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Lawmakers look at alternatives to 20/20 Hawker, Samuels propose levy based on capital investment; Wagoner wants tax on gross; administration will reintroduce 20/20 Matt Volz The Associated Press
Two Anchorage lawmakers aim to break a stalemate over the rewrite of Alaska’s oil production taxes with an alternative version of a proposal to tax oil companies’ profits.
Republican Reps. Mike Hawker and Ralph Samuels have come up with a concept they hope other legislators will see as a compromise to the tax bill that has already been rejected twice this year.
The plan would still replace Alaska’s production tax with one based on oil companies’ Alaska profits, with the potential of increasing revenue to the state by hundreds of millions, if not billions, of dollars at high oil prices.
But Hawker and Samuels’ proposal departs from the original in its approach to the most disputed part of the bill: the rate at which company profits would be taxed.
State lawmakers have twice failed to negotiate that base tax rate. First, the Senate rejected the House’s rate of 21.5 percent at the close of the regular session. Then, the House rejected a conference committee’s negotiated 22.8 percent rate in the first special session.
Both chambers dismissed Murkowski’s 20 percent tax rate proposal, which was agreed upon by the three oil companies with whom the governor negotiated tax and royalty terms for a natural gas pipeline.
Tax rate based on investment Hawker and Samuels decided to take a different approach for the year’s second special session, which begins July 12. Their idea is to base each oil company’s tax rate on the level of capital investment that company makes in the state. If a company put more money into the state, it would be taxed at a lower rate. If a company did not meet a certain level, it would be taxed at a higher rate.
The concept is meant to bring together those who want a 20 percent tax rate and those who want a 25 percent tax rate as well as encourage oil companies to spend more money on capital projects in Alaska and slow the rate at which oil production is drying.
“The driving issue is the decline in oil production,” Hawker said. “As in all these proposals, the devil is in the details. We’ve got to recognize the different circumstance of the small producers and explorers. But we’re not going to get anywhere if we don’t get to the table.”
Samuels said the plan is still a concept at this point — “We haven’t fleshed out where the numbers would be” — and he and Hawker first wanted to see if it was practical enough to work. After conversations with Department of Revenue officials, Samuels said, he thinks it could be done.
He said the next step will be for the pair to brief their fellow legislators and the industry on the proposal, and from there it will take shape.
Theirs will be one of possibly three production tax proposals lawmakers may have before them this special session.
Murkowski plans to reintroduce a version of his 20 percent profits tax bill today, according to spokesman John Manly.
The governor will address a joint session of the House and Senate on Thursday, July 14, as Petroleum News goes to press, about the two issues of the special session: the production tax changes and a bill giving Murkowski the authority to negotiate the gas deal with BP, ExxonMobil and ConocoPhillips.
Also bill based on gross Also, Senate Resources Chairman Tom Wagoner, R-Kenai, said he has a bill ready that would tax companies based on their gross production of oil and gas instead of their profits.
Wagoner first announced that plan earlier in July at an appearance supporting Republican gubernatorial candidate John Binkley, who has attacked Murkowski’s oil tax plan and his gas deal with the three oil companies.
A tax on gross production would be less of an overhaul and more of an adjustment to the current tax system. That system is seen as being flawed because of a complex formula called the Economic Limit Factor that has allowed several oil fields to pay minimal or no production taxes.
Wagoner said he is willing to look at the proposal by Hawker and Samuels.
“I’m not going to tell you right now that mine is better than theirs,” Wagoner said. “It’s a new concept, and I’m not going to dismiss it out of hand. But I’ve got to look at what it does to the little guy.”
Democrats favor tax on gross Legislative Democrats, the minority in the House and Senate, have been calling for a gross production tax for some time. They say it would be easier to implement and would make it harder for oil companies to cook the books, whereas they believe the companies could manipulate a net-profit tax.
“I’ve always preferred gross,” said Sen. Kim Elton, a member of the Senate Resources Committee. “You can’t game it. It’s a tax we’ve had for many, many years. We understand it, the producers understand it.”
Elton had not seen Hawker and Samuels’ proposal but said he was glad lawmakers were talking about alternatives instead of repeating the same debate that has twice failed to result in a passed bill.
Senate President Ben Stevens, R-Anchorage, said the Senate will likely let the House take action on the tax bill first.
“I think the Senate is probably in a position to wait to see what the House does,” Stevens said. “The Senate has been consistent in what it’s done throughout this entire debate. The House has had a lot of deliberations and gyrations about what they’re going to try to do.”
Stevens announced earlier in July that he won’t run for re-election, but his lame-duck status won’t change the tax debate, he said. Stevens supports Murkowski’s original tax plan.
“It’s going to take more than an influential leader in the Legislature to change minds. The issues have been before us for so long,” he said.
The governor still supports his 20 percent profit-tax plan. Murkowski consultant Dan Dickinson said he has helped Hawker and Samuels to some extent as they shaped their idea, but there is nothing to it yet.
“I have not taken that concept and run it up the administration’s flagpole to see if anyone salutes,” Dickinson said.
However, Dickinson acknowledges that some changes will be necessary for there to be a breakthrough this special session.
“I don’t think people are very optimistic to just reintroducing the bill and hoping for a different result. Can we change parts of it, and what’s necessary to get the reforms?” he said.
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