May 11, 2004 --- Vol. 10, No. 47May 2004

U.S. Senate passes corporate tax bill with Alaska gas line provisions

After months of waiting for a vote, a couple of key federal tax incentives for an Alaska natural gas line project passed the Senate today as part of a massive corporate tax bill.

The provisions, if approved by the House and signed by the president, would provide a federal corporate income tax credit for the cost of building a gas treatment plant on the North Slope and would allow accelerated depreciation for the pipeline itself. The quicker depreciation schedule would allow project developers to write off the pipeline investment in seven instead of 15 years.

Tax savings from the two provisions are estimated at about $500 million to project developers.

The bill also includes a commodity risk provision, or so-called marginal well credit, to protect North Slope producers if the wellhead value of gas drops below $1.35 per thousand cubic feet. But House leadership and the president have opposed such price floors for North Slope gas in past legislative attempts, and few expect them to accept the Senate’s latest tax credit provision.

The Alaska gas line provisions, along with dozens of other energy tax credits, were added last month to the Senate’s “Jumpstart Our Business Strength” or JOBS Act, in the hope that the favorite sections of the energy bill stalled in Congress since November could hitch a ride to passage with the corporate tax bill.

The JOBS Act, despite its politically popular name, has at its center provisions to repeal an export tax break declared illegal by the World Trade Organization. The measure replaces the illegal export tax break with tax relief for domestic manufacturers.

Senators approved the bill 92-5 on Tuesday, after defeating an attempt to strip out the package of energy tax breaks. The Senate Finance Committee estimates the energy incentives in the bill will cost the U.S. treasury $18 billion over the next 10 years.

Other Alaska gas line provisions from the abandoned energy bill, including federal loan guarantees for the project, will need to find another way into law before Congress adjourns later this year.

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