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Business/Economy

Hilcorp sale will cost state $30 million annually in lost revenue, former tax officials say

  • Author: James Brooks
  • Updated: August 28
  • Published August 28

Two former directors of Alaska’s tax division and a former state legislator say a gap in Alaska’s corporate income tax system could cost the state millions in lost revenue once a new multibillion-dollar deal between Hilcorp and BP is finalized.

The loss could be more than $30 million per year, said Ken Alper, director of the state’s tax division under former Gov. Bill Walker.

“This is a big deal,” Alper said.

Under Alaska’s existing corporate income tax system, publicly traded corporations are taxed. Privately held corporations are not. On Tuesday, Hilcorp — which calls itself the “largest privately owned oil and natural gas producer in the United States” — announced that it will buy the Alaska assets of BP, a publicly traded London-based company.

Dan Dickinson, tax division director under multiple governors before Alper, said of the four types of state levies on oil production — property taxes, production taxes, royalties and corporate income taxes — the income tax is the most likely to change significantly as a result of Tuesday’s announcement.

While Alaska does not have a personal income tax, it collects money — just as the federal government does — from many corporations. Limited liability corporations and “S corporations” (so-called after a particular part of IRS tax code) with fewer than 75 shareholders are not taxed, according to a 2004 explanation from the nonpartisan Legislative Research Service.

Alper’s estimate of a $30 million annual loss is based upon information released Tuesday by BP, which said it currently produces 75,000 barrels of oil per day, or about 15% of North Slope production. The share of the state’s corporate income tax levied on oil producers is forecast by the Alaska Department of Revenue to generate $210 million in the fiscal year that started July 1. Fifteen percent of $210 million is $31.5 million.

Dickinson said that estimate makes sense, but cautioned that “there’s a lot of volatility there” when it comes to income tax revenue. In the state’s 2016 and 2017 fiscal years, tax revenue was negative; by 2018, it was above $65 million per year.

The Alaska Department of Revenue declined to answer questions about the potential fiscal impact, citing taxpayer confidentiality.

A BP spokeswoman confirmed that it currently pays corporate income taxes to the state. Hilcorp did not return questions Wednesday afternoon about whether it also does so.

Les Gara served for 16 years as a Democratic lawmaker representing Anchorage before he decided against running for re-election in 2018. Gara, who repeatedly attempted to revise the state’s corporate income tax, raised an alarm on social media after Tuesday’s announcement, saying the problem he tried to fix has now become a critical matter of fairness.

“It’s insane to have a tax policy that says two companies that do the exact same things, one will pay a fair tax and one won’t,” he said of the possibility that Hilcorp might not pay an income tax but ConocoPhillips will.

Alper said there are still-wider consequences. If large multinational companies like BP continue to sell Alaska assets to smaller, privately held firms, “suddenly our corporate income tax might be an obsolete structure,” he said.

Alper is an adviser for a ballot measure that is seeking to raise production taxes on oil companies in Alaska. He said that measure doesn’t address the income tax issue, and that a legislative solution would be needed to address the issue.

“We need to find a new way,” he said.

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