some significant differences between the two. Taxation policy affects coal production on private, state and federal lands equally, while state leasing policy only applies to development on state-owned land. Revenue Generation The royalties, rentals and taxes discussed in this paper are all designed to generate revenues for the State treasury. These revenues can then be used for a variety of purposes, including: ° to finance government supervision and regulation of coal development ; ° to finance the development of infrastructure to support private sector development (harbors, roads, railroads, etc.) . to mitigate adverse social and environmental impacts of coal and synthetic fuels development; . to compensate the public for the depletion of a non-renewable resource and to allow for economic readjustment once the non- renewable resource has been exhausted. The administrative, social and environmental costs of coal development are often referred to as "externalities" as they are costs not absorbed by the producing companies and their customers. It is often argued that these costs should be treated as part of the true costs of production and that taxes are a way of requiring industry to internalize these costs. Taxes may also be the only mechanism available to the State to capture revenues from coal production on private lands as a state's royalty rates apply to production on State land only. It is the primary function of royalties to capture the revenues asso- ciated with the "economic rent" that may be inherent in the resource. Economic rent is the surplus value of the resource over and above the costs of development and production. Economic rent may be described as follows: Page 29 Pure economic rent is peculiar to nonrenewable resources, such as land or minerals, whose supply is theoretically fixed, at least in the near term. According to this concept, the finite nature of mineral resources results in mineral prices higher than necessary to induce production at desired levels. Thus the price received by mineral producers includes a portion that represents pure sur- plus, or economic rent, that can be taxed away without affecting allocation of resources or production levels. Timing and Rate of Development Taxation and leasing policies can have a substantial effect on how and at what rate a resource is developed. High royalty and taxation rates might postpone development by rendering the coal non-competitive with other energy supply alternatives until the prices of competing energy supplies (like oil, gas and other coals) rise. Conversely, low taxes and royalty rates might enable coal prices to remain at a lower level, thus improving the competitive advantage of coal vis a vis other sources of fuel. In addition to the impacts of taxes and royalties on the rate of resource development, decisions on when and how much state land to lease clearly affect the rate of development. The rate of development will, in turn, determine the flow of revenues to the State treasury and will affect the creation of employment opportunities. Industry Competition and Product Decisions The State may also use its tax and leasing policies to influence the types and size of the companies that operate in the State or the pro- ducts they produce. Tax or royalty breaks for smaller companies serve to enhance their ability to compete in export or local markets. For example, the State of Montana offers special royalty rate treatment to very small operations (under 30 tons per year) run by families and school districts. Bidding methods also influence which kinds of companies will operate in the State; cash bonus bidding tends to favor larger companies that can afford large up-front costs, while smaller-scale companies benefit from lease sales where a share of net profits is the bid variable. The new federal leasing regulations have taken several steps to encourage wider access to federal coal leases including the requirement that 50 percent of federal coal lands must be leased under a deferred bonus bidding system that makes it easier for small companies to compete. 7 Natural Resource Taxation: Perspectives, Resources, & Issues, edited by William Schweke, February 1980. Page 30 Tax advantages for coal derivatives, such as methanol, might shift emphasis from export of a raw material or coal-oil mixture, to a syn- thetic product. In addition, tax penalties on oil and gas production and tax breaks for coal production, may shift investment by energy com- panies who control both types of energy sources to the latter. Economic Behavior of the Industry When a state levies a tax or extracts royalty payments from the coal industry, the firms in the industry have several alternative ways of coping with the tax or royalty burden, including passing it along to consumers or absorbing the costs in the form of lower profits. A com- pany would be able to pass the tax forward to its customers if: * the product is sold on a long-term basis where the risks of higher taxes and royalties can be shifted contractually to the buyer; * the demand for the product is not sensitive to increases in the price (i.e., inelastic demand) and the producers subject to the tax dominate the market; * the producers subject to the tax enjoy cost advantages over competing sources of supply which are not subject to the tax. The ability to pass along severance taxes to consumers of electricity is illustrated by the behavior of coal companies within the states of Montana and Wyoming when they export electricity to the Midwest. Not only do the firms within these states enjoy the market power provided by long-term contracts and inelastic demand, they also enjoy a cost advantage because of their proximity to market. This permits the states to impose higher taxes without affecting the marketability of the product. If a company is being taxed and it does not enjoy one of the three market conditions discussed above which would allow it to pass the tax forward to consumers, it may be able to shift the tax backwards to the resource owner. Depending on the structure of the bidding system for acquiring leases, the company might choose to bid a lower royalty share or percent- age of net profits to compensate for the increased tax burden. If it cannot make a satisfactory short-term adjustment, over the long term it may decide to move its capital resources elsewhere. In a situation where the tax burden cannot be shifted forwards or back- wards, it remains with the production company. If the taxes or royalty payments significantly diminish profitability over the long term, the company would probably move additional investment to other locations which offered better long-term prospects. Page 31 A coal company's location decisions within a state may also be influenced by leasing and taxation policies. Because taxation affects all lands within a state equally, a company is not likely to be influenced in its location choices by taxes alone. However, royalty rates as established in a state's leasing program only affect development on state lands. Therefore, high royalty rates on state land may cause companies to favor private lands if the landowners offer a lesser royalty than the