Archive for February, 2010

Yesterday, February 17th, 2010 at 8:30AM, that Utah State Tax commission met with a group from the Oil & Gas Industry.  Those from industry, represented EOG Resources, Myska and Vandervoort, El Paso Corp, Anadarko Petroleum, Questar, Wolverine Gas & Oil, ConocoPhillips, Gasco Energy, Wexpro, and I was present representing KE Andrews and Newfield Production Co.  Others present were the Utah State Tax Commission, county representatives from Duchesne, San Juan, and Uintah, and representatives from the Utah Petroleum Association. 

For industry, presenters included Don Hansen from Myska and Vandervoort LLC, Ron Kane from EOG Resources Inc., and Bobby Rolston from Anadarko Petroleum.  Don discussed the trends in Oil & Gas prices, and came up with a forecast of where we can expect to potentially see the market is going.  Ron discussed the effects of having large amounts of oil and gas stored, on price and the industry.  Also Ron outlined how operating expenses will increase by 2% over 2009 levels, and according to capital cost analysis, we will see a decline in pricing to pre 2008 levels.  Bobby gave an overall perspective of the Oil & Gas industry, and tied everything together.  He opened his statement by saying “The national gas industry is in a state of flux”. It was suggested that Oil prices for 2010 should be in the 65-72 (low to mid 70’s) range based on history and trends.  Also the general consensus of the group was that storage is very high, and energy demand is down due to the down economy.  The statement was also made that Gas has gone from a regional commodity, to a national, and even worldwide commodity. 

The Utah State Tax commission then presented beginning with Discount Rate.  They explained their search process, using only Rocky Mountain region companies, and not including offshore, international, or integrated companies.  They tried to source the “typical buyer”.  They used three models to determine the Discount Rate.  The Dividend Growth Model, the Risk Premium Model, and the Capital Asset Pricing Model.  The group challenged the use of the Dividend Growth Model, as only 2 of the 16 companies used in the study were dividend producing.  The State agreed to consider this before finalizing the Discount Rate.  The state used the Debt Rate and determined that it was 12.76 in 2009, and that it now has come down to 7.57 for 2010 because it is easier to get funding.  This was also challenged as the entire group agreed that in the Oil & Gas industry, they are not looking for funding or credit.  They are only taking on projects that they have working capital to fund.  Again this will be taken into consideration.  The proposed Discount Rate for 2010 is 11.87%.  That is down from last year’s Discount Rate of 12.24%. 

The State also presented their analysis of Oil Prices, Gas Prices, and the Net Exempt Royalty.  They will be open for recommendations and discussion on the Discount Rate over the next few weeks. 

John F. Haettich

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(Email from Ken Beazer- Colorado Division of Property Taxation)

On February 4, 2010, the Statutory Advisory Committee (SAC) recommended the approval of the
Division’s proposed changes to the Assessors Reference Library, Volume 5 (ARL 5), Chapters 4 (2010 Personal Property Tables), 6 (BELs), and 7 (Pipelines) as proposed.

 

The State Board of Equalization (SBOE) has 30 days from the SAC meeting date to review and
approve the recommended changes. If no action is taken by the SBOE, the SAC recommended
changes will be automatically approved.

The specific SAC approved manual changes are now available on the Colorado Division of Property Taxation website at:

 

To find the 2010 Personal Property Tables click on the second button down on the left side of the home page titled “Personal Property Tables“,

then click on the “2010 Personal Property Factors & Tables” link.

 

The 2010 Personal Property Tables are attached to this e-mail in an Adobe Acrobat file.  In addition, the 2010 Personal Property Tables’ “absolute values” tables have been attached to this e-mail in an Excel file.  The 2010 Personal Property Tables will also be included in Division Bulletin #6 that will be distributed and posted to the Division website today. 

Thank you for your participation and patience in the process.  Please contact me if you have any questions.

 

Sincerely,

 

__________________________
Kenneth Beazer
Property Tax Specialist III
Colorado Department of Local Affairs
DIVISION OF PROPERTY TAXATION
1313 Sherman St. Suite 419
Denver, CO  80203
Work: 303-866-2790
Fax: 303-866-4000

ken.beazer@state.co.us
www.DOLA.Colorado.Gov/PropertyTax/index.htmwww.dola.colorado.gov/dpt

The Obama administration has recently renewed its efforts to repeal 60 year old tax allowances extended to the oil and natural gas industry if that industry re-invests profits into drilling wells and maintaining our country’s oil and natural gas reserves. These tax incentives were never government “subsidies” to the oil and natural gas business (similar to checks sent to farmers for not growing crops), as this president would have an ill-informed public believe, and no real money will be generated to the federal cookie jar to help pay for his proposed health care plan, for instance. It is phony money.

