Senators seek tax guarantee for when oil prices are low

Anchorage Daily NewsFebruary 25, 2012 

JUNEAU -- The tax debate in the state Senate took a twist Saturday.

Some senators say if the Legislature rolls back the tax rate when oil prices are high, as oil companies and Gov. Sean Parnell want, it also should ensure the state gets a guaranteed minimal level of oil tax revenue when prices are low.

That's something the Legislature gave up in 2007 when it passed the current tax on oil profits, called Alaska's Clear and Equitable Share, or ACES.

The original idea pushed by then-Gov. Sarah Palin, set a floor or minimum tax, and the relationship between the lowest and highest tax rates was key, Palin told legislators.

"If one knob is turned, for example on lowering our proposed gross floor tax, then it's imperative to turn another knob to recover an equitable share when oil prices soar," Palin wrote to legislators in November 2007.

But the Legislature in 2007 opted for a high tax rate at high oil prices, and gave up the minimum tax.

"That was the absolute bargain that was struck," Sen. Bill Wielechowski reminded his colleagues on the Senate Resources Committee Saturday.

If the Legislature puts in place a new minimum tax, and lowers taxes at the high end, the result will be a more durable system that won't have to be overhauled every few years, the senator said.

The Resources panel is taking the lead on crafting a Senate alternative to a tax measure pushed by Parnell that passed the House last year but not the Senate. That measure, House Bill 110, would roll back taxes in an attempt to spur new oil production, but critics say it would give away too much.

The senators have their own legislation, Senate Bill 192. They are talking about a multi-pronged approach: Lowering the top rate of taxes, giving allowances or credits to companies that increase production, and setting a floor or minimum tax rate.

As it is, if oil prices plummet to $47 a barrel or lower, once credits and deductions are factored in, the state wouldn't collect any tax on oil profits, under some calculations. And while oil prices that low seem remote -- Alaska North Slope crude was a penny under $128 a barrel Friday -- they fell below that just three years ago.

Wielechowski and Sen. Hollis French, both Anchorage Democrats, are proposing a base minimum tax of 10 percent of the oil's gross value that would be charged only to the big, legacy oil fields of Prudhoe Bay and Kuparuk.

Alaska's current oil tax structure gradually ramps up state's share of profits as oil prices grow to a maximum tax on profits of 75 percent.

Senators are looking at adjusting the rate at various points along the way, and lowering the cap to maybe 60 percent. The governor wants the top rate at 50 percent, and even lower for new oil fields.

The Resources Committee plans to continue its work on taxes all week.


Reach Lisa Demer at ldemer@adn.com.

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