state. Conversely, low royalties on state land may cause companies to prefer state land to private land. State Policy Alternatives Alaska's coal taxation and leasing policies will likely be quite different from those of Montana and Wyoming because its coal industry is less developed and the marketability of its resource is unproven. In contrast to Montana's annual production of over 27 million tons from eight mines (3.4 million tons/mine/year), Alaska has only one coal mine producing .8 million tons per year. In addition, it is unclear whether long-term contracts with foreign buyers would contain tax pass-through provisions similar to those allowed by Midwestern utilities. It is unlikely that Alaska will become a "price leader" i.e., the supplier of a major portion of the Pacific Rim demand, and able to pass on a severance tax or royalty burden. It is also unlikely that Alaskan coal will enjoy any significant overall production or transportation cost advantages as do coal producers in Montana and Wyoming. In a paper recently prepared for the 1980 Alaskan Coal Conference, Fred Boness argued that the State should consider several actions to encourage the development of a coal industry in the State. These include: a tax moratorium of 15 years while the coal industry is developing, followed by the imposition of a severance or some other kind of tax; and/or the possibility of eliminating or having only minimal royalty requirements initially, followed by a relatively high royalty rate once the industry is established. Essentially, the argument is that the State should use its present oi] wealth to subsidize the development of a new industry 8 For amore complete discussion of Alaska's role in supplying various Coal markets, see Coal Policy paper: Markets for Alaskan Coal, House Research Agency, January 20, es Page 32 which will eventually be able to contribute revenues and provide employ- ment opportunities? and other benefits. to the State when oil production declines. There are some merits to this argument. In terms of revenues, the amount of taxes and royalties that the State would forego in the early stages of coal development under this proposal are insignificant compared to oil revenues. In FY 80, the State received a total of $287,236 froma combination of lease royalties, rents and the mining tax (lease rents: $68,930; lease royalties: $80,006; Alaska Mining License Tax: $138,300). The future taxable revenues generated by the coal industry, assuming it is developed and reaches a 20 million ton level by the year 2000, is also likely to be a fraction of the current level of oil revenues. With respect to leasing, it should be noted that certain royalty pro- visions can partially accomplish some of the ends supported by Mr. Boness in his paper. For example, with net profits share and royalty share as the bid variables (versus cash bonus bidding), revenues are extracted from the mining operation only after it is producing in commercial quan- tities. In addition, with net profit share leasing, the State's share is limited to a percentage of the profits and thus is tied to the opera- tion's profitability. This means that the large up-front expenses of mine development are deducted from revenues before the state's share is calculated, 10 On the other hand, if the coal industry is exempted from taxes and royalty payments for a period of time, it may prove difficult to impose royalties 9 Direct and indirect job creation is often seen as the primary benefit to be derived from industrial development. A rough estimate of the number of workers directly employed by a coal mining operation can be calculated by assuming 1] employee per 10,000 tons per year of coal production. Thus, for a 6 million tons/year operation (often cited as the minimum required for development of Beluga mine), the permanent labor force would equal 600 persons. This does not incluude construction workers required for mine start up, nor the workers that would be employed by a methanol facility. 10 Net profits for the purposes of net profit share leasing could be defined as follows: "Net profit" means the gross sales price of the coal at the point of sale less (a) any processing costs beyond the mine mouth (i.e., above the cost of primary crushing, storing and loading); (b) the costs of transportation, calculated from the point of production to the sales delivery point; (c) development costs that are direct charges necessary to bring the lease into commercial production; (d) direct operating costs incurred after commencement of commercial production, including labor costs, the costs of equipment maintenance and repair, etc." Page 33 or levy taxes at a later date without significant industry opposition. Some argue that royalty and tax rates should be established early on and then maintained at that rate so that the industry has a clear understand- ing of the State's policy and will not be continually confronted by unpredictable increases in taxes and royalties. It is also important to point out that tax and royalty breaks are not the only ways for the State to assist a developing industry. Provision of infrastructure is a critical need in the development of a mine, especially in an area such as Beluga where existing road and port develop- ment is minimal. A precedent for State assistance with infrastructure is found in AS 19.30.020. . This authorizes the state "to participate in construction of developmental access roads into areas where mining prospects of valid commercial promise are inaccessible to truck haulage." The costs are to be borne jointly by the resource developer and the State, with the State paying for no more than 50 percent of the estimated cost of construction and maintenance. The statute has never been implemented and no funding has been made available to date. However, it does serve as an example of how infrastructure assistance could be provided directly rather than through royalty or tax breaks. Another option open to the State is to selectively offer assistance to coal operations based on their size and purpose, rather than providing tax or royalty benefits to all companies. For example, if the State wishes to encourage the use of coal as a rural energy source, small-scale operations established for that purpose might be given special tax breaks and/or exempted from certain leasing requirements. APPENDIX A Federal Coal Leases and Preference Right Lease Applications in Alaska IN REPLY REFER TO United States Department of the Interior ate lemees BUREAU OF LAND MANAGEMENT F-01068 etc. 1/ Alaska State Office 701 C Street, Box 13 Anchorage, Alaska 99513 JAN 08 1981 Alaska State Legislature House of Representatives Research Agency Attn: Ms. Anne DeVries Pouch Y, State Capital Juneau, Alaska 99811 Dear Ms. DeVries: In response to your telephone inquiry with Ms. Charli Carter of my staff, and your letter of September 23, 1980, the following report will inform you of the current status on all Federal coal leases and coal preference right lease applications (PRLAs) on file in Alaska. Issued Leases 1. F-01068 a. Location: T. 12 S., Rs. 6 and 7 W., Fairbanks Meridian. (Healy area) Containing 1034.60 acres. b. Statutory Authority for Lease Issuance: Act of October 20, 1914 (38 Stat. 741). Cs Issue Date: June 7, 1923 d. Term: 50 years e. Lessee: Usibelli Coal Mine, Inc. Ela Within this coal lease is a Recreation and Public Purposes (R&PP) lease held by the Catholic Bishops of Northern Alaska, encompassing 46 acres that was originally issued for a church site. The church has been sold and removed from the site. Upon receipt of the expected relinquishment of the R&PP lease we will transfer this coal lease to the State of Alaska. 