Obama is politically motivated to tax “big oil” in this country for what most people believe are excessive profits. Those profits however, even in the biggest of big oil companies, rarely exceeds 10% of annual capital expenditures and it is American share holders, young and old, retired and working, including labor unions and teachers pension plans, that own those companies and share in those profits. No American could ever expect to own a pizza shop and only earn 10% per year profit; an oil company that does is evil and subject to penalties. And few people can accept that if for instance Exxon reports 6 billion dollars of profits in one fiscal quarter it is likely to spend 12 billion dollars   developing one, fairly average oil field in deep-water Gulf of Mexico. Oil this country desperately needs.

If Obama’s tax bill is passed as proposed companies big and small won’t drill expensive wells, nor marginal wells, and our entire domestic rig count, onshore and offshore, will cease and desist. Hundreds of thousands of jobs in the United States will be lost. This country will become MORE dependent on foreign oil, not less, and our country’s energy security will be jeopardized even more than it is now. As a result of Obama’s misguided energy plan your gasoline prices will go up, not down. And maybe someday all those trips to the mall, or out to dinner, will be out of reach completely.

Over 70 % of our country’s daily crude oil consumption is used for transportation reasons and we will be dependent on fossil fuels until inexpensive alternatives to gasoline, diesel and jet fuel can be developed. That is many, many years away. Wind power and solar energy is a partial solution to home energy needs but cannot be readily transferred to vehicles. The bio mass required to make bio fuels costs more per incremental gallon to produce than gasoline and takes valuable farm land out of productive food rotation. Chemicals in fertilizers are destroying our water resources. No nuclear power plants have been built in this country in 25 years, no new refinery in 18 years, what’s the plan in that? There is no such thing as clean coal. The only short term fix we have to our transportation needs is in abundant natural gas that can be made into LNG for our vehicles and the Obama administration has yet to even broach that subject. America’s oil and natural gas resources are a valuable part of any long term energy strategy.

Today our country imports 63% of our daily oil needs from unstable Latin American countries and radical Islamic countries in the Middle East that use the money we pay them to fund terrorism against us. China is buying the worlds oil reserves before our very eyes, even in the Gulf of Mexico. Americans are prohibited from developing our own countries resources in places like the Alaskan Refuge and in national parks; ALL of America’s offshore waters are closed to exploration except off Texas, Louisiana, Mississippi and Alabama. There are billions of barrels of known crude oil reserves within sight of the California coastline that the federal government protects, in the mean time the worse environmental disaster ever in this country involved a tanker full of Alaskan oil, headed for, of all places, Long Beach, California.

Obama’s energy leadership is confusing and deceitful to the American people. Please read the following example of that deceit in a recent Wall Street Article. We can’t sustain our own energy resources in the United States but apparently have sufficient money, real money, to spend helping other countries develop their resources…

America Needs America’s Oil.

Thank you.

http://online.wsj.com/article/SB10001424052970203863204574346610120524166.html

CACI Tax Council- Meeting Notes

Posted: February 5, 2010 in Uncategorized

The tax council lunch meeting that took place today- Friday February 5, 2009 at 12:00PM, included the Senator Sandoval (Chair of the Senate Finance Committee), and Representative Judd (Chair of the House Finance Committee).  They presented the 13 tax exemptions that are going to be eliminated/suspended. 

For Sales & Use Tax Legislation, the following exemptions will be eliminated:  Direct Mail, Energy Used for Industrial Purposes, Candy & Soda, Repeal Software Regulation, Out-of-State Retailers (online sales), Nonessential Food Containers, and Agricultural Products.  For Income Tax Legislation, the following exemptions will be eliminated: Type 7 Cars from Alt. Fuel Tax Credit, Conservation Easement Cap, Net Operating Loss, and the Enterprise Zone Investment Tax Credit.  This is estimated to bring additional revenue to the state of between $68-73 Million for 2010-11, and $90-94 Million for 2011-12. 

