Complete tax overhaul on Legislature’s agenda
better share risks and rewards be- tween the state and producing com - panies. Under a net revenue tax, the state and producing companies would share the burden if oil prices fell. On the flip side, if prices rose, both would benefit. Over the years, an array of produc - tion incentives as tax credits were also introduced into the state tax code, which became complicated over time. One of legislators’ main arguments for significant changes this year is to simplify the tax law so the public can understand it. However, the timing for this is peculiar, with North Slope producers on the cusp of bringing large, new projects into production — substantially increasing North Slope production — after billions of dollars of investments.
ducers on gross rather than net rev - enue. The current tax on net revenue allows field costs such as drilling and new facilities as deductions while a tax on gross revenue does not. The problem this can create, and the jus - tification for the 2006 change to a net revenue tax, is that in periods of lower oil prices, the state’s share of income from production rises sharply and the producers’ share declines to a point that will impede investment. Howev - er, in periods of higher oil prices, the state loses out on gains under a tax on gross revenue that it would capture under a net tax. This imbalance is what convinced former Gov. Frank Murkowski to sup - port the change in 2006. The propos - al for the switch from gross to net revenue came from Department of Revenue economists who felt that a production tax on net revenue would
took the sales tax out of SB 277. More changes are likely and the legislation is likely to be softened from what the Senate Resources Committee pro - posed, but the uncertainty this creates could chill planned new investments. The timing is also awkward with the federal government putting up several million acres of North Slope and Cook Inlet acreage up for lease in March. The Senate Resources Committee went on to make other changes in the governor’s bill such as a proposal to extend the state corporate income tax to oil producers organized as S-Cor - porations, which are now exempt. This mainly affects Hilcorp Energy, a major North Slope producer. Hilcorp will warn that this will reduce invest - ments the company is now making in Cook Inlet natural gas development. The fundamental change, however, is the switch back to taxing oil pro -
Measure could upend oil and gas tax structure For the first time in years, a change in oil and gas taxes is on the Legis - lature’s agenda in Juneau. Gov. Mike Dunleavy included an increase in the state’s minimum production tax on oil as a part of his fiscal reform leg - islation, which also included a state sales tax. But once the Pandora’s box of oil tax is opened, there is the like - lihood that it could become a runaway train with the Legislature adding its own changes. The first sign of this came in the Senate Resources Committee’s version of the governor’s SB 277 which went to the Senate Finance Committee with changes that go far beyond the gov - ernor’s proposal. If it were adopted, this would upend the basic structure of the state’s oil and gas tax struc - ture in place since 2006 when Alaska switched from a gross-revenue pro - duction tax to a net profits-type tax. The proposal also significantly in - creases the tax rate to a 17.6% tax on gross revenue. When combined with the state’s existing 12.5% royalty, also on gross revenue, this would bring the state’s share to 30% of gross value, depending on oil prices. However, it’s unlikely a lot of the SB 277 changes will stick, Senate leaders have said. The Senate Finance Committee will do modeling and bring in consultants, so changes are likely. Meanwhile, the state House has yet to weigh in on this. Its version, HB 284, is in the House Finance Commit - tee, where the focus has been on the state sales tax. The Senate committee
— Tim Bradner
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Alaska is set for a hefty boost in oil moving through the Trans Alaska Pipeline System this year.
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