Oil and Gas Taxes Could Be Separated

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The Parnell Administration is ready to talk about separating oil and gas taxes.    Two years ago, the governor vetoed a bill that would have collected revenue from each product independently.

The bill has been reintroduced and,  this morning, Revenue Commissioner Bryan Butcher told the Senate Finance Committee that times have changed.   At the time of the veto,  the state was involved in open seasons on two pipelines from the North Slope to the lower forty-eight.  That no longer is the case.  Butcher also reminded the committee that the governor wants to rewrite the tax on gas during next year’s session.

What the governor’s looking for is for the bill to be revenue neutral.  As we’re looking at House Bill 110 and doing what we can to increase the investment climate for the companies in Alaska,  we don’t want to –at the same time – put something in that could be taking it in the opposite direction.   So we’re going to work with the committee to see if we can work through the decoupling issue in a way that is more revenue neutral and is not as big of a gap as there is currently in the law.

Having the two tax structures combined – or “coupled” – in the tax code allows producers to use tax credits for one fuel against profits from another.   Tax consultants don’t see a problem with that when there is a close relationship between the two fuels.   But right now there is no “parity.”   Oil is worth thirty-seven times the value of gas.  And that could cost the state as much as $2-Billion a year in lost Revenue.

The bill’s sponsor,  Senate Finance Co-chair Bert