There is also proposed new legislation for Business Personal Property Tax.  Bill SB 10-085 creates a pilot program to temporarily provide a business personal property tax exemption that is restricted to five counties.  Bill SB 10-086, specifies that the actual value of business personal property that is fully depreciated, as defined by the Division of Property Taxation, will gradually be exempt from property taxes starting in the property tax year 2011. 

Both the Senator and Representative Judd expressed difficulty in deciding how to solve the state budget problem.  Schools and Medicaid make up the majority of the state budget.  Currently the state budget is at $6.7 Billion, schools accounting for $3.2 Billion, and Medicaid for $2 Billion.  The plan of the Democratic Caucus will be to pass the suspension of these 13 exemptions, and going forward, revisit the remaining 87 tax exemptions and propose a 10% cut across the board to increase revenue. 

Both representatives were pressed on the the Tabor Amendment, and whether these tax increases are actually constitutional.  They maintain that these actions could be “arguable” and could lead to litigation up to the Supreme Court level, but they feel that these actions are defendable under the constitution.  When asked what the Republican Caucus is proposing, they had mentioned a .024 cut of government across the board.  Under the current administration it was clear in this meeting that their strategy is to increase taxes rather than aggressively cutting spending.  When asked “What if it doesn’t work”, their response was “We’ll have to wait and see”. 

John F. Haettich

Mark Ballenger II Presents

Monthly Economic Update for February, 2010

 

Quote of the month. “We would worry less about what others think of us if we realized how seldom they do.” – Ethel Barrett

The month in brief. Wall Street had an eye on Washington for much of last month. Anticipation of earnings season gave way to concern over what might happen if proposed limits on bank risk went into effect, and what might happen if federal tax credits in the housing market went away. Stock and commodities markets fared poorly as some economic data led traders, economists and investors to wonder how much of the recession recovery was attributable to government measures. Still, consumer confidence was on the rise and the economy was clearly on the mend.

Domestic economic health. Some very good news arrived in January: according to the Commerce Department, the preliminary 4Q GDP reading was +5.7%, the best quarter in six years and 1.0% higher than the expectations of analysts. Consumer spending represented 2.0% of the gain. Additionally, the Conference Board’s survey of consumer confidence hit a two-year high last month.1 The University of Michigan consumer sentiment poll rose by 1.6 points to 74.4.2 The latest consumer spending data showed a 0.2% gain for December. January also brought the best news on factory output in five years – the Institute for Supply Management’s manufacturing index read 58.4 for the month. 3

Other news items bothered the Street. In late January, President Obama rolled out a proposal he referred to as “the Volcker rule”. Developed with input from former Federal Reserve chairman Paul Volcker and former SEC chair William Donaldson, the rule would prohibit banks and bank holding firms from getting involved in hedge funds or conducting proprietary trading operations.4 Intended as a corrective to the behavior of the 2000s, the proposed limits on bank size and bank risk sent stocks skidding, as investors saw reduced potential for bank profits. Tightening in China, debt problems in Greece and a downgrade of the U.K.’s banking system didn’t help the mood.

In terms of rates we all watch, things stayed pretty much the same: the benchmark interest rate remained between 0-0.25% after the latest Federal Open Market Committee meeting, and the Senate reconfirmed Ben Bernanke as Fed chair. We learned that the jobless rate stayed flat in December at 10.0%.5 The inflation rate (CPI) had inched north 0.1% for December, up 2.7% over the last 12 months with core CPI rising 1.8% in that stretch.6

A previously obscure Massachusetts state senator became a person of influence on Capitol Hill. The unexpected election of Sen. Scott Brown (R-MA) effectively derailed passage of the Obama administration’s seemingly assured healthcare reforms. White House press secretary Robert Gibbs claimed that the health care reform bill was still “inside the five-yard line.” There were signals that health insurance reform might be the new tack.7

Global economic health. Concerned about an overheated economy, China told its commercial banks to boost capital ratios; that led to the worst market day in Asia since early November, and it was the first in a series of cautions from the government.8 China’s GDP was +10.7% in 4Q 2009 with December showing amazing annualized gains in industrial output (+18.5%) and retail sales (+17.5%).9 The Bank of Japan forecast moderate improvement for that nation’s economy; Japan’s jobless rate fell to 5.1% in December, and its vehicle sales went north in January for the sixth consecutive month.10