1/ F-07350, F-04923, A-027927, F-08798, F-014996, F-029746, F-033619 =g5o F-07350 a. Location: T. 12 S., R. 6 W., Fairbanks Meridian. (Healy area: Cripple Creek) Containing 880 acres. Dis Statutory Authority for Lease Issuance: Act of October 20, 1914 (38 Stat. 741). ee Issue Date: July 5, 1950 de Term: 50 years e. Lessee: Earth Resources Company (a Delaware Corporation), with operating rights assigned to Usibelli Coal Mine, Inc. £.. Patent No. 50-81-0026 was issued to the State of Alaska on December 2, 1980, for the lands embraced in this lease. As soon as the lease is removed from Federal status records, the case files will be transferred to the State. This is expected to take approximately two months. F-04923 a. Location T. 12 S., R. 8 W., Fairbanks Meridian. Containing 600 acres. De Statutory Authority for Lease Issuance: Act of October 20, 1914 (38 Stat. 741). Ge Issue Date: September 8, 1947. d. Term: 50 years. e. Lessee: Alaska State Bank. Be We have not received a favorable report on proper abandonment of the mine and cleanup of the lease area. When a favorable report is received, the lease will be cancelled. A-027927 a. Location: T. 6 S., R. 14 W., Seward Meridian. Containing 78.54 acres. 236- b. Statutory Authority for Lease Issuance: Mineral Leasing Act of 1920 (40 Stat. 437), as amended. c. Issue Date: June 14, 1960 d. Term: Indefinite e. Lessee: Bruno Agostino (Deceased) f. Rentals were in arrears from December 1, 1966, and the case was closed in 1977. The U.S. Attorney's Office determined that the rental issue was insufficient to warrant a court case. We still carry this lease as an open case, however, as all attempts to lo- cate heirs of Bruno Augustino (in order to serve the decision) have been in vain. Preference Right Lease Applications (PRLAs) F 08798 a. Location: T. 12 S., R. 6 W., Fairbanks Meridian. (Healy area). Containing 160 acres. b. Applicant: Emil Usibelli (Deceased) c. Date of Lease Application: December 30, 1952 d. Statutory Authority: Act of October 20, 1914, (38 Stat. 741), as amended. e. Patent No. 50-81-0026 was issued to the State of Alaska on December 2, 1980, for the lands embraced in this PRLA. On December 4, 1980, a notice was sent to the Estate of Emil Usibelli requesting a copy of the will of the deceased. When that is re- ceived, the PRLA will be removed from our status records and the case file will be transferred to the State. F-014996 a. Location: Tps. 14 and 15 S., R. 10 E., Fairbanks Meridian. (Delta area). Containing 2,560 acres. -37- Applicant: Edwin Read Date of Lease Application: July 12, 1963 Statutory Authority: Act of October 10, 1914 (38 Stat. 741), as amended. This PRLA, located in the Jarvis Creek Coal Field, is within the withdrawal for the Trans-Alaska Pipeline Corridor. Initial Showing was filed December 30, 1980, and the PRLA will be processed to either lease issuance or rejection in FY 81. F-029746 Location: T. 1S., R. 44 W., Umiat Meridian. (Near Point Lay). Containing 2,560 acres. Applicant: Miller E. Spears (deceased) with Morgan Coal Company as party in interest. Date of Lease Application: June 29, 1966 Statutory Authority: Mineral Leasing Act of 1920 (40 Stat. 437), as amended. See PRLA No. F-033619. F-033619 Location: T. 1S., Rs. 44 and 45 W., Umiat Meridian. (Near Point Lay). Containing 2,560 acres. Applicant: Miller E. Spears (deceased) with Morgan Coal Company as party in interest. Date of Lease Application: June 29, 1966 Statutory Authority Mineral Leasing Act of 1920 (40 Stat. 437), as amended. These PRLAs were excluded from conveyance to the Arctic Slope Regional Corporation (ASRC), and are also under selection by the -38- State of Alaska. We are coordinating with the Division of ANCSA to determine if ASRC still wants these lands. If they do not, we will transfer them to the State in FY 81. Maps and literature describing coal production potential in Alaska are available from the State Division of Minerals, USGS, and the Department of the Interior Alaska Resource Library in Anchorage. Once the Federal lands in Alaska are reclassified as open to mineral leasing, we feel sure that leasing of additional coal properties on Federal lands will resume. If we can be of further service, please contact us again. Sincerely yours, Os. Chief, Branch of Lands and Minerals Operations =99= APPENDIX B State Leases and Conversion to Lease Applications As of September 29, 1980 - lt- Date Issued Area * 6/1/54 Healy 8/31/61 w/state 3/1/49 Healy 6/30/61 w/state 7/3/61 Healy w/state 5/1/67 Healy 11/1/67 Healy 3/6/64 Kenai Royalty ADL .15 16925 «20 16926 .15 16927 .10 =. 20633 £05 =. 21545 .10 =. 21864 LEASES» Description T 11S, R7W FM Sec 23: S 24: S%SW%,SEX 25: All 26: All Effective date Name Arctic Coal Co. 35: N%s,N%SE% ,NW%SW% 36: N&NW% ,NSNE% T 12S, R6W FM Sec 16: SW T 12S, R6W FM Sec 16: N¥,SE% T 11S, R7W FM Sec 33: All 34: All T 12S R7W FM Sec 3: All 4: EX,NyNW T 11S, R7W FM Sec 29: SEXSEx 32: All T 12S, R7W FM Sec 4: S&NWx, SW 5: NWk,E% T 5S, R1L5W SM Sec 21: NWNW% Usibelli Coal Mine, Inc. B & G Shallit Usibelli Coal Mine, Inc. Usibelli Coal Mine, Inc. ‘Warren Coal Co. Total Acres 2,440 + 160 i+ 480 1+ 2,320 i+ 1,400 i+ 40 i+ =2p- Date Issued 12/2/48 7/8/64 7/8/64 9/11/64 1/13/65* 3/1/59 w/state 2/1/66 w/state *No rental paid since 1/13/73-1/13/74 Area Royalty Healy ~10 Matanuska 10 Healy -10 Healy 0 Beluga 05 Matanuska 15 Matanuska 15 ADL 22721 23803 24295 24296 25060 32136 32144 . Description T 12s, R6W EM Sec 17: S% 18: SEX 19: NEX 20: N¥ T_19N, R2E SM Sec 13: SW%SW%, , SWYNW SW 14: SNEXSEX, SEXSE, S%SWkSE% 23: NNEXNEX T 12S, R6W FM Sec 10: All 11: All 12: S& 13: N¥ T 12S, R6W FM Sec 14: N¥ T_13N, RLOW SM Sec 7: W3SW% T 19N R2E SM Sec. 13: NEXSW%, NWSEX, SWNEX, NYsNWKSW% > SEXNWYSW% , S4NW% T 19N, R2E SM Sec 22: SSW ,WSE% 27: N%,N%S% Name Usibelli Coal Mine, Inc. H. A. Faroe Usibelli Coal Mine, Inc. Usibelli Coal Mine, Inc. Albert E. Slone H. A. Faroe Paul Omlin 28: NSE%,SEXNEX, S4SWYNEX , NWSWNEX Total Acres 960 150 1,893 320 80 230 760 1+ I+ I+ I+ I+ 1+ I+ -¢p- Date Issued 1/1/71 8/1/58 4/18/72 5/10/72 5/10/72 Area Beluga Matanuska Beluga Beluga Beluga Royalty 10 pe -10 10 -10 ADL 33795 33978 36282 36911 36913 TiL2 Sec L wnNnHl2Z T 13N, Sec 34: 35:3 36: T 20N, Sec 21: 2ae T_13N, Sec 22: 23:3 24: 253 26: aus T 13N, Sec 19: 20% Dis 28i3 29: 30: T 13N, Sec 14: 15:s 22: 238 243 26: 273 34: R1L3W SM : Ws 2. All : N4,SE% R13W_SM All All All R5E SM NYNEX WsNW4NW R13W SM SEX ,S:NE%, NEXSW, SSW All All All All All R12W_ SM All All All All All All R12W_ SM All All All All All All All All Name Beluga Coal Co. Robert W. Gore Beluga Coal Co. Bass Trust Estate to Cloonan & Gibbs Bass Trust Estate to Cloonan & Gibbs Total Acres 3,360 I+ 100 1+ 3,560 {+ 3,833 I+ 5,120 + -vp- Date Issued 5/10/72 5/10/72 11/13/72 Area Beluga Beluga Beluga Royalty -10 10 -10 ADL 36914 37002 37471 Description 2 Say Sec 25: 355 367 7. 