Cost of capital allowance to be used in calculation of costs of vessel

# (a)

For oil or gas produced on or after January 1, 2003, a cost of capital allowance that consists of depreciation and a return on invested capital will be allowed under this section, as provided in 15 AAC 55.193 for a (1) vessel, or an improvement completed on or after January 1, 2002 to a vessel, owned or effectively owned by the producer; or (2) LNG transportation facility owned or effectively owned by the producer and placed in service after December 31, 2010, or an improvement to that facility. However, a producer may elect to expense the first $2,000,000 in costs incurred with respect to improvements during a calendar year.

# (b)

A cost of capital allowance under this section for a vessel will be allowed only for days when the vessel is in allowable service, in allowable lay up, or in allowable dry dock.

# (c)

The following requirements apply to the timing of changes in vessel status:

# (1)

a vessel changing from operation in allowable service to lay up or operation in alterative service begins lay up or operation in alternative service on the day after the last day of cargo discharge in allowable service;

# (2)

a vessel changing from operation in alternative service to lay up or operation in allowable service begins lay up or operation in allowable service on the day after the last day of cargo discharge in alternative service;

# (3)

a vessel changing from lay up to operation in allowable service or operation in alternative service begins operation in allowable service or operation in alternative service on the day after the vessel departs from the location where the vessel was laid up;

# (4)

a vessel going into dry dock begins dry dock status on the day after the last day of cargo discharge or, if going into dry dock from lay up, on the day after the vessel departs from the location where the vessel was laid up;

# (5)

a vessel finishing dry dock changes from dry dock status to the immediately subsequent status on the day after the vessel departs the dry dock facility;

# (6)

a vessel begins operation in allowable service on the day that its useful life begins or, in the case of a used vessel newly acquired by a producer, on the day that its remaining useful life for that producer begins, if the vessel proceeds directly to enter operation in allowable service; otherwise, the vessel begins operation in alternative service on the day specified in this paragraph; for purposes of this paragraph, the beginning of a vessel's useful life or remaining useful life is determined in accordance with generally accepted accounting principles.

# (d)

A cost of capital allowance under this section must be calculated using the methodology set out in the department's publication Computation of a Cost-of-Capital Allowance under 15 AAC 55.196, Incorporating Depreciation and Return on Invested Capital for Marine Vessels and Improvements, Edition 4.0, dated November 19, 2019 and adopted by reference.

# (e)

For purposes of this section,

# (1)

a vessel is in allowable service if the vessel is

(A) in service within the meaning given in 15 AAC 55.900, except when the vessel is in dry dock; or

(B) idle for a period of fewer than 90 consecutive days immediately before operation in allowable service under (A) of this paragraph; for purposes of this subparagraph, a vessel is not idle if it is in dry dock;

# (2)

a vessel is laid up if it is idle for a period of 90 or more consecutive days; for purposes of this paragraph, a vessel is not idle if it is in dry dock;

# (3)

a vessel is in allowable lay up if the vessel is laid up during a calendar year, but only to the extent that the total number of days it is or has been laid up while owned or effectively owned by the producer through the end of that calendar year does not exceed the total number of days it is or has been in allowable service while owned or effectively owned by the producer through the end of that calendar year;

# (4)

a vessel is in allowable dry dock if the vessel is in dry dock during a calendar year, but only for that fraction of the total days in dry dock that equals the sum of the number of days during the year that the vessel is in allowable service and the number of days during the year that the vessel is in allowable lay up, divided by the sum of the number of days during the year that the vessel is in allowable service, the number of days during the year that the vessel is laid up, and the number of days during the year that the vessel is in alternative service;

# (5)

a vessel is in alternative service if it is not in lay up, dry dock, or allowable service;
and

# (6)

if necessary to determine a vessel's status during a month, the vessel's status at later times will be considered.

# (f)

In (b), (c), and (e) of this section, "vessel" includes LNG tanker.
(Eff. 1/1/2003, Register 164; am 1/1/2004, Register 168; am 4/30/2010, Register 194; am 12/28/2018, Register 228; am 1/1/2020, Register 232; am 9/20/2020, Register 235) Statutory Authority:
Authority:
AS 43.05.080 AS 43.55.030 AS 43.55.110
AS 43.55.020 AS 43.55.040 AS 43.55.150
Editor's note:
Copies of Computation of a Cost-of-Capital Allowance under 15 AAC 55.196, Incorporating Depreciation and Return on Invested Capital for Marine Vessels and Improvements, adopted by reference in 15 AAC 55.196(d), may be obtained from the Department of Revenue, Tax Division, 550 W.
7th Ave., Suite 500, Anchorage, Alaska 99501-3566 or viewed through the Tax Division's website at:
www.tax.alaska.gov.