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Various O&G tax credit changes proposed Revenue puts possibilities on table as Senate oil, gas tax credit working group holds first meeting; other stakeholders included KRISTEN NELSON Petroleum News
Sen. Cathy Giessel, R-Anchorage, has organized a working group of senators and industry representatives to come up with recommendations to meet the goal of adjusting tax credits. Giessel said her goal is to come up with recommendations by Dec. 1, focusing on appropriate tax credit changes but avoiding throwing out the baby with the bathwater.
The first meeting, held Sept. 8 in Anchorage, focused on Cook Inlet, and included presentations by the Department of Revenue and the Department of Natural Resources.
Revenue Commissioner Randall Hoffbeck said the administration had been working with a lot of the working group participants over the summer, looking at options going forward to deal with the drop in the state’s revenues.
Hoffbeck said some credits have worked better than others, but he didn’t think they were intended to be forever, and said one question was whether the state needs to continue the credits or are they no longer needed.
Issues for the administration include options for a modified credit program; a plan to transition between the current and a modified credit program; and finalizing a plan and drafting legislation to implement changes.
Different credits Ken Alper, director of Revenue’s Tax Division, said there are different types of credits: some can be taken against expenditures and operating losses; some are aimed at exploration costs; some are production credits for small producers; and some can be taken against corporate income tax. Credits can be used against tax liability or repurchased by the state.
For fiscal years 2007 through 2015, $7.4 billion in credits were taken on the North Slope, $4.3 billion against tax liabilities by major producers and $2.1 billion refunded credits taken by new producers and explorers developing new fields.
Non North Slope, primarily Cook Inlet, saw $100 million in credits against tax liability, another $500 million to $800 million in tax reductions due to a tax cap still tied to ELF and $900 million in refunded credits, most of those since 2013.
Alper said since fiscal year 2010 there has been a tremendous growth in non-North Slope refunded credits, almost all of those Cook Inlet.
Different tax regime Cook Inlet has a different tax regime than the North Slope, Alper said, based on concerns when PPT was introduced in 2006 that it could harm new exploration and development in Cook Inlet, where there were already concerns about natural gas shortages. As a result of the tax regime in the region, the production tax on oil in Cook Inlet is zero for all fields; the production tax on natural gas varies from field to field, but averages some 17 cents per thousand cubic feet.
Cook Inlet tax caps sunset in 2022, after which the tax regime in the inlet will revert to a 35 percent flat tax rate, a 20 percent capital credit, a 25 percent carry-forward annual loss credit, additional credits from the Cook Inlet Recovery Act, no gross value reduction for new oil and no minimum tax.
Ideas for changes Hoffbeck ran through a list of ideas for changes. He said the list doesn’t reflect the administration’s proposals nor it is a complete list.
On the funding side, there could be an annual cap on repurchases by the state.
The process could include pre-approval for credit eligibility; the addition of data submission requirements as exploration credits sunset; and a confidentiality waiver allowing the state to release more information on repurchases.
Program changes could include elimination of stackable spending and loss credits; a reduction in credit percentages; disallowal of net operating loss credits; and only allowing credits which target natural gas.
New programs could include state loans to projects, likely from the Alaska Industrial Development and Export Authority; state working interest participation in projects; and an ability to convert loans to a working interest if there is a discovery, protecting the state from risks of dry holes and cash calls.
Repurchase roles could be changed to include per-producer annual repurchase limits; restrictions on the amount of credits that could be repurchased via reinvestment requirements or other means, while allowing credits not repurchased to be sold or held until the company has a tax liability; and by strengthening the gross minimum tax floor, extending it to Cook Inlet and not allowing other credits to reduce payments below the floor.
Hoffbeck said the ideas had come from various discussions. He said the administration just wants those ideas out for discussion. The administration intends to introduce legislation, he said, but wants to hear what others have to say.
Hoffbeck also said this was a fairly high-level list, and said they could drill down on them and would like everyone’s ideas moving forward.
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