Oil Tax Credit Disagreements Continue
May 18, 2017
“This legislation ending our tax credit program is critical, now, to reduce our cash exposure and protect the state’s treasury,” said Sen. Anna MacKinnon (R-Eagle River). “Without this bill, the state would be on the hook to make cash payments of $150 to $200 million per year, indefinitely, to the eligible small and new companies. We cannot afford to continue this practice.”
House Bill 111 eliminates the state’s cash exposure by ending the program of refundable oil and gas tax credits while protecting the basic components of the tax regime in place today. The current tax regime has boosted production and investment, drawing royalties and tax revenues to Alaska’s treasury and supplying thousands of good jobs to Alaska workers.
“Ending cash credits is a necessary step for the state, but will have serious impacts on smaller companies investing in Alaska’s oil fields,” said Sen. Cathy Giesse (R-Anchorage). “It is more important than ever we maintain a competitive tax system so we can attract the necessary investment for our future oil production, which provides critical dollars we’re counting on to the state treasury.”
With the end of the net operating loss credit statewide, the Alaska Senate and House versions of HB 111 transition to a system of carrying forward lease expenditures that result in a loss for use against future tax liability. Companies with a loss will not be able to use the loss to reduce taxes below the 4 percent gross minimum tax.
The legislation also seeks to provide new opportunities for companies holding refundable tax credits issued before Jan. 1, 2018, to offset prior year tax liabilities related to audits.
“Money due the state in these instances is not forecasted revenue planned on by state financial planners,” said Sen. MacKinnon. “We hope this will help companies monetize their existing credits as we seek to pay off the significant backlog of refundable credits following two years of vetoes.”
Senate leaders were optimistic the House would respond favorably to the bill ending refundable oil and gas tax credits. Legislators of both bodies, across party lines, and Gov. Bill Walker have supported transitioning away from refundable oil tax credits.
However, Wednesday night, the Alaska House of Representatives rejected the changes made by the Alaska Senate to a key piece of pending legislation to reform Alaska’s flawed system of subsidizing the oil and gas industry with tax credits. The State Senate significantly weakened House Bill 111, which passed the House last month.
In a letter to SitNews, Rep. Dan Ortiz (I-Ketchikan) wrote, "The Senate’s priority is loud and clear: oil companies. The Senate’s revision of HB 111, “Oil and Gas Production Tax,” works only for oil companies while leaving Alaskans worse for the wear."
Ortiz wrote, "The Senate budget plan includes $74 million in the operating budget and $288 million in the capital budget for oil tax credit funding. In total, that is $362 million of this year’s budget going directly to the oil companies!"
"The Senate made these changes under the guise of ‘keeping Alaska competitive.’ In reality, Alaska is the only state in the U.S. – and one of the few places in the world – where oil companies made money in the last year," wrote Ortiz.
“The Senate version of the bill follows the lead of the House in stopping the unsustainable practice of the State of Alaska paying cash for tax credits. That is a good thing that is long overdue,” said House Resources Committee Co-chair Representative Geran Tarr (D-Anchorage), who helped develop the House version of HB 111.
“However," Tarr said, "the Senate version of the bill has major problems that we just could not accept. As an example, the Senate refused to accept the provisions we included to make Alaska’s tax system work better in the current low oil price environment, which is expected to continue for the foreseeable future. The hard-working Alaskans that I represent have been clear in demanding that this flawed system be fixed. The House version of the bill works for the people of Alaska. I’m discouraged that the Senate version of the bill is worse than the status quo and appears to only work for oil companies.”
The House version of HB 111 reduces the base tax rate on oil from 35 percent to 25 percent in an effort to spur increased exploration and development on the North Slope. The House version of the bill also protects the State of Alaska by hardening the minimum four percent tax floor, which will ensure some production tax revenue during period of low oil prices. In contrast, the Senate version of the bill creates additional opportunities for oil tax credits to be used to reduce tax payments below the four percent minimum floor, which will cost the state between $10 million to $45 million a year.
The House version of HB 111 is projected to bring in an additional $20 million in new revenue in Fiscal Year 2018 and an estimated $475 million a year by FY 2027. The Senate version of the bill is forecasted to bring in no additional revenue in FY 2018 and only $145 million a year by FY 2027.
“The Senate Majority took our good bill that was developed in the open, with advice from the experts and the input of Alaskans, and replaced it with a bad bill that continues many of the flaws that have placed Alaska in our current precarious financial position,” said House Resources Committee Co-chair Rep. Andy Josephson (D-Anchorage), who helped develop the House version of HB 111. “The best course of action is to take this bill to a conference committee where an acceptable compromise can be reached that protects the state during these low oil prices, while still keeping Alaska competitive as a place for future oil industry investments.”
The Alaska House of Representatives voted 17-22 in failing to concur with the changes to House Bill 111 made by the Alaska State Senate. The bill will now be assigned to a conference committee.
Reporting and Editing by Mary Kauffman, SitNews
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