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Kelly Introduces Bill Creating Tax Credit for New Taps Oil


HB 351 proposes to increase throughput through third-full oil line

Wednesday, February 17, 2010, Juneau, Alaska – Representative Mike Kelly, R-Fairbanks, today introduced HB 351, which proposes creating a tax credit for new oil transported through the Trans Alaska Pipeline System, or TAPS. The bill would retain the current 25% severance tax, including the progressivity provision, for “easier oil” which has already been discovered and is under development and production.  New oil would pay only royalty tax under the bill, in addition to local property taxes and income taxes paid by all businesses. The tax holiday would last 10 years after the “new” oil enters the pipe.

Kelly is confident this tax break, along with substantial oil exploration tax credits currently available or under consideration, should take off the table the argument that high tax levels are shutting down drilling for new oil in Alaska. “The beauty of this bill is that it should give oil companies exactly what they need for new oil, while avoiding a shock to state revenue by cutting tax on all oil,” Kelly said. “Critics may say that we risk losing state revenue from a large new discovery, but there will be no new discoveries if drill rigs are silent and a tax on nothing is still zip.”

Kelly believes the 10-year risk is worth it if we trigger drilling and new oil discoveries, which leads to rising royalty payments, new jobs, robust economic activity and lower pipeline tariffs driven down by increased throughput. “Saving our refineries would be a bonus along with reduced energy costs and better fuel availability for Alaskans” Kelly said. “If the oil companies do not respond by drilling but remain in the harvest mode, then it’s clear that factors other than severance tax are controlling. Alaskans will have lost nothing by trying.”

Kelly also points out that an Outer Continental Shelf oil find like the one Shell Oil is developing in the Beaufort Sea is on federal property and therefore exempt from Alaska tax. 

“I believe one thing’s certain – today’s oil taxes are not too low. Given the global economic and energy supply sea changes since 2007, Alaska oil taxes may be too high in spite of generous exploration credits,” Kelly said. “I support the current oil tax scrutiny by the Administration and Legislature.  My tax holiday bill should dovetail with any path forward which we choose. The bill will get scrutiny during the coming weeks and I am welcoming co-sponsors.”

HB 351 was referred to the House Resources and Finance Committees.
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