720, Sec 2: a: 20 : T 23N, Sec 31: 323 333 R12W_SM All All All R12W_SM All All Ns R12W_SM All All All T 12N, R13W SM Sec 1: By T 12N, Sec 4; 5s 6: 7s 8s 9: T L2N: Sec 7: 8: 17: 18: T9: 20: T 12N, R12W_SM All All All Nx N¥s N¥ R1L2W SM S44 sw Ws All Ns NW R13W_ SM Sec 12: EX isis 24 EX , SW% : Ny Name Bass Trust Estate to Gloonan & Gibbs Bass Trust Estate to Cloonan & Gibbs Beluga Coal Co. Total Acres 3,520 + 5,058 + 2,966 + -St- Date Issued 8/1/74 2/1/75 3/25/68 2/1/76 4/13/72 4/18/72 Area Healy Healy Matanuska Healy Healy Beluga Royalty -10 -10 -20 -10 215 -10 ADL 50699 53048 53509 55259 56505 56982 T 12S, R7W FM ? Sec 22: NS%, ; N¥3S%; S35 @ 23: NW%,WxNE%, “Name Dan Renshaw ‘ NSW , NW4SEX T 11S, R6W FM Sec 7: SEX 8: SWySWy , NSW 16: SWkNW 17: N¥SE%,S4NEX%, 18: NE%,EXSEX 20: All 2i2- ALL T 20N, R5E SM Sec 21: SNE% T 11S, R6W FM Sec 5: All 7: NEX 8: N%,SE%, SEX SW T 11S, R6W FM Sec 25: All 26: All 27: All 34: All 35: .ALl T 12N, R13W SM Sec 3: SW 4: N%,SE% 5: Ns 10: N¥ ll: Ns 12: NW Meadowlark Farms Ws Robert E. Gore Meadowlark Farms, Usibelli Coal Mine, Inc. Beluga Coal Co. Total Acres 600 2,320 80 Inc. 1,320 3,200 + I+ I+ I+ I+ -9p- Date Issued 5/1/79 5/1/79 12/1/76 7/1/78 Area Healy Healy Beluga Royalty ADL 58957 58959 59502 T_13N, R13W_SM Sec 28: 29: 30: 32: 33% T 10S, Sec 21: 28: 29: 323 T 10S, R6W FM Sec 22: EXE%,SW%, WNW% 23% 26: 27+ 34: 35: T 12N, Sec 8: 9: 10: 153 16: 17: 20: 21: 22% Name S%,NE% , S4NW% EXSE% NEN4 , SEXNEX, EXSE% R6W FM Meadowlark Farms N¥; , SW, NSE, SW4SE Meadowlark Farms ENE, SEX, SEXSW%, SWKNW% , N4NW% R12W SM Starkey Wilson Bass Trust Estate Hunt Total Acres 3,960- + 1,880 I+ 3,360 +” 3,040 + -ly- Date Issued 8/10/70 12/1/72 5/1/79 5/1/79 5/1/79 Area Matanuska Healy Healy Healy Beluga Royalty ADL 215 -10 35 35 35 59556 60496 61957 61958 62403 Description T.- LON), Sec 14: Lis 18: 19: 20: cu LS, Sec 28: 29.2 30: ous 322 33%: 1s Sec 36: T 11S; Sec 13: 14: 15: T 11s, Sec 3: 4: Oi © 23N, Sec 6: 7 8 5 noe R3E SM SWENW, NEXSEXNW , WSEXNW% , WNEXSW, NWSW , SSW Ss, S&N}s SEX ,ESW%, SEXNE% NEX , EXNW% NYNEX , NWs R6W_FM All All All Ns NY; Ns R7W_FM S4sN¥s R6W FM All All Sk R6W_FM NW All All R14W SM SW , SENW% S% ,NW%, W3NE% All All Name Total Acres American Exploration & Mining Co. Usibelli Coal Mine, Inc. Meadowlark Farms Meadowlark Farms Mobil Oil Corp. 1,450 + 3,018.73 + 1,600 + 1,440 + 2,080 + -8b- Date Issued 5/1/79 5/1/79 5/1/79 5/1/79 Area Beluga Beluga Beluga Beluga Royalty ADL 62404 62405 62406 62407 Total Description Name Acres T 23N, R14W SM Mobil Oil Corp. Sec 30: All 31: All 32: We,WsSE% T 22N, R1L4W Swi Sec 5: All 6: All Tite Naka 8: All 18: All 4,880 I+ T 22N, R1L4W SM Mobil Oil Corp. Sec 17: All 19: EX,NWk,EXSW% 20: All 21: SW, WNW 28: N&NW% 29: All 30: NE%,N%SE%, SE%SE% 3,080 I+ T 22N, R14W SM Mobil Oil Corp. Sec 32: NyN% . 160 T 21N, R13W SM Mobil Oil Corp. Sec 19: All 20: SWkNW:,SW%, SW4SE% 29: All 30: E%,EXNW%, NWy4NW 31: EX,SEXNW% S22 ALL E I+ T 21N, R14W SM Sec 24: Ex,EXNW 3,360 + ~6- Date Total Issued Area Royalty ADL Description Name Acres 5/1/79 Beluga a35 62408 T 20N, R14W SM Mobil Oil Corp. Sec 12: ENE%,SW% 13: EX,NW%, EXSW% T 20N, R13W SM Sec 5: Ws 6: ALL 7: All 8: Wy 17: NW ,W3SW% 18:Al11 3,600 + 5/1/79 Beluga 35 62409 T 20N, R13W SM Mobil Oil Corp. : Sec 19: All 30: All 31: All T 20N, R14W SM Sec 23: E¥SE% 24: All 25: All 26: EXNEX,SE% 3,520 + 5/1/79 Beluga ~35 62410 T 20N, R1L4W SM Mobil Oil Corp. Sec 35: E%,ExSW 36: NsNW%,NEX, ESE T 19N, R13W SM Sec 6: All 7: Ns,WSEX, EXSW% T 19N, RL4W SM Sec 1: Ss,SEXNWy,NEX 12: NEXNEX 2,400 + 5/1/79 Healy .35 62753 T 11s, R6W FM Usibelli Coal Sec 36: All Mine, Inc. 640 + -0S- Date Issued 5/1/79 5/1/79 5/1719 5/1/79 5/1/79 5/1/79 10/1/76 Area Healy 30 Healy ia3D Beluga 735 Upper Beluga .35 Lake Upper Beluga .35 Lake Healy 35 Beluga 215 Royalty ADL 62754 62985 64560 64596 64598 64830 79816 T 115, Sec 22: 233 24: T 10S, Sec 33: T 18N, Sec 6: Us T 19N, Sec 34: 35: 36: T 19N, Sec 31: T 18N, Sec l: ai at 2is Sec 16: Lue T 13N, Sec 22: Zale 26: 273 34: 358 R6W FM All All All R6W FM N of 64° North Lat. R12W SM All NW R13W SM All S , NW S& R12W_SM SW R13W_SM All Name Usibelli Coal Mine, Inc. Meadowlark Farms Meadowlark Farms Meadowlark Farms Meadowlark Farms N¥;, SEs , NE%SW% NEX NEX T 11S R6W FM NE% , F*:NW%, N}4SE% NW4NEX, SW4SEX R11W_SM All All All All All All Meadowlark Farms Beluga Coal Company Total Acres 1,920 500 800 1,600 1,480 400 3,840 I+ I+ I+ 1+ I+ I+ I+ Date Issued 3/1/76 11/15/66 - LS- Area Beluga Matanuska Royalty ADL 15 309744 (formerly 75703) -10 309947 (formerly 33557) Description T 13N, R1OW SM Sec 6: N¥,SW% 7: NW% T 13N, R1llW, SM Sec 1: EGNWY NES, Ss 12: All 13: N%,SW T 19N, R2E SM Sec 22: BSE% 23: NW%,WNE%, NSW Elton to Stabio H. Name A. Faroe Total Acres 2,310.5 + 400 + Date Issued 07/01/75 Ta baprtt 07/01/75 sed 07/01/75 1: ADL 55604 67814 67815 67816 PERMITS Description T12N ,R12W,A11 Sec. T16N 1: All 11: All 12: All 13: All 14: All ,R7W,SM Sec. T16N 6: All ,R8W,SM Sec. T17N 1: All 2R7W,SM Sec. T17N 31: All _R8W,SM Sec. 24: All 25:3 ALL 26: All 36: All ,R8W,SM T17N Sec. TLEN 4: All 5S: Ald 6: All ,R8W,SM Sec. T17N Sie All ,R8W,SM Sec. 9: All 10: All 14: All 153 All 16: All 223 ALL 23: All TOTAL: ~52- Total Name Acres Starkey Wilson 3,200+ Mobil Oil Corp. 4, 437+ Mobil Oil Corp. 2, 538+ Mobil Oil Corp. 4, 480+ 4 for 14,655 A- -S- vate uSSuUCG Area Ninilchnik Anchor Point Homer Royalty ADL 65673 65681 65695 T 3S, R13W SM Sec 6: Wy,NE% Sec 31: All T 4S, R14W SM Sec 23: SEX 25 ATT 26: By 36: ALY T 5S, R14W SM Sec li: Wy 15: Ni,W. SE, Name Charles Wynne Charles Wynne J. M. Pope EX SWx,NWy SW 3 +2 oO 6 iE o be % > OQ OQ un be ~ ° a ~ ~I u 1,760+ 840+ / SS 4T acrd -€S- Date Issued 1/1/75 Area Ninilchik CONVERSION TO LEASE APPLICATIONS Royalty ADL 65669 65671 65672 Description Name T 1S, R14W SM Sec 24: NE%,S% 25h ALA, 26: All Uplds excl. W4NWSW% 36: All C. A. Wynne T 2S R14W SM Sec 1: Ny,SE%,SE%,SWs T 2S, R13W SM Charles Wynne Sec l: All cera 10: All dl) AL 14: All TSR Ade 16: All 22: All T 2S, R13W SM T 2S, R13W SM Charles Wynne Sec 20: All 214 Ail 283 All 29%" ALL 30: Es 32: All 337 ALL AJIL TG Total Acres 2,895.26+ 5,120+ 4,149+ . os MY gs [7 Kliskor” RS ( ss SCALE 1:250000 BW R15 Ww 152° re | tas ‘mai 7 oy : valaee seme ; Whiske ere ae Sh 3 sae oa 7 Mme | tate ‘ 7 Luci, ° esp Lake ; sige" Porcupine "72> “Butte _ ) Ca anyon “=> —Cadine * Latke- S. os a fot VEO ay pee thi . })\ Mountain 7 Th urs day. = lachulitna Sh Satie <Tali ee Lanvey Beluga 2a ? Lake ; i Fnag Chitithuna C * *Litke!/s a i Thiet. we 8 4 Lake? MOQUAWKIES © rg eK). & ” ‘ reel Sons Gost Bunk? : i Cs Bunk? Tyonek Lc bel Pig es Bet lake! aA 6 | SST ENDIAN RESERVATION + 4 th F fi d re is np ae th ue orien) y = Tobona wT NN ° . : ° f | R.1OW. 15)° | SCALE 1:250000 - YONEK oo 0 a 4 1 gee ecaal 10 15 20 25 MILES N Sualenn Rock Northanst Port é s261 Cobbs _ Core scum = = + He Pekern Creek 2 + oar KEN Hl Be dake neds N & «or The Sisters Tv “1S 152°00 SELDOVIA KENAL S54 ML ININILCHIK 4 ME R. 14 W. | | u ? Chee ; f ? fos x c \ Ptarmigan i 7 Ay o£ a 2 =| ‘ a 3 : i oy ithpps Saey—S > . 