House Passes Oil Tax Reform
New SB 21 moves Alaska forward
Sunday, April 14, 2013, Juneau, Alaska – The Alaska House of Representatives early this morning passed its version of the Governor’s oil tax reform bill, Senate Bill 21, to move Alaska forward and stem the annual decline in the trans-Alaska oil pipeline – charting a new course for the state’s future by increasing oil production and implementing a balanced tax system.
“We voted tonight for the future – our kids and grandkids. We voted tonight to give them the opportunity to have a state and economy that will be prosperous,” House Resources Committee Co-Chair Eric Feige, R-Chickaloon, said. “Alaskans want action and we gave them a tax package that strikes a balance and makes us more attractive to industry.”
The House version of SB 21 carries a base tax rate of 35 percent, two percent higher than the House Resources Committee version, and the same as the version that passed the Senate. “This is a turning point for Alaska,” Rep. Mike Hawker, R-Anchorage, said. “We’ve witnessed the catastrophic effects of a poorly conceived, punitive tax regime that takes so much from industry that we scare off investment. This legislation finds the sweet spot: the greatest possible share for Alaska while offering a competitive investment for industry. Tonight, the Legislature has decided it wants a better future for Alaska than production decline; we want opportunity, investment, production, a thriving industry and a healthy state bank account down the road. And with SB 21, we open the door to that future.”
Other key policy decisions carried within the bill include a new credit on produced oil up to $8 per barrel, a gross revenue exclusion that allows producers to only be taxed on 80 percent of new oil, a 30 percent GRE for fields with higher royalty rates, a four percent gross minimum tax, a manufacturing tax credit on equipment and supplies produced in Alaska, and the creation of a Competitiveness Review Board to examine the state’s tax regime and recommend changes as needed. The bill also ties funding for the popular Municipal Revenue Sharing program to corporate income taxes received, making for a more stable funding mechanism. A net operating loss carry-forward provision makes Alaska’s high cost of doing business less of a hurdle for new entrants who spend more than they earn.
“It’s time to reverse the trend that’s led to TAPS being three-quarters empty,” Alaska Speaker of the House Mike Chenault, R-Nikiski, said. “Alaskans need to know that 90-percent of our state’s revenues come from oil, and if we don’t act now, make our state more competitive, the cuts in services and loss in the quality of life we’ve come to appreciate will take an even more drastic hit. We took a tremendous amount of time and effort over the last five years and we did it right.”
The House substitute for SB 21 eliminates the progressivity portion of the current tax law, but protects the state with the higher base rate. “The cost of inaction far outweighs any potential costs of action,” House Majority Leader Lance Pruitt, R-Anchorage, said. “Our objective is to protect the treasury and promote our resource. We do that with SB 21. It’s fair to say we’ll see a benefit at high oil prices and protect ourselves at low oil prices.”
The House Majority made restoring Alaska’s competitiveness one of its Guiding Principles for the 28th Legislature, focusing on building a better economy by increasing the production of Alaska’s abundant resources.
“Alaska has tried the ACES experiment to see if we can punish our way to prosperity. It has clearly failed,” House Resources Committee Co-Chair Dan Saddler, R-JBER/Eagle River, said. “Tonight, we passed a simpler, saner and more predictable system that incentivizes investment. It reflects a belief that Alaskans can meet challenges, adapt to new conditions, and keep building a better future.”
The House version also tracks with the Governor’s four stated Guiding Principles on oil tax reform: a tax that’s fair to Alaskans, encouraging production, simplified to restore balance to the system, and a structure that’s competitive for the long term.
“This vote is really about providing for future generations,” Rep. Mia Costello, R-Anchorage, said. “I want a vibrant quality of life for my sons. Tonight we turned a page. Alaska has announced that we’re ready to re-join the game and that we are serious about increasing production.”
The House Majority gave the bill 19 hearings over 24 days, taking hours of public testimony in both the Resources and Finance Committees, and receiving comments and input from North Slope operators, independent explorers, the Governor’s administration, legislative consultants, and others.
SB 21 now heads back to the Alaska Senate for concurrence in House changes to the bill.