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Bill Seeks Return to Separate Accounting of Oil Industry Profits

HB 328 would make corporate income tax payments on AK profits, not worldwide profits

February 17, 2012, Juneau, Alaska – Representative Paul Seaton today introduced a bill to protect the states’ right to receive accurate levels of oil industry corporate income tax.

House Bill 328 would require oil producers, like other companies operating in Alaska, to account for the profit made in Alaska and pay their Alaska Corporate Income tax on that profit. It does so by replacing the current calculation method under which oil companies pay an amount of their appointed worldwide profits calculated for their Alaska operations. “Worldwide apportionment of corporate income tax allows oil companies to write off less profitable or not profitable international or domestic investment against their highly profitable Alaska investment,” Seaton, R-Homer, said.

Alaska instituted Separate Accounting from 1978 to 1982 because the state was losing billions of dollars subsidizing overseas investments by oil companies under the appointment method of calculating income taxes. During the four years that companies paid tax on their Alaska profits, about $1.8 billion dollars more was collected than under the worldwide apportionment, said Seaton. The oil companies sued on numerous grounds and lost on all points at trial. The case was appealed to the Alaska Supreme Court (Atlantic Richfield Co. v. State).

The estimate for the four years in which the state required Separate Accounting was that the state received an additional $1.8 billion, or $450 million per year.  If you multiply $450 million by the 30 years that we have not collected Corporate Income Tax through Separate Accounting, this equals approximately $13.5 billion in lost revenue to the state, said Seaton. According to a 2000 analysis by Dan Dickenson with the Department of Revenue, Alaska lost $4.6 Billion from 1982 – 1997 by not having Separate Accounting.

HB 328 was referred to the House Resources and House Finance committees.

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