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New bill kills tax break on oil Masek says doing away with ELF puts hundreds of millions in state coffers Kristen Nelson Petroleum News Editor-in-Chief
Two oil and gas related bills recently introduced in the Alaska House of Representatives would eliminate the economic limit factor for oil and increase funding for the gas development authority.
House Bill 300, introduced May 6 by Rep. Beverly Masek, R-Wasilla, repeals the economic limit factor as applied to oil. This bill was also referred to House oil and gas.
Masek said in a statement that repealing the ELF would save the state millions of dollars annually. She said she feels “there are revenue generating alternatives other than taxing our citizens.” Oil severance taxes are projected by the Alaska Department of Revenue to decline an additional $299 million over the next seven years, she said, adding that Alaska's incentive programs for the oil and gas industry, created to balance a high corporate income tax rate, have failed to deliver.
“We need to consider all of our options and not just tax our citizens or use the Permanent Fund earnings,” Masek said. “The state’s tax incentives have yet to substantially increase drilling, provide greater volumes of oil moving through the pipeline, or increase revenue to the state.” She said she would not support income or sales taxes “while we subsidize our businesses with little or no return on our investment.” Eliminating the economic limit factor would generate more revenue than a proposed sales tax, Masek said, adding $417 million in revenues this year alone.
The Department of Revenue said in its spring revenue sources book that the average production tax rate on the North Slope has been falling as a result of the ELF tax adjustment, which reduces the production tax rate based on the average rate of production from the reservoir and the average productivity of wells in the reservoir.
“Since oil production rates and well productivity decline over time as an oil field is being produced,” the department said, the average production tax rate falls as well. The ELF also reduces the tax rate on smaller oil fields: most fields producing less than 20,000 barrels per day will pay little or no production tax. HB 296 gives gasline authority more money House Bill 296, sponsored by Rep. Eric Croft, D-Anchorage, would appropriate $1.3 million for Alaska Natural Gas Development Authority operations for the fiscal year ending June 30, 2004. Introduced May 2, the bill was referred to the House Special Committee on Oil and Gas. Alaska Gov. Frank Murkowski has proposed expanding the scope of projects that the authority can consider. The administration's proposed funding for the authority for the year is $150,000, which would cover salary for an executive director, travel for the director and the board of directors and contractual expenses for the authority to complete its work assignment in six months.
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