7 % i? . : riskt us —— ¢ SEK. cet Ninilchik pon ite i ° © ; & 2 Ismailof Au nmanantal* 3% Coal Point Peterson Islan 7 z Light ~ Qe Plat be ‘Shoals “ ‘ a f , K - Gull island. - Seaty foot Roch Cohen Island.s ’ A ‘ ” 2 My eal hall) 7? ie ‘ F Nority Pore g le MN, A ig eM ne : n0r0 (. oi, Lyf Gj. ‘ a wf | eas Hit © Hapa GG. aa f ! 66 Loon if +E Chen! ld mf Landing eg rey nO Vs a ty ite Pale * Crugachik Island " &, Bear Isiang( ¢ tah ig "CCS Nene! 4 mesh eeser i. eT en’ -09- woe s iv” SIsmallof tad 2, hehumangniot™ et Coal Point Peterson Island ¢. TOgpos AM oe Mh = ‘ A ‘ pe : ta C H : ( incase 27 Aw © i iT : ! ; Sty loot F. Neptaines Roe OS days Cohen Island. ae ane Wein: Yukon Nel Island 2 . y ce Gross ae “Horring ie no vy eepluila Tooke 23 ~ ies "Tbe, a a “as “yen * CaN A EY a ANCHORAGE = = PO ESOT tr R2E c 149° R SE OH E ontt 3) — tL; We Ls co oS > a : 2 72 - A i a \ 2 So” NBishhooke & Z ie \\ Junetion < “ Vf Ha Gt | - a *» SSeS V8 Y KONTDK \w toe is a SEN AS ‘ ° yj! \\\e VAz6 Se eS ty ASS ry; 4 Ye \ ; ie lets \. e HN ca ea ‘ Ne a eee NE? tN \ re NaF ers a ieee crtg htt uel SCALE 1: 250,000 5 0 - ls 10 1b ~0 ‘= aire r a eee a == ¢ a 0 5 10 5 rae) 2s al =r 7 —? ——S=— = CONTOUR INTERVAL 200 FEET : DASHED LINES REPRESENT 100 FOOT CONTOURS APPENDIX C State Coal Leasing Statute (A.S. 38.05.135-150) Article 6. Leasing of Mineral Lands. Section Section 135. Generally 175. Potassium 137. Leasing agreements 180. Oil and gas 140. Limitations 181. Geothermal resources 145. Leasing procedure 182. Royalty on natural resources 150. Coal 183. Sale of royalty 155. Phosphates 184, Limitation on oil and gas leases in 160. Oil shale certain areas, a reacquisition of 165. Sodium leases 170. Sulphtir Sce. 38.05.135. Generally. (s) Except as otherwise provided, valuable minerals deposits in lands belonging to the state shall be open to exploration, development, and the extraction of minerals. All lands, together with tide, submerged, or shorelands, to which the state holds title to of to which the state may become entitled, may be obtained by permit or lease for the purpose of exploration, development, and the extraction of minerals. Except as specifically limited by §§ 185 — 181 of this chapter, lands may be withheld from lease application on a first-come, first- served basis, and offered only on a competitive bid basis when determined by the commissioner to be in the best interests of the state. In unproven areas the commissioner may offer additional incentives, including a reduction of royalty to a minimum of five per cent in the case of oil and gas, and other terms in and granting permit or lease for exploration and development whenever it appears to be in the best interests of the state to do so. (b) When minerals are to be leased on a competitive basis, in addition to any other notice given, notice shall also be given as provided in §§ 305 and 345 of this chapter. If land is to be made available for noncompetitive mineral leasing, nutice of the proposed action shall also be given as provided in §§ 305 and 345 of this chapter. After the notice of -65- § 38.05.1387 ALASKA STATUTES § 38.05.140 noncompetitive leasing has been made as required in this subsection, notice of the subsequent issuance of a noncompetitive lease for the land involved shall be made by mail not less than 30 days before the issuance of the lease only to those who have requested the notice. (§ 1 art VIII ch 169 SLA 1959; am § 1 ch 30 SLA 1964; am § 1 ch 91 SLA 1967; am § 2 ch 71 SLA 1971; am § 10 ch 257 SLA 1976) Effect of amendment. — The 1976 amendment added present subsection (b). Cited in Kirkpatrick v. Commissioner, Dep’t of Natural Resources, Sup. Ct. Op. No. 201 (File No. 388), 391 P.2d 7 (1964); Moore v. State, Sup. Ct. Op. No. 1284 (File Nos. 2551, 2587), 553 P.2d 8 (1976). Am. Jur., ALR and C.J.S. references. — 24 Am. Jur., Gas and Oil, §§ 32 to 102; 36 Am. Jur., Mines and Minerals, §§ 11 to 22, 39 to 62, 65 to 98, 139 to 142; 42 Am. Jur., Public Administrative Law, § 111; 49 Am. Jur., States, Territories and Dependencies, §§ 57 to 61. Validity of prohibition or regulations of removal or exploitation of oil, minerals, soil, sand, gravel, stone or natural products within municipal limits, 168 ALR 1188. 73 C.J.S. Public Lands § 259. Sec. 38.05.137. Leasing agreements. The commissioner is authorized to enter into cooperative mineral leasing agreements with the United States regarding lands which are the subject of a title dispute between federal and state authorities. Any such lease need not conform to the provisions of state law applicable to state leases issued under the authority of this chapter. (§ 2 ch 30 SLA 1964) Sec. 38.05.140. Limitations. (a) No person may take or hold coal leases or permits during the life of coal leases on state lands exceeding an aggregate of 46,080 acres, except that a person may apply for coal leases or permits for acreage in addition to 46,080 acres, not exceeding a total of 5,120 additional acres of state land. The additional area applied for shall be in multiples of 40 acres and the application shall contain a statement that the granting of a lease for additional lands is necessary for the person to carry on business economically and is in the public interest. On the filing of tie application, the coal deposits in the lends covered by the application shall be temporarily set aside and withdrawn from all other forms of disposal provided under §§ 185 — 181 of this chapter. (b) The commissioner shall, after posting notice of the pending application in the local land office, conduct public hearings on the application for additional acreage. After public hearings, to the extent he finds to be in the public interest and necessary for the applicant in order to carry on business economically, the commissioner may, under regulations he prescribes, permit the person to take or hold coal leases or permits for an additional aggregate acreage of not more than 5,120 acres, (c) No person may take or hold at one time phospate leases on state lands exceeding in the aggregate 10,240 acres. No person may take or hold sodium leases or permits during the life of sodium leases on state lands, exceeding in the aggregate acreage 5,120 acres except that the -66- _ § 38.05.140. Pusiic LANDS § 38.05.140 commissioner may, where it is necessary in order to secure the economic mining of soduim compounds, permit a person to take or hold sodium leases or permits for up to 15,360 acres. No person may take or hold at any one time oil or gas leases exceeding in the aggregate 500,000 acres granted on tide and submerged lands, and 500,000 acres on all lands other than tide and submerged lands, including leases held both as lessee and under option or operating agreement from others. Where more than a single person holds an interest in an oil or gas lease, each person shall be charged only with that percentage of the total acreage which corresponds to its percentage share of the total beneficial interest in the lease. : (d) The commissioner, for the purpose of encouraging the greatest ultimate recovery of coal, oil, gas, oil shale, phosphate, sodium, potassium, sulphur, and geothermal resources and in the interest of conservation of natural resources, after