Bradners'

Alaska Legislative Digest

November 5, 2007     

Oil and Gas Bulletin

Comments? E-mail: timbradner@pobox.alaska.net

Senate committee dumps gross revenues tax floor but ups tax rate

Legislators in Juneau worked through the weekend in a push to get Gov. Sarah Palin’s oil tax bill out of two more committees, the Senate Judiciary and House Resources committee. The Senate version of Palin’s bill cleared the Judiciary Committee Saturday afternoon but members of the House Resources committee labored Saturday and Sunday and late into Sunday evening, before finally getting the bill out. The Finance committees in both the House and Senate are now set to begin work in what should be the final lap for the special session. Once the Finance committees finish their changes, Palin’s bill is set for a floor vote in the House and Senate. There could also be a conference committee, however, if there are big differences in the bills that emerge in the two legislative houses. The special session must conclude its work by Nov. 17 unless legislators extend it.

Both committees also upped the tax rate of the state Petroleum Profits Tax from 22.5 percent to 25 percent, which the governor wanted. However, the Senate Judiciary Committee also eliminated a gross revenues tax Palin proposed that would have applied just to the big producing oil fields, the Prudhoe Bay and Kuparuk River fields. State Revenue Commissioner Pat Galvin said taking away the gross revenues tax was okay with the administration as long as the tax rate was higher and some of the money is saved.

Both committees also changed the “progressivity” formula in that tax law that ups the tax at higher oil prices. Both committees went to even higher levels of tax than the administration had asked for. The House Resources Committee also tied tax rate changes in the progressivity formula to changes in the gross wellhead value of oil rather than net profits per barrel as in the existing tax. The effect of this would have the state taxing 50 percent of net profits if oil prices get to $115 per barrel. In the Senate Judiciary Committee bill the tax rate gets to 50 percent of net profits at $117 per barrel. The Judiciary Committee also made its changes in the tax retroactive to January 2007, and specified that part of the money will go to the Constitutional Budget Reserve, the state’s “rainy day” cash savings account.

Senate Judiciary bill would bring in $1.2 billion more than current tax

According to an analysis by the Department of Revenue the Senate Judiciary version of the tax legislation would produce about $1.2 billion more this year than the current state production tax will bring in, assuming $70 per barrel oil prices. About $400 million of that is due to making the tax retroactive, however. The committee specified that the $400 million would go to the Constitutional Budget Reserve. The bill that the Judiciary committee started with had been reported earlier from the Senate Resources Committee. It had included administrative and technical changes in the PPT that the governor had wanted but did not change the tax rate. At oil prices around $70 per barrel the House Resources bill would bring in about $900 million this year compared with the existing state oil production tax, the Department of Revenue said in its analysis.

Judiciary Committee includes SB-80 provisions on deferred maintenance

Judiciary Committee also included language dealing with tax deductions for oilfield maintenance that was taken from another bill pending in the Legislature, SB-80. That language gives state officials the authority to deny deductions under the net profits tax when they think the industry taxpayer has been negligent in doing maintenance. The Palin administration dislikes this provision because it puts state employees in the position of having to decide when an oilfield operator is negligent. The oil producing companies point out that the production tax law now disallows 30 cents per barrel of deductions for maintenance. The House Resources Committee adopted language related to field maintenance in its bill, too, but along the lines of what the Palin administration requested. The governor’s bill would disallow deductions for “unscheduled” maintenance.

The House Resources Committee adopted, and then removed, an amendment that would have tried to force ExxonMobil Corp. to end its appeal of a punitive damages award from the 1989 oil spill. The section was taken out of the bill after House Speaker John Harris told committee members this would require that the bill go to the House Judiciary Committee, which would jeopardize hopes of getting the bill passed by the 30-day deadline for the special session.

Gov. Palin called legislators into special session Oct. 18 to re-vote the Petroleum Profits Tax, which was enacted in 2006 in a process the governor said was tainted by corruption. The governor also proposed changes in the tax, mainly increasing the tax rate, because she said the existing tax has not performed as had been expected.

Committee meeting schedules:

Monday:

• 11 a.m. House floor session to advance HB 2001 to the Finance Committee.
• 1 p.m. House Finance Committee: HB 2001.
• 1 p.m. Senate Finance Committee: Review of current production tax cash flow.

Legislative Digest is a paid-for private subscription service. Our special session Bulletin is distributed free as a public service, and is supported by special grants from a group of subscribers. Editors: Mike and Tim Bradner. Contributing writer: Bob Tkacz.  Interested in getting the regular Legislative Digest and Alaska Economic Report? Contact: mbradner@GCI.net or fax at: (907) 522-1761.