In Europe, the government of Greece wrestled with a $75 billion budget deficit. Standard and Poor’s took the United Kingdom’s banking system off of its global list of “most stable and low-risk” banking systems.11 Yet Eurozone consumer confidence increased for the tenth consecutive month in January, even as the latest figures showed unemployment had reached 10.0% for November.12,13

World financial markets. Indices in a few of the BRIC nations posted gains last month. Venezuela’s Caracas General pulled off a 7.7% increase, and Russia’s RTSI rose 3.3%; the Jakarta Composite in Indonesia gained 3.0%. (The world’s best performing index was the CASE 30 in Egypt, which rose 7.8% last month.) Most world indices took monthly losses, as follows: Hang Seng, -8.0%; Shanghai Composite,

-8.8%; Sensex, -6.3%; All Ordinaries, -5.9%; Nikkei 225, -3.3%; STOXX 600, -2.4%; DAX, -5.9%; CAC 40, -5.0%; FTSE 100, -4.1%. The MSCI World Index fell 3.67% in local currency terms; the MSCI Emerging Markets index lost 4.47% in January.14,15,16

Commodities markets. Most commodities struggled on the NYMEX last month. Three posted January gains of 5% or better: coal, +8.31%; sugar, +9.80%; orange juice, +5.46%. Platinum prices went up 3.15% and palladium prices gained 0.93%. Gold lost 1.20%, silver 3.89% and copper 8.79%. Gold ended the month at $1,083.00 per ounce. Crude oil, which finished January at $72.89 per barrel, lost 8.15% for the month. Crops were hit hardest, with soybeans down 12.83%, wheat down 12.47%, corn down 13.99% and oats down 17.69%. The U.S. Dollar Index gained 2.07% last month.17

Housing & interest rates. What would happen with the housing market without federal subsidies in place? The latest new and existing home sales figures made analysts wonder. Purchases of existing homes fell by 16.7% while new home purchases dipped 7.6%; both figures reflected the assumption that government tax credits were expiring.17 Construction spending slipped 1.2% in December.18 On the bright side, National Association of Realtors tallies put existing home sales for 2009 approximately 5% above levels of 2008.19

What about mortgage rates? Did 30-year FRMs manage to average under 5% for another month? The answer is yes. On January 28, Freddie Mac tracked average interest rates on 30-year FRMs at 4.98%. Rates on 15-year FRMs were averaging 4.39%, rates on 5-year hybrid ARMs were averaging 4.25% and rates on 1-year ARMs averaged 4.29%.20

Major indexes. January brought some chills to Wall Street, with the proposed “Volcker rule” and concerns about financial pressures in China, England and Greece affecting the three marquee indices.

% Change 1-Month 2009
DJIA -3.46 +18.82
NASDAQ -5.37 +43.89
S&P 500 -3.70 +23.45
10YrTIPS Real Yield -12.16 -30.84


(Source: CNBC.com, ustreas.gov, 1/29/09)17,21

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.

 

February outlook. The Dow opened February with strong gains, as it did in January – it seemed those who had sold stocks toward the end of the month wanted to buy back in. Some feel a correction is coming after the fantastic gains of 2009; in late January, the S&P 500 broke it 80-day moving average for the first time since March.22 Bulls feel January represented a short-term blip on the radar screen in response to the headlines of the moment, and that investors will proceed cautiously but with confidence.

Let’s take a look at February’s significant economic releases. We have the January ISM service sector index (2/3), December factory orders (2/4), January’s unemployment report (2/5), December wholesale inventories (2/9), January retail sales and December business inventories (2/11), the University of Michigan’s February consumer sentiment index (2/12), January industrial production, housing starts and building permits (2/17), January PPI and the Conference Board’s leading indicators (2/18), January CPI (2/19), the Case-Shiller home price index for December and February consumer confidence as measured by the Conference Board (2/23), January new home sales (2/24), January durable goods orders (2/25) and January existing home sales (2/26). On March 1, we’ll learn about January consumer spending.

 

Riddle of the month. Some months have 30 days, others 31. How many have 28?

Contact my office or see next month’s Update for the answer.

Last month’s riddle. If an electric train is going south and the wind is blowing north, what direction is the smoke going?

 

Last month’s riddle answer: Nowhere – an electric train doesn’t emit smoke.

 

___________________________________________________________________

 

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___________________________________________________________________

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Ballenger Asset Management & Research are not affiliated.