public hearing, or, when the state’s title to land beneath navigable waters has been legally challenged by the United States and litigation initiated, may waive, suspend, refund, or reduce the rental, or minimum royalty, or reduce the royalty on an entire leasehold, or on any tract or portion of a leasehold segregated for royalty purposes, whenever in his judgment it is necessary to do so in order to promote development, or whenever in his judgment the lease cannot be successfully operated under its terms. If the commissioner, in the interest of conservation, directs or assents to the suspension of operations and production under a lease granted, the payment of acreage rental or of minimum royalty prescribed by the lease may be suspended during the period of suspension of operations and production. The term of the lease shall be extended by adding the period of suspension to the lease. (e) The provisions of (d) of this section that apply to waiver, suspension, refund or reduction of rental of minimum royalty apply to rental or minimum royalty paid before or after June 19, 1970 on any lease covering land beneath navigable waters which, according to the records of the division of lands, is in effect on June 19, 1970. (f) The submerged and shorelands lying north of 57°, 30 minutes north latitude and east of 159°, 49 minutes west longitude within the Bristol Bay drainage are designated as the Bristol Bay Fisheries Reserve. Within the Bristol Bay Fisheries Reserve no surface entry permit to develop an oil or gas lease may be issued on state owned or controlled land until the legislature by appropriate resolution specifically finds that the entry will not constitute danger to the fishery. (§ 2 art VIII ch 169 SLA 1959; am § 1 ch 68 SLA 1969; am §§ 1, 2ch 208 SLA 1970; am §§ 3, 4 ch 71 SLA 1971; am § 1 ch 102 SLA 1972) Legislative committee report. — For report on ch. 68, SLA 1969 (HB 3030), see 1969 House Journal, p. 572. -67- § 38.05.145 ALASKA STATUTES § 38.05.150 Sec. 38.05.145. Leasing procedure. (a) Deposits of coal, phosphates, oil shale, sodium, potassium, oil, gas, geothermal resources and state lands containing these deposits are subject to disposition under rules and regulations, recommended by the director and adopted by the commissioner, and the provision of §§ 145 — 181 of this chapter. In applying the acreage limitations the commissioner may apply the rule of approximation. The uses of the rule of approximation made before March 81, 1960, by the commissioner are ratified. (b) If the state selects or otherwise acquires land other than shorelands, title to which was in the federal government and which, at the effective date of the selection or acquisition, is subject to a valid : existing offer for a noncompetitive United States oil and gas lease, or application for a prospecting permit or noncompetitive mining lease, for coal, phosphates, sulphur, oil shale, sodium, or potassium under the federal Act of February 25, 1920 (41 Stat. 437 as amended), or for a noncompetitive United States geothermal lease, or application for a prospecting permit or noncompetitive lease under the federal Act of. December 24, 1970 (84 Stat. 1566), the offeror or applicant for the federal permit or lease, if a qualified applicant hereunder, shall be considered the first qualified applicant for a state noncompetitive oil and gas lease, noncompetitive geothermal lease, prospecting permit, or noncompetitive mining lease and is entitled to a state noncompetitive lease or permit upon compliance with the provisions of the regulations covering applications within 60 days after receipt of written notice from the commissioner of selection or acquisition. These priorities are not effective if the land covered by the federal offers or applications is classified by the commissioner as competitive land within 90 days after the selection of the land is finally approved by the Secretary of the Interior or the land is otherwise acquired. (§ 3 art VIII ch 169 SLA 1959; am § 16 ch 61 SLA 1960; am § 3 ch 30 SLA 1964; am 88 5, 6 ch 71 SLA 1971; am § 33 ch 71 SLA 1972) Revisor’s note (1971). — In § 6, ch. 71, SLA 1971, the first sentence. of AS 38.05.145(b) was split into two sentences. Since that would leave the first sentence February 25, 1920, referred to is PL 66-146; the federal Act of December 24, 1970, referred to is PL 91-581 (the Geothermal Steam Act of 1970). incomplete and meaningless, and appears to have been a manifest clerical error, the two shave been rejoined. Also, the missing “or” has been inserted before “for a noncompetitive United States geothermal Legislative committee report. — For report on ch. 71, SLA 1972 (HCSSB 383 am H), see 1972 House Journal, p. 898. Applied in Moore v. State, Sup. Ct. Op. No. 1284 (File Nos. 2551, 2587), 333 P.2d 5 lease” in that sentence. The federal Act of (1976). Sec. 38.05.150. Coal. (a) The commissioner may, and upon the petition of a qualified applicant, shall divide coal lands or the deposits of coal owned by the state into leasing tracts of 40 acres each, or multiples of 40 acres, and in the form which will permit the economical mining of the coal in the tract. (b) Thereafter the commissioner may, upon the request of a qualified applicant or on his own motion, from time to time, offer the lands or -68- § 38.05.155 Pusiic LANDS § 38.05.155 deposits of coal for leasing. Each lease shall be awarded to a qualified applicant by competitive bidding or by the method which the commissioner adopts by general regulation. (c) Where prospecting or exploration work is necessary to determine the existence or workability of coal deposits in an unclaimed and undeveloped area, the commissioner may issue to qualified applicants prospecting permits for a term of two years, not exceeding 5,120 acres. If within the period of two years the permittee shows to the commissioner that the land contains coal in commercial quantities and submits a satisfactory mining plan for the coal’s recovery, the permittee shall be entitled to a lease for all or part of the land in his permit. A coal prospecting permit may be extended by the commissioner for a period _ of two years, if he finds that the permittee has been unable, with the exercise of reasonable diligence, to determine the existence or workability of coal deposits in the area covered by the permit and desires to prosecute further prospecting or exploration, or for other reasons in the opinion of the commissioner warranting extension. (d) For the privilege of mining or extracting the coal in the lands covered by the lease, the lessee shall pay to the state the royalties specified in the lease. The royalties shall be fixed before offering the lease, and shall be effective for a period of not more than 20 years. The royalties shall be not less than five cents a ton of 2,000 pounds. The lessee shall also pay an annual rental, payable at the date of the lease and annually thereafter, on the land or coal deposits covered by the lease, at a rate fixed by the commissioner before offering the lease. The annual rental shall be effective for a period of not more than 20 years. The annual rental shall be not less than 25 cents an acre for the first year of the