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Sales tax to oil tax Senate Resources changes thrust of governor's tax bill; amends it to gross oil tax
Kristen Nelson Petroleum News
Senate Resources changes thrust of governor's tax bill; amends it to gross oil tax
Gov. Mike Dunleavy introduced a bill which featured a statewide sales tax. In Senate Resources, the sales tax went away and was replaced with a redo of the state's oil tax system.
As reported out of Senate Resources Feb. 18, the Senate version, Senate Bill 227, returns Alaska's oil tax system to a gross tax at 17.5%, which, along with the state's 12.5% royalty, adds to a 30% tax.
The bill now moves to Senate Finance. No hearing had been scheduled when this issue of Petroleum News went to press.
The House version, House Bill 284, had only one referral, to House Finance, which last considered the bill Feb. 12.
What the governor proposed In a Jan. 23 transmittal letter for SB 227, the governor described the bill as a "one part of a comprehensive fiscal plan to stabilize state finances, limit spending growth, share responsibility among Alaskans, major industries, and nonresidents, attract investment, and restore rules-based payment of the annual Permanent Fund Dividend."
Although the bill did address oil taxes, raising the minimum tax floor from 4% to 6%, and imposing at 15 cent per barrel surcharge on oil "to fund operations and maintenance costs related to the Trans Alaska Pipeline Corridor," its most broad-based impact was imposition of a seasonal sales tax, 4% from April 1 to Sept. 30 and 2% from Oct. 1 through March 31.
Both the raising of the minimum tax floor and the sales tax were temporary.
The sales tax was to sunset in 2034, "as Alaska's fiscal position improves" and the increase in the minimum tax floor would return to 4% in 2032 "or the calendar year following average daily throughput reaching 650,000 barrels per day," the governor said.
The temporary nature of those changes was based on the premise that starting in fiscal year 2033, "Alaska is projected to see higher revenue due to expected increases in pipeline throughput and the Alaska LNG Project," Dunleavy said.
The bill also proposed a constitutional amendment which would provide for a 50-50 split between the Permanent Fund Dividend and funding state government operations, "returning to a rules-based system for paying Alaskans' annual dividend."
Senate Resources Senate Resources first heard the bill Feb. 6 and by the time the bill reached its second hearing, on Feb. 16, the committee had a substitute, version I, which eliminated the sales tax, incorporated Senate bills related to corporate income tax and taxing of certain oil and gas S-corporations and limited liability companies, added an education head tax intended to fund education, added a provision providing that the 6% minimum production tax (up from 4% currently) would be a hard floor and incorporated another Senate bill reducing the sliding scale per barrel credit from a maximum of $8 to $5 per barrel and tied the use of that credit to the amount of qualified capital expenditures made in the same year.
Oil tax changes At its Feb. 18 meeting Senate Resources considered amendments.
Those amendments included increasing the rate of the proposed education head tax, which started at $10 for the one-time payroll tax for those making $30,000 or less a year -- the same amount that was charged in 1980 when the education head tax was repealed. A proposal to increase the amount by a factor of 10 failed, as $100 removed from the first paycheck of the year for a lower-income resident was described as a hardship for many, and the committee settled on doubling the amount from 1980.
The hardship on lower-income residents was also the reason the committee eliminated the sales tax.
An amendment from Sen. Bill Wielechowski, D-Anchorage, proposed returning the state's oil tax to a tax on the gross. He cited both the complicated nature of Alaska's oil tax system and what he described as the current system costing the state more than a billion dollars per year over a number of years. Wielechowski called the state's current net profits tax a "failed experiment" and said returning to a gross tax would be similar to the system used in Texas and North Dakota and in most oil producing states in the U.S.
Two committee members, members of the Senate Republican caucus, Sen. Robert Myers, R-North Pole, and Sen. George Raucher, R-Sutton, wrote to committee Chair Cathy Giessel, R-Anchorage, noting that the committee substitute, version I, was an extensive rewrite and asking for modeling on the impact of the rewrite from the Department of Revenue before the bill moved from the committee, and that GaffneyCline, the committee's consultant, be asked to provide an assessment of the proposed changes.
Giessel said bills don't get modeling and fiscal notes until they move to the next committee of referral, Senate Finance, in this case.
The amended bill was moved from the committee by a vote of five yeas and two nays.
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