Opinion: Alaska continues to lose revenue over its oil tax policy

Opinion: Alaska continues to lose revenue over its oil tax policy

It’s time to examine what the best tax system is for the state.

  • Tuesday, April 16, 2019 10:10pm
  • Opinion

As predictable as Juneau rain, Alaska has an oil tax problem.

Almost since the beginning of commercial oil and gas development in Alaska, the state’s oil taxation policy has focused on tax incentives to try to influence oil companies’ investment decisions and increase future resource production and revenue. Past changes in the state’s oil and gas production tax system were necessary because of tax incentives gone wrong.

The same is true today. Today’s problem has its roots in a North Slope capital expenditure credit introduced in 2006 that provided oil companies with a 20 percent tax credit for certain expenditures.

[Opinion: Please, tax us!]

In 2013, the state found the credit could cost billions in lost revenue without necessarily contributing to future oil and gas production. Through Senate Bill 21, the state repealed the capital expenditure credit and moved to tax incentives based on production rather than investment.

To encourage development of “new” oil on the North Slope, the legislation included a gross value reduction where 20-30 percent of new oil production would be tax free, and added a $5 per barrel credit — the more new oil a company produced, the lower its tax obligation.

The major North Slope producers wanted a similar incentive as was being provided to new fields to apply to existing oil fields like Prudhoe Bay. SB 21 added a sliding scale credit so for each barrel of oil produced from existing fields, producers qualified for a tax reduction from zero up to $8 per barrel depending on the price of oil.

[Opinion: America needs a national health care system]

To provide a progressive tax structure, the legislation raised the production tax rate from 25 percent to 35 percent; application of the tax reductions meant that the 35 percent tax rate would be reached only at very high oil prices starting around $160 per barrel.

Now in 2019, with oil prices between $60 and $70 per barrel, major oil producers can claim the maximum tax reduction of $8 per barrel and pay an effective tax rate at or near the minimum floor of 4 percent on the gross value of oil. New fields benefit from the gross value reduction and $5 per barrel credit. This is in addition to the deductions companies take as part of the net profit tax system.

As a result, the state stands to lose over a billion dollars in oil revenue while funds for public services and infrastructures are slashed. To make matters worse, state purchase of oil tax credits previously issued to smaller companies under a now-repealed incentive program continues to loom as an issue.

[Opinion: Changing Alaska’s oil tax policy again would stall economic momentum]

A 2007 law established a fund for paying the credits with the fund amount based on a percentage of production tax revenue. If oil prices dropped and there were insufficient funds to cover all credit applications, partial payments would be allocated among the applicants. With over $800 million in outstanding purchase applications, the Alaska Legislature routinely appropriates more than the law requires.

There is no evidence that Alaska’s oil tax incentives resulted in production that would not have occurred without the incentives, or that future production will result in revenue sufficient to offset today’s losses.

The time to stop the revenue loss is now — the sliding scale credit and new oil incentives must be repealed this legislative session. Given the state’s dire fiscal situation, legislators should limit cash payments to the amount required by law.

To put an end to our crisis-driven piecemeal approach to oil tax changes, the Legislative Council should undertake a comprehensive study of Alaska’s oil and gas taxation system that includes a hard look at the actual results of our incentive based policy. This examines what the best tax system is for Alaska, including consideration of a system based on the gross value of oil versus the net profits tax that we have now.

Ultimately the question is, how will we manage our remaining oil and gas resources to make a lasting difference in Alaska’s economic future?

Lisa Weissler is a retired state attorney specializing in oil and gas and natural resource law. She lives in Juneau.

• Lisa Weissler is a retired state attorney specializing in oil and gas and natural resource law. She lives in Juneau. My Turns and Letters to the Editor represent the view of the author, not the view of the Juneau Empire.

More in Opinion

Gov. Mike Dunleavy discusses his veto of a wide-ranging education bill during a press conference March 16 at the Alaska State Capitol. (Mark Sabbatini / Juneau Empire file photo)
Governor, please pay more attention to Alaskans

Our governor has been a busy guy on big issues.

A roll of “I voted” stickers sit at the Alaska Division of Elections office in Juneau in 2022. (Ben Hohenstatt / Juneau Empire File)
Strengthening democracy: Native vote partners to boost voter registration

GOTNV and VPC are partnering to send over 4,000 voter registration applications this month to addresses and P.O. boxes all over Alaska

Priya Helweg is the acting regional director and executive officer for the Region 10 Office of Intergovernmental and External Affairs, Office of the Secretary, U.S. Department of Health and Human Services. (Photo courtesy U.S. Department of Health and Human Services)
Happy Pride Month

This month is dedicated to acknowledging and uplifting the voices and experiences of the LGBTQI+ community

Hiroko Masuike/The New York Times
Former President Donald Trump arrives at Trump Tower after he was found guilty of all counts in his criminal trial in New York on May 30.
Opinion: Trump’s new fixers

Fixers from Alaska and elsewhere step in after guilty verdict

Ballot booths are set up inside Kenai City Hall on Thursday, Sept. 29, 2022, in Kenai, Alaska. (Ashlyn O’Hara/Peninsula Clarion)
Perspective from an election worker

Here is what I know about our Kenai Peninsula Borough election system

Apayauq Reitan, the first transgender woman to participate in the Iditarod, tells the House Education Committee on March 30, 2023, why she opposes a bill restricting transgender rights. (Mark Sabbatini/Juneau Empire file photo)
Opinion: The imaginary transgender sports crisis

House Bill 183 is a right-wing solution to a problem that doesn’t exist now and never will.

Sen. Jesse Bjorkman, a Nikiski Republican, speaks in favor of overriding a veto of Senate Bill 140 during floor debate of a joint session of the Alaska State Legislature on Monday, March 18, 2024. (Mark Sabbatini / Juneau Empire)
Sen. Jesse Bjorkman: Session ends with budget, dividend and bills passed

Capitol Corner: Legislators report back from Juneau

The Alaska State Capitol. (Clarise Larson / Juneau Empire file photo)
Listen to PAs; support Senate Bill 115: Modernizing PA Practice in Alaska

Health care is rapidly evolving, demanding a more flexible and responsive system

Mount Redoubt can be seen across Cook Inlet from North Kenai Beach on Thursday, July 2, 2022. (Erin Thompson/Peninsula Clarion file photo)
Opinion: Hilcorp Alaska: Powering Southcentral Alaska — past, present and future

Hilcorp Alaska has and will continue to fully develop our Cook Inlet basin leasehold

Sen. Jesse Bjorkman, a Nikiski Republican, speaks in favor of overriding a veto of Senate Bill 140 during floor debate of a joint session of the Alaska State Legislature on Monday, March 18, 2024 (Mark Sabbatini / Juneau Empire)
Sen. Jesse Bjorkman: Collegiality matters

Capitol Corner: Legislators report back from Juneau

Juneau Empire file photo
Larry Persily.
Opinion: Alaska might as well embrace the past

The governor, legislators, municipal officials and business leaders are worried that the Railbelt will run short of natural gas before the end of the decade