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Oil companies owe $194M in 2010 tax and interest, state says

Oil and gas companies in Alaska owe the state $194 million in unpaid taxes and interest from 2010, according to a summary of recently completed audits of that year's oil and gas production tax returns.

The back-taxes assessment comes atop the roughly $3.5 billion collected that year from the production tax that has usually provided Alaska with most of its general fund revenue. The income from the tax has fallen dramatically in recent years with the collapse in oil prices.

The audits assessed an additional $131 million in production taxes for 2010, along with $63 million in interest, according to a two-page summary provided on Monday by Ken Alper, the state's Tax Division director.

The audits are confidential under state law, as are the tax returns. The 12 companies whose returns were audited were not named in the summary.

The state's dominant oil producers are ExxonMobil, BP and ConocoPhillips, but several smaller companies produce oil and gas in Alaska.

Pipelines at Prudhoe Bay on Alaska’s North Slope in 2015. (Loren Holmes / ADN archive 2015)

The returns were due by April 2011. The division's 20-person auditing team met the six-year legal deadline for audits "by only a few days," said Alper.

Alper said the division is making "real progress" speeding up the audits. Audits of 2011 tax returns should be completed in June, accelerating the cycle by close to a year. The 2012 and 2013 audits will begin after that and should be completed in 2018.

The state's net-profit production tax is complex, with its deductible items and tax credits. Further complicating the process, lawmakers have often altered the law.

"Every couple of years the law changes, requiring new forms, new regulations and new training," said Alper.

He called it a "massive paperwork exercise."

The state and producers can differ over everything from daily prices for crude oil, what qualifies as a deductible expense, and how much produced oil is taxable. Some produced oil is put back into the ground to enhance future oil recovery and is not taxed.

The differences might amount to pennies in an individual transaction, but they can quickly add up to millions of dollars when the whole year is taken into account, Alper said.

Alaska oil production has fallen sharply since peaking in the late 1980s. But it remains significant, with more than 550,000 barrels produced daily so far this year.

"There are inherent gray areas in this complex tax," Alper said. "Everyone's interest is in trying to interpret the law to their own benefit. State auditors try to interpret the law as literally and unbiased as possible."

Many of the additional charges will be challenged by the oil companies through an administrative appeals process within the Department of Revenue, Alper said.

Earlier audits for returns filed for years 2007 to 2009 found the companies owed $784 million in unpaid taxes and interest. The taxpayers are appealing between $200 million and $300 million of that, Alper said.

When the bills are paid, the money is deposited into the Constitutional Budget Reserve Fund. The savings account, holding $4.7 billion in March, has been used to close Alaska's recent multibillion-dollar deficits.

In a separate process within the Alaska Department of Natural Resources, the state in 2016 recovered $90 million related to a decision by federal pipeline regulators that the North Slope's major producers, BP, ConocoPhillips and ExxonMobil, had overcharged to move Alaska's royalty oil through the trans-Alaska oil pipeline.

That decision is being challenged in federal court.

DNR also reported recovering $27 million tied in part to 2016 audits of payments from oil and gas companies related to state royalties. Those can also be challenged.

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