lease, not less than 50 cents an acre for the second year, third year, fouxth year and fifth year, and not less than $1 an acre for each year thereafter during the continuance of the lease. The rental for each year shall be credited against the royalties as they accrue for that year. Each lease shall provide that the annual rental payment is subject to adjustment at intervals of no more than 20 years and adjustments shall be based on the current rates for properties similarly situated. (e) Each lease shall be for an indeterminate period upon condition of diligent development and continued operation of the mine, except when operation is interrupted by strikes, the elements, or casualties not attributed to the lessee. (§ 3(1) art VIII ch 169 SLA 1959; am § 17 ch 61 SLA 1960; am § 1 ch 71 SLA 1966; am §§ 2, 3 ch 68 SLA 1969) Legislative committee reports. — For 1969 (HB 303), see 1969 House Journal, p. report on ch. 71, SLA 1966, see 1966 House 572. ‘Journal, p. 491. For report on ch. 68, SLA Sec. 38.05.155. Phosphates. (a) The commissioner may lease to qualified applicants lands belonging to the state which contain deposits of phosphates and associated and related minerals, when in his judgment it is in the public interest to do so. The commissioner may lease land =69- APPENDIX D State Mining License Tax Statute AS 43.65 Chapter 65. Mining License Tax. Section Section 10. Mining license 40. [Repealed] 20. Taxpayer’s duties 50. Violations and penalties 30. Application for renewals 60. Definitions Sec. 43.65.010. Mining license. (a) A person prosecuting or attempting to prosecute, or engaging in the business of mining in the state shall obtain a license from the Department of Revenue. All new mining operations are exempt from the tax levied by this chapter for three and one-half years after production begins. The tax exemption granted to new mining operations does not extend or apply to the mining of sand and gravel. (b) The Department of Natural Resources shall certify to the Department of Revenue the date upon which production begins, and the Department of Revenue shall issue a certificate of exemption to the producer accordingly. (c) The license tax on mining is as follows: Upon the net income of the taxpayer from the property in the state, computed with allowable depletion, plus royalty received in connection with mining property in the state. Over $40,000 and not over $50,000 ................ 3 per cent Over $50,000 and not over $100,000 .............. $1,500 plus ‘ 5 per cent of the excess over $50,000 War SO0000 Shs oss cca: dele ee baer $4,009 plus 7 per cent of the excess over $100,000 (d) Where mining operations are conducted in two or more places by one person the operations are considered a single mining operation and the tax under this chapter is computed upon the aggregate income derived frorn all the mining operations. The lessor of a mine operated under a lease is considered to be engaged in mining within this chapter, and the royalties received by him are considered to be the net income of his mining operations. If the lessor receives royalties from more than one mine or mining operation, the tax payable under this chapter by the lessor is computed upon the aggregate royalties received by the lessor from all the mines or mining operations as though they were a single mining operation. (e) The allowance for depletion included as an allowable deduction from gross income is a percentage of the gross income from the property during the taxable year, excluding from the gross income an amount Agis § 43.65.020 ALaska Srarutes § 43.65.020 equal to the rents or royalties paid by the taxpayer in respect to the prop- erty, as follows: (1) coal mines; 10 per cent; (2) metal mines, fluorspar, flake graphite, vermiculite, bery], feldspar, mica, talc, lepidolite, spodumene, varite, ball and sagger clay, or rock asphalt mines and potash mines or deposits: 15 per cent; and (3) sulphur mines or deposits: 23 per cent. (f) The allowance for depletion may not exceed 50 per cent of the net income of the taxpayer, computed without allowance for depletion, from the property, except that in no case may the depletion allowable be less than it would be if computed on a reasonable cost basis. (g) Deductions which are not directly attributable to particular properties or processes shall be fairly allocated. To illustrate: If the taxpayer engages in activities in addition to mineral extraction in the state and to ordinary treatment processes, deductions for depreciation, taxes, general expenses, and overhead, which cannot be directly attributed to a specific activity, shall be fairly apportioned between (1) the mineral extraction and ordinary treatment processes, and (2) the additional activities, taking into account the ratio which the operating expenses directly attributable to the mineral extraction and ordinary treatment processes bear to the operating expenses directly attributable to the additional activities. If more than one mineral property is involved, the deductions apportioned to the mineral extraction and ordinary treatment processes shall, in turn, be fairly apportioned to the several properties taking into account their relative production. (h) Taxes upon royalties shall be paid by the taxpayer receiving the royalties and no deduction, excepting depletion, is allowed. (§ 35-1-31 (a) — (0) (e) (f) ACLA 1949; am § 1 ch 64 SLA 1951; §§ 1, 2ch 26 SLA 1953; am § 1 ch 78 SLA 1955; am § 1 ch 14 SLA 1962) For case construing former provisions Am. Jur. reference. — 36 Am. Jur., of mining license tax statute and validity | Mines and Minerals, §§ 1 et seq., 153. of such taxes in general, see Territory of Alaska v. Hawkins, 9 Alaska 578 (1939). Sec. 43.65.020. Taxpayer’s duties. (a) A person subject to tax under this chapter shall make a return stating specifically the items of gross income from the property, including royalty received and the deductions and credits allowed by this chapter, and other information for carrying out this chapter which the Department of Revenue prescribes. The return shall show the mining license number and shall be signed by the taxpayer or his authorized agent, under penalty of perjury. If receivers, trustees, or assigns sre operating the property or business, they shall make returns for the person engaged in mining, or the recipient of royalty in connection with mining property. The tax due on the basis of the returns shall be collected in the same manner as if collected from the person of whose business they have custody and control. (b) A return made on the basis of the calendar year shall be made before May 1 of the next year. A return made on the basis of a fiscal -72- § 43.65.030 REVENUE AND TAXATION § 43.65.050 year shall be made before the first day of the fifth month of the next fiscal year. (c) The Department of Revenue may grant a reasonable extension of time for filing returns, under regulations prescribed by it. Except in the case of a taxpayer going abroad, no extension may be made for more than six months. (d) A taxpayer’s return shall be made to the Department of Revenue’ at Juneau. A taxpayer shall make his return either on a calendar year or fiscal year basis, in