These views are those of Peter Montoya Inc., and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The Caracas Stock Index consists of 15 companies, and its regulatory body is the National Securities Commission of Venezuela. The RTS Index (RTSI) is an index of 50 Russian stocks that trade on the RTS Stock Exchange in Moscow. The Jakarta Stock Price Index is a modified capitalization-weighted index of all stocks listed on the regular board of the Indonesia Stock Exchange. The CASE 30 (Cairo & Alexandria Stock Exchange: EGX30) is the main stock exchange of Egypt. The Hang Seng Index is a free-float capitalization-weighted index of selection of companies from the Stock Exchange of Hong Kong. The Shanghai Stock Exchange Composite Index is a capitalization-weighted index that tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange. The BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The S&P/ASX All Ordinaries Index represents the 500 largest companies in the Australian equities market. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The Dow Jones STOXX (Price) Index is a broad based capitalization-weighted index of European stocks. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSE 100 Index is a share index of the 100 most highly capitalized companies listed on the London Stock Exchange. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards.


Citations.

1 washingtonpost.com/wp-dyn/content/article/2010/01/29/AR2010012901694.html?hpid=moreheadlines [1/29/10]

2 money.cnn.com/2010/01/29/markets/markets_newyork/ [1/29/10]

3 online.wsj.com/article/SB10001424052748704107204575038941133108482.html?mod=WSJ_Commercial_sections_HomeAndGarden [2/1/10]

4 curiouscapitalist.blogs.time.com/2010/01/21/a-question-about-the-volcker-steagall-act/?xid=rss-topstories [1/21/10]

5 online.wsj.com/article/SB126295679510421517.html?mod=rss_Today%27s_Most_Popular [1/8/10]

6 money.cnn.com/2010/01/15/news/economy/consumer_prices_december/ [1/15/10]

7 cnn.com/2010/POLITICS/01/31/health.care/ [12/4/09]

8 cfdtrading.com/category/asian-markets/page/2/ [1/13/10]

9 cfdtrading.com/category/asian-markets/ [1/26/10]

10 cfdtrading.com/category/asian-markets/ [2/1/10]

11 online.wsj.com/article/BT-CO-20100128-716068.html?mod=rss_Global_Stocks [1/28/10]

12 cfdtrading.com/category/european-markets/ [1/28/10]

13 marketwatch.com/story/euro-zone-unemployment-at-11-year-high-2010-01-08?reflink=MW_news_stmp [1/8/10]

14 online.wsj.com/mdc/public/page/2_3022-intlstkidx.html?mod=mdc_intl_pglnk [1/29/10]

15 blogs.wsj.com/marketbeat/2010/01/29/data-points-asia-europe-193/ [1/29/10]

16 mscibarra.com/products/indices/stdindex/performance.html [1/29/10]

17 cnbc.com/id/35150197 [1/29/10]

18 seekingalpha.com/article/184822-an-expected-drop-for-u-s-home-sales [1/27/10]

19 nytimes.com/2010/01/30/business/economy/30charts.html [1/29/10]

20 freddiemac.com/pmms/ [2/1/10]

21 ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [1/29/10]

22 cnbc.com/id/35184183 [2/1/10]


Mark Ballenger II
1775 Sherman Street Ste 2700, Denver, CO 80203
Phone: 303-886-5992
E-mail: mark.ballenger@ballengerassetmgmt.com  |  Website: www.ballengerassetmgmt.com

Stop the Tax Madness

Posted: February 4, 2010 in Uncategorized

I received an invitation to the Colorado Association of Commerce & Industry Tax Council Meeting this coming Friday with Senator Paula Sandoval and Representative Joell Judd, Chair of the House Finance Committee.  Topics for discussion include the suspension and elimination of 13 tax exemptions, credits and exclusions that are included in the Governor’s budget proposal.  When does the madness end.

Needless to say, our representatives are most likely in for a hostile crowd.  Here we are in a situation where small and mid-sized businesses are hurting for tax relief, yet they are receiving the opposite.  Granted the problems of the State of Colorado are complicated and difficult to handle, if we expect to tackle the unemployment problem that has gripped our state and nation, we have to get beyond the idea that throwing more money at a problem will fix it.  When will our government realize that small and mid-sized business is the core of our economy, and the solution to our unemployment problem.  More comments to come after the Tax Council meeting.