VOLUME 3 | ISSUE 3 | SEPTEMBER 2026
2026 SESSION DOMINATED BY TAX DISCUSSIONS
C CORPORATIONS VS. S CORPORATIONS For the oil and gas industry, the distinction is significant. A C corporation pays Alaska corporate income tax on its tax- able income. At the top bracket, that rate is 9.4%. An S corporation, by contrast, generally passes its income through to its owners for tax purposes. Because Alaska has no indi- vidual income tax, that income currently escapes an Alaska income tax at both levels. The Senate sought to change that equation. One version of the LNG legislation would have extended Alas- ka's corporate income tax to certain oil and gas pass-through en- tities with more than $1 million in taxable income. The proposal included graduated rates reaching 9.4%. The Department of Reve- nue estimated the change could generate as much as $100 million annually. The proposal was aimed primarily at large privately held oil and gas businesses, with Hilcorp emerging as the most prominent example. Glenfarne, which is privately held and is leading Alaska LNG, also became part of the discussion. Supporters argued that the current system creates an inequity: publicly traded oil companies pay corporate income taxes while comparable privately held producers can avoid the tax because of their corporate structure. Opponents countered that changing the rules in the middle of major investment decisions could discourage investment in Alas- ka's oil and gas sector. That disagreement ultimately became the Legislature's biggest obstacle to an LNG deal. THE LNG TAX BATTLE During the second special session, the Senate incorporated the pass-through tax into its version of HB 381. The Senate ultimately passed the legislation 11-8. The conference committee's compromise retained the expand- ed corporate tax but exempted income from the Alaska LNG proj- ect itself. The intent was to protect the project's financing prospects while capturing additional revenue from other oil and gas pass- through entities. The governor rejected the approach. When the House considered the compromise July 16, the vote ended in a 19-19 tie. Dunleavy had warned that he would veto leg- islation containing what he characterized as a targeted tax increase that could undermine the LNG project. The failure prompted the governor to call a third special session. For supporters of the corporate tax change, the issue was about more than simply raising revenue. They argued that Alaska needs a mechanism to replace some revenue that could be lost as producers shift investment toward natural gas. Industry groups have opposed the proposed expansion, warn- ing about its potential effect on future investment. A LAST-MINUTE COMPROMISE As the third special session progressed, Dunleavy moved closer to the Legislature's position. In August, the governor proposed a compromise that would impose a 2% corporate income tax on certain oil and gas S cor- porations and other pass-through businesses, while maintaining favorable treatment for the Alaska LNG project. The proposal was
substantially below the 9.4% maximum contained in the earlier legislative version. The proposal demonstrated how far negotiations had moved. The governor, who had initially rejected any new tax on oil and gas producers, was now willing to accept a limited tax on privately held producers in an effort to preserve the larger LNG project. But the compromise came too late. The governor introduced the proposal during the final weeks of the special session, while legislative leaders indicated that there were not enough votes to move it forward. The House majority an- nounced that it did not have the votes necessary to pass the admin- istration's legislation, and the Senate majority indicated it was not prepared to reconvene for a vote. The third special session ended without a resolution. AN UNFINISHED RESOURCE AGENDA The Legislature's work on oil and gas taxation is unlikely to end with the 2026 special sessions. The next Legislature will inherit the Alaska LNG debate, questions surrounding Cook Inlet's declining gas supply and the broader issue of whether Alaska's corporate tax structure appropriately treats publicly traded companies and pri- vately held pass-through businesses. The state remains committed in principle to attracting new in- vestment in oil, gas, mining and other resource sectors. But the year showed how difficult it can be to translate that commitment into tax policy that satisfies lawmakers, industry and investors simultaneously.
BY FIREWEED STRATEGIES
lar session, including measures involving education, municipal taxa- tion, occupational licensing, economic development and other areas. Among the resource-related measures was House Joint Resolution 18, urging support for Alaska LNG. The Legislature also passed leg- islation affecting municipal property-tax exemptions and other busi- ness and economic matters. But the most consequential resource-development issue — House Bill 381, introduced at the governor’s request — remained unresolved. HB 381 initially focused on changing the property-tax treatment of the proposed Alaska LNG pipeline and establishing an alternative volumetric tax on natural gas throughput. The project would include an approximately 800-mile pipeline, a North Slope gas treatment fa- cility and an LNG export terminal at Nikiski. Current cost estimates have reached roughly $44.5 billion to $54.5 billion, with the pipeline itself accounting for an estimated $13.2 billion to $16.9 billion. The fundamental argument was straightforward: Glenfarne, the project's lead developer, contends that the existing property-tax structure creates too much uncertainty for a project that will require enormous amounts of private financing. Lawmakers generally agreed that Alaska needs to improve the project's tax framework. They disagreed sharply over how much tax relief should be provided, what conditions should accompany it and whether other oil and gas companies should pay more to offset some of the state's potential revenue loss. THE OIL AND GAS TAX QUESTION At the center of the debate was an issue much larger than Alaska LNG: How Alaska should tax oil and gas companies as the state's tra- ditional production base changes. Alaska already collects substantial revenue from oil and gas through production taxes, royalties, property taxes and corporate income taxes. The state's oil production tax generally applies at a 35% rate to tax- able net value, while gas produced for sale is subject to a separate 13% gross-value production tax under current law. Alaska also imposes a graduated corporate income tax, with a top rate of 9.4%. The controversy in 2026 centered on which companies actually pay that corporate income tax. Traditional C corporations — including major publicly traded oil companies such as ConocoPhillips — are subject to Alaska's corpo- rate income tax. Privately held businesses organized as S corporations or other pass-through entities generally are not taxed at the entity level because their income flows through to their owners. That distinction dates to Alaska's decision to repeal its individ- ual income tax in the early 1980s. Because Alaska has no personal income tax, income passing through an S corporation generally isn't taxed at either the corporate or individual level. That structure became a major point of contention during the LNG debate.
THE ALASKA LEGISLATURE’S 2026 SESSION WILL BE REMEMBERED LESS FOR MAJOR BREAKTHROUGHS IN RESOURCE DEVELOPMENT THAN FOR THE TAX AND POLICY BATTLES THAT CONSUMED MUCH OF ITS FINAL MONTHS — PARTICULARLY THE UNRESOLVED EFFORT TO ESTABLISH A TAX FRAMEWORK FOR THE PROPOSED ALASKA LNG PROJECT. After completing the 121-day regular session in May, lawmakers were unable to resolve Gov. Mike Dunleavy’s top legislative priori- ty: legislation intended to change the tax treatment of the proposed North Slope-to-Southcentral natural gas pipeline. That dispute ulti- mately led to three consecutive special sessions, with the final one expiring Aug. 25 without a bill reaching the governor. The outcome leaves Alaska LNG, and a broader debate over how Alaska taxes oil and gas development, as unfinished business for the next Legislature. The Legislature did enact a range of legislation during the regu-
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ALASKA RESOURCE REVIEW SEPTEMBER 2026
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