|
Seaton wants return to separate accounting Tells House Resources Committee change would provide fair, equitable treatment among taxpayers; no rate change in taxes proposed Kristen Nelson For Petroleum News
Rep. Paul Seaton, R-Homer, is proposing that Alaska return to separate accounting for calculation of corporate income tax for oil and gas companies. Currently the state uses worldwide apportionment, and Seaton told House Resources April 17 that when corporate entities outside Alaska are less profitable than those within the state, taxes paid to Alaska are reduced to account for expenses occurring overseas.
He said that during the 2013 tax year the top five producers in Alaska paid an average corporate income tax rate of 4.4 percent, a total of $319,247,744, whereas under separate accounting they would have paid the full 9.4 percent, a total of $674,425,324, a difference Seaton said was a loss of $355,177,580 to the state in that year.
In a sponsor statement he said House Bill 191 would require international or Lower 48 oil producers to pay their 9.4 percent Alaska corporate income tax “on profits made in and expenses related to Alaska, just like companies operating only in Alaska,” and called it a fairness issue as well as a revenue issue for the state.
The bill was heard and held in House Resources.
Alaska used separate accounting from 1978 through 1981, and during those four years, Seaton said, an additional $1.4 billion was collected under separate accounting that would not have been collected under worldwide apportionment. Oil companies sued the state, Seaton said, and lost on all points at trial; they appealed to the Alaska Supreme Court.
There was concern, however, that if the companies won, the state would have to pay back the $1.4 billion, so the Legislature returned to worldwide apportionment while awaiting resolution of the case.
In 1985 the Alaska Supreme Court upheld the state’s right to use separate accounting to collect corporate income tax. That decision was appealed to the U.S. Supreme Court, which dismissed the appeal for lack of federal constitutional or statutory issues.
Loss of revenue cited Seaton cited a 2000 report by Dan Dickinson, then with the Department of Revenue, which concluded Alaska lost $4.6 billion from 1982 through 1997 by not utilizing separate accounting. During the four years the state used separate accounting it collected an average of an additional $350 million per year, and Seaton said that $350 million, multiplied by the 32 years that state hasn’t used separate accounting, equals some $11.2 billion in revenue lost to the state.
On the issue of how difficult it would be for oil and gas producers to comply, Seaton said major producers operating in Alaska have been complying with separate accounting terms in other jurisdictions. “Most nations such as Norway utilize separate accounting,” Seaton said in the sponsor’s statement.
He said Pedro van Meurs, the international energy consultant who has advised Alaska and numerous other jurisdictions on their petroleum tax regimes, “is a strong supporter of calculating state corporate tax based on costs and revenues attributed to oil production in Alaska.”
More work for state A fiscal note for HB 191, prepared by Revenue’s Tax Division Director Ken Alper, said Revenue currently “relies on federal corporate income tax audits as an audit resource, and does not audit down to the invoice level.” Under separate accounting as proposed in HB 191, the calculation of taxable income would not begin with federal taxable income and Revenue will not be able to rely on federal audits but “will have to conduct more comprehensive audits down to the invoice level.”
The fiscal note said Revenue believes it would need four additional corporate income tax auditors to handle the increased work, as well as “a substantial capital expense” to update its “Tax Revenue Management System with what amounts to a completely new tax that is fundamentally different than the existing Corporate Income Tax.”
The estimated capital cost is $5 million and the addition of the four auditors would be $670,000 per year.
Alper said in the fiscal note that Revenue doesn’t have enough information to “fully estimate the change in oil and gas corporate income tax as a result of this legislation,” but he said current corporate income tax “is highly dependent” on the price of oil and gas and year-by-year profitability of the industry, and “the change envisioned in this bill would likely increase that volatility.”
Alper said preliminary estimates show that under separate accounting oil and gas corporations subject to the change would have paid a combined average of some $220 million more per year for 2006 through 2013.
| 