House Bill 111 emerged from the Senate Resources Committee April 24 focused, Chair Cathy Giessel said, around items on which the Senate has consensus. The bill, changes to the state’s oil and gas tax and credit system, originated in House Resources and had a substantial rewrite in House Finance before being passed by the House on a 21-19 party line vote, supported by the House majority caucus of Democrats, Independents and some Republicans. Members of the House Republican caucus voted against the bill, which includes a number of changes to Senate Bill 21, the state’s current oil and gas tax regime.
The items on which Giessel, an Anchorage Republican, said there is consensus in the Republican-dominated Senate include elimination of cashable credits after Jan. 1, 2018; transition to carryforward losses with repeal of net operating loss credits; and expansion of the timeframe for interest on delinquent taxes to six years at 3 percent interest, compounded quarterly.
In presenting the Senate Resources committee substitute to Senate Finance April 26, Giessel said the Senate began work on the issue nearly three years ago when it became apparent that cash credits posed a considerable financial risk to the state. The Senate Oil and Gas Tax Credit Working Group report had six recommendations, Giessel said, several of which were checked off in HB 247 last year (that bill focused on the elimination of credits for Cook Inlet). HB 111 completes the checkoff of those six recommendations, she said, by eliminating refundable credits statewide and repealing the tax credit fund. Under the Senate Resources CS, tax credits due through 2017 will be refundable only by appropriation, allowing the Legislature to know what credits are being refunded. The Senate CS also hardens the tax floor at 4 percent, she said, and preserves Middle Earth credits for work in the Interior by Ahtna and Doyon. Those credits are nonrefundable, she said, but the CS allows those Native corporations to carry them forward and use them against their corporate income tax.
The soon to expire in-state refinery, natural gas storage and LNG storage credits would also be refundable only by appropriation.
Use against tax liabilities
The CS also expands the opportunity for companies to get reimbursement for cash credits accrued by allowing use of those credits against tax liabilities that have not been litigated. While that wouldn’t pay off the credit liability, Giessel said, it would begin the process of reducing the state’s liability.
On the issue of transparency Giessel said that by making credits refundable by appropriation the CS creates transparency because those payments have to go through the Legislature.
She said the Resources CS allows for 100 percent recovery of costs, something the Legislature’s consultants stressed to keep Alaska competitive.
The key elements address three buckets the Senate has been focused on, Giessel said: the backlog of cashable credits; protecting the state from future cash calls; and deferring a complete rewrite of tax policy. A complete tax policy rewrite would require significant time - much more time than legislators have in this session, she said.
And in past tax rewrites the administration has had its own consultants and the Legislature has had what Giessel called “robust” consultant support available for extended periods of time. She said there is a request for proposals from Legislative Budget and Audit for consultants on the topic of oil and gas taxes. We’re prepared to look at the oil tax system, she said, but just not at this time.
Responses to CS
The Alaska Oil and Gas Association said in an April 24 statement that while AOGA members were still analyzing the CS, “an initial review shows that because the bill eliminates cashable tax credits and hardens the minimum tax floor, the result is an increase in industry taxes.”
“Raising taxes on industry at low oil prices is problematic,” AOGA President and CEO Kara Moriarty said.
House Resources Committee co-Chair Andy Josephson, D-Anchorage, said in an April 25 House majority press availability that abolition of the cash credit system effective the end of this year in the Senate CS is an overlap with the House version of the bill, but said the Senate CS has significant changes that he doesn’t think the House would accept.
He called the CS a place to start negotiation, but said there are so many changes in the Senate Resources CS that it is really a new bill. Josephson said he was looking forward to hearing from the Department of Revenue on the impacts of the Senate CS, and said it’s important that there not be unintended consequences. He said he thinks that will be harder to determine under the Senate CS than under the House bill.
The House bill
House Resources Committee co-Chair Geran Tarr, D-Anchorage, introduced the House version in Senate Finance. She said House Resources worked on the issue because of a belief that the state’s present tax system was not working well in a low-price environment.
The goal was to minimize risk to the state in a low-price environment, while keeping the state competitive for investment, she said, and noted that while more oil in the pipeline would be positive, not all potential developments are alike and the goal was to see those of most benefit to Alaska pursued.
Dealing with the cashable credits issue was a priority, she said, because the state can’t meet its obligations.
Tarr said a goal of House Resources is a system durable at a wide range of prices. Previous tax regimes didn’t meet that goal, Tarr said, with ACES not working well in a high-price environment and SB 21 not working well in a low-price environment.
Tarr said the ringfencing feature of the House bill, not included in the Senate CS, applied losses to leases where the loss occurred. The version of the bill passed by the House, a CS from House Finance, also added a 15 percent surtax at production tax values (price less costs) of $60 and above. She also said transparency provisions in the House Resources version, including access for legislators with confidentiality agreements, were scaled back in the House Finance CS.
