Anchorage Daily News

JUNEAU -- The war over oil taxes was rekindled Friday with a bill that would roll back parts of the multibillion-dollar tax increase on the North Slope oil companies that the Legislature passed only two months ago.

Senate Resources Committee Chairman Charlie Huggins sponsored the bill. It would reverse the Legislature's decision in the November special session to make the oil tax hike retroactive to June 30.

It also would abolish the limit on how much oil companies can deduct from their tax bill for operating costs at the Prudhoe and Kuparuk fields. Those are the two biggest and oldest North Slope oil fields.

Huggins said putting a cap on deductions was never studied in Senate committees before it became part of the bill. And making the tax increase retroactive to June 30 wasn't fair, the Wasilla Republican said.

"If I was an IRS man and said I was going to make a retroactive tax provision for you and your neighbors and everybody else in the United States, you would not be too happy," Huggins said. "For us to just summarily do that in Juneau to one of our business partners is a questionable process." His bill would make the tax effective on Jan. 1, 2008.

Anchorage Democratic Rep. Les Gara said reversing the retroactive part of the tax would cost the state about $600 million.

"I don't think giving state money back to oil companies who are making record profits is the way to go," Gara said.

Anchorage Democratic Sen. Hollis French pledged to fight Huggins' SB 242. French said he expects it's going to be contentious.

"My first thought was, here we go again," said French. "I'd hoped we had finished that debate and put it behind us."

The limit on how much the oil companies can deduct from their tax bill was a huge issue for Democrats in the November special session on oil taxes.

They managed to amend the tax to cap the growth in operation-expense deduction at Prudhoe and Kuparuk to no more than 3 percent a year.

Many Democrats said they would never have voted for the oil tax without the cap on how much companies can deduct. One problem with the previous tax was that it wasn't bringing in nearly as much money as the state thought it would because of rising deductions, they said.

Democrats called the cap a compromise that let them accept an oil tax on profits.

Many really wanted a tax on the gross value of the oil -- which they argued would be less vulnerable to manipulation by sharp oil company accountants claiming deductions from their state tax bills.

The cap on deductions is to go away after three years unless renewed. That's a sign lawmakers aren't comfortable with it, Huggins said, and are worried about what it is going to do to oil production in the state.

FAST TRACK

Senate President Lyda Green sent the bill to only one committee. That's an indication she doesn't want it held up. The bill is going only to the Senate Finance Committee, where Sitka Republican Sen. Bert Stedman said that he'll hold hearings on it.

The Senate passed the oil tax hike in the November special session over the objection of majority Republicans including Green, Huggins and Stedman. An alliance between Democrats in the bipartisan Senate majority and Republicans in the minority caucus got the tax through.

The all-Republican minority had tried to keep the tax from being retroactive. So they could have sympathy for Huggins's attempt to roll that back.

Senate Minority Leader Gene Therriault said he's surprised, though, that Republicans in the majority want to change the oil tax again so soon.

Part of the argument in November against raising oil taxes too often was that it creates an unstable business climate, Therriault said.

State House Speaker John Harris, R-Valdez, supported the oil tax increase but did not like the fact it was retroactive. Harris said he'd consider Huggins' bill if it can make it out of the Senate but does not know how he'd vote on it.

PALIN SURPRISED

Gov. Sarah Palin was the one who proposed the oil tax increase. Palin administration officials were surprised to learn of Huggins' bill on Friday.

"I think it would be something that would inspire a lot of internal discussion," said Russ Kelly, the governor's legislative director.

The oil company BP had a cautious reaction to the proposal to get rid of the retroactivity and the limit on how much it can deduct.

"These are two elements of the (oil) tax bill that concerned us very much," said BP spokesman Steve Rinehart. "But we are still assessing Senator Huggins' legislation."

Find Sean Cockerham online at adn.com/contact/scockerham or call him at 907-586-1531.

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Senate Bill 242 at a glance

According to Sen. Charlie Huggins, R-Wasilla, his bill would:

• Change the start date for the oil tax increase the Legislature approved in November. The tax would start on Jan. 1, 2008, instead of June 30, 2007.

• Abolish the limit on how much oil companies can deduct from their tax bills for operating expenses at the Prudhoe Bay and Kuparuk oil fields. The law now limits growth of those deductions to 3 percent a year. Senate Bill 242 at a glance

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