Oil Tax Credits

oil-tax-keywordHB 111: Oil & Gas Production Tax 

This bill will be heard in the House Finance Committee, which will open Public Testimony on Saturday, 3/25 at 10:00 a.m. If you’d like to testify, please head over to your local Legislative Information Office (LIO) or follow this link to find the number for your local LIO.

House Bill 111 by the House Resources Committee is the focal point of an annual discussion on how we tax petroleum. This bill continues last year’s debate on whether and where to stanch the financial bleeding caused by a system of oil tax enticements that were once politically reasonable but are now no longer affordable at oil’s current market value.

If passed, HB 111 would curtail a system of cash credit payments for business operating losses that the state is required to make. Even though the Governor delayed payments using his veto powers last summer, we still legally owe almost $1 billion. It would increase the minimum production tax level (from 4% to 5%), scale back a massive tax credit for net operating losses, and hamper the ability of a company to use tax credits to shirk the minimum tax level.

These reforms are important. They will not solve the state’s deficit, but they make financial and psychological sense – passing comprehensive oil tax reform will bolster other fiscal reform efforts. How can you ask Alaskans to pay an income tax, or a statewide sales tax, or lose their dividend so they can help pay for millions of dollars in direct cash payments to a for-profit company undertaking normal, for-profit business operations?

Remember, you don’t have to be an expert in petroleum finance, or tax statutes to offer an important perspective. As Alaskans, we all have a stake here. We Alaskans have a right and a duty to tweak the instruments of oil taxation. These laws count, and they must constantly adapt to changing prices and political situations. HB 111 decreases our fiscal liabilities, and it’s a step in the right direction in an uncertain time for our state.

Speak out now — add your name to this online action in support of HB 111 — then return to this page to prepare your testimony for Saturday.>>

For help crafting your testimony – please refer to the talking points below – or reach out to Louie Flora: 907.717.6902 or louie@akcenter.org

Talking Points for HB 111

  • Saves Alaska Money
  • Helps with our Deficit
  • Schools and Public Safety and Dividends just as important as tax subsidies
  • We support our neigbors in the oil industry, this bill still leaves a genererous tax structure in place and allows oil industry to thrive

Specific bill provisions that would save us money:

1) Eliminates the Carried Forward Annual Loss Credit (also known as “Net Operating Loss” or “NOL”), helping to significantly reduce future fiscal liability to the state of Alaska.

2) Hardens the floor, so no credits can be used to reduce payments below the minimum tax. At extremely low prices, where major producers could have operating losses, this could result in up to $200 million in added revenue.

3) Increases the minimum tax rate from 4% (at prices above $25) to 5% (at all prices.)

4) NOLs will be no longer eligible for cash beginning in 2018. This change would not impact the credit certificates, estimated at about $900 million, that will be in company hands at the end of 2017 given no further action.

5) The amount of cash that each company can receive per year for repurchased credits is reduced to $35 million. This is currently $70 million with a “haircut” provision that makes it effectively $61 million. The haircut is repealed. Eligibility for state cash for credits is also limited to companies producing 15,000 barrels per day or less; this is reduced from 50,000.

6) Eliminates the $6, $7, and $8 per‐barrel credit at wellhead prices between $80 and $110. The maximum production credit would be reduced to $5.

7) The Gross Value at the Point of Production for a given property can’t go below zero. This would only impact a very high tariff (likely remote) field at very low prices, so those fields could not have negative wellhead value that could offset other tax liability.

8)Eliminates the zero interest rate for delinquent taxes that currently take effect after three years of delinquency. This provision was added in HB247 to incentivize DOR to accelerate the tax audit process. However, the larger concern is that it remains in effect for the entirety of any tax appeal or litigation, reducing any incentive on the part of companies to settle a tax issue.

9) Limits the use of per‐taxable‐barrel credits to the month in which they were earned. This prevents the so‐called “migrating credits” issue where per‐barrel credits earned but unused in a month with oil prices under the minimum tax can be used to reduce taxes from a higher oil price month. This only has a revenue impact in a year with highly volatile oil prices.

Not able to testify on Saturday? Make sure your voice is heard by House Finance by adding your name>>