conformance with the basis used in making his return for federal income tax purposes. (e) The total amount of tax imposed by this chapter shall be paid on the 30th day of April of the next calendar year, or, if the return is made on the basis of the fiscal year, then on the last day of the fourth month of the next fiscal year. (f) Every person prosecuting or attempting to prosecute or engaging in the business of mining in the state shall comply with the department’s regulations and shall keep such records, give such statements under oath, and make such returns as the Department of Revenue prescribes. (g) When the department considers it necessary, it may require a person, by notice served upon him, to make a return, give statements under oath, or keep records as it considers sufficient to show whether or not the person is liable to tax under this chapter. If a person fails to file a return at the time prescribed by law or regulation, or makes, wilfully or otherwise, a false or fraudulent return, the department shall make the return from its own knowledge and from such information as it can obtain through testimony or otherwise. A return so made and subscribed by the department is prima facie good and sufficient for all legal purposes. (§ 35-1-82 ACLA 1949) Sec. 43.65.030. Application for renewals. Application for renewal of a mining license shall be made before May 1 of each year. (§ 35-1-35 ACLA 1949) ‘ Sec. 43.65.040. Limitation. . Repealed by § 4 ch 94 SLA 1976. Cross reference. — For present Editor’s note. — The repealed section provisions covering the subject matter of derived from § 35-1-34, ACLA 1949. the repealed section, see AS 43.05.260. Sec. 43.65.050. Violations and penalties. (2) Repealed by § 3 ch 166 SLA 1976. (b) If part of a deficiency in the tax is due to negligence or intentional disregard of regulations, but without intent to defraud, five per cent of the total amount of the deficiency, in addition to the deficiency, shall be assessed, collected, and paid in the same manner as if it were a deficiency, except that (d) of this section is not applicable. -73- § 43.65.060 ALASKA STATUTES © § 43.65.060 (c) If part of a deficiency in the tax is due to fraud with intent to evade the tax, then 50 per cent of the total amount of the deficiency, in addition to the deficiency, shall be assessed and collected. (d) Repealed by § 3 ch 166 SLA 1976. (e) Repealed by § 4 ch 94 SLA 1976. (f) A person who is required under this chapter to pay a tax, make a return, keep records, or supply information for the computation, assessment, or collection of the tax imposed by this chapter, who wilfully fails to pay the tax, make the return, keep the records, or supply the information, at the time required by law or regulations, is, in addition to other penalties provided by law, guilty of a misdemeanor, and upon conviction is punishable by a fine of not more than $1,000, or by imprisonment for not more than one year, or by both, together with the cost of prosecution. (g) A person who wilfully makes and signs a return which he does not believe to be true and correct as to every material matter is guilty of a felony, and upon conviction is subject to the penalties prescribed for perjury under the laws of the state. . (b) In this section “person” includes an officer or employee of a corporation or a member or employee of a partnership who is under duty to perform the act in respect to which the violation occurs. (§ 35-1-33 ACLA 1949; am § 4 ch 94 SLA 1976; am § 3 ch 166 SLA 1976) Cross references. — For civil penalty imposed for failure to file a return or report, or pay the full amount of a tax, or a portion or a deficiency of the tax, see AS 43.05.220. As to interest on taxes, see AS 43.05.225. For provisions creating a lien for unpaid taxes or license fees, see AS 43.10.035. Effect of amendments. — The first 1976 amendment repealed subsection (e), which made the tax levied or aceruing under this chapter and the penalties and interest on Sec. 43.65.060. Definitions. In otherwise requires, the tax a lien and provided generally for such lien. The second 1976 amendment repealed subsections (a) and (d), which provided, respectively, for an addition to the tax for failure to file a return required by this chapter within the time prescribed by law or prescribed by the department according to law due to wilful neglect and for assessment and collection of interest, respectively. this chapter, unless the context (1) “gross income from property” means the gross income from mining in the state; (2) “mining” means an operation by which valuable metals, ores, minerals, asbestos, gypsum, coal, marketable earth, or stone, or any of them are extracted, mined, or taken from the earth; “mining” includes the ordinary treatment processes normally applied by mine owners or operators to obtain the commercially marketable product, but does not include the extraction or production of oil and gas; (8) “net income of the taxpayer (computed without allowances for depletion) from the property” means the gross income from the property, less allowable deductions attributable to the mineral property -742 § 43.70.010 REVENUE AND TAXATION § 43.70.010 upon which the depletion is claimed and the allowable deductions attributable to ordinary treatment processes insofar as they relate to the product of the property, including overhead and operating expenses, development costs properly charged to expense, depreciation, taxes, losses sustained, etc., but excluding allowances for depletion, and deductions for federal income taxes, or for the tax imposed by this chapter; (4) “new mining operations” means mining operations which began production after January 1, 1953, or which have not been liable to pay a mining license tax under this chapter on net income since January 1, 1948; (5) “ordinary treatment processes” includes (A) in the case of coal: cleaning, breaking, sizing, and loading for shipment, (B) in the case of sulphur: pumping to vats, cooling, breaking and loading for shipment, (C) in the case of iron ore, bauxite, ball vl sagger clay, rock asphalt, and minerals which are customarily sold in the form of crude mineral product: sorting, concentrating and sintering to bring to shipping grade and form, and loading for shipment, and (D) in the case of lead, zinc, copper, gold, silver, platinum metals or fluorspar ores, potash and ores which are not customarily sold in the form of the crude mineral product: crushing, grinding, and beneficiation by concentration (gravity, flotation, amalgamation, electrostatic, or magnetic), cyanidation, leaching, crystallization, precipitation (but excluding electrolytic deposition roasting, thermal or electric smelting or refining), or by substantially equivalent processes or combination of processes used in the separation or extraction of a product from the ore, including the furnacing or quicksilver ore; (6) “production” means the date on which the initial shipment of products from mining operations is made. (§ 85-1-31(a) (d) (e) ACLA 1949; am § 1 ch 64 SLA 1951; am §§ 1, 2 ch 26 SLA 1953; am § 1 ch 14 SLA 1962) -75- LIBRARY COPY | PROPERTY OF: Alaska Power Authority 334 W. 5th Ave. Anchorage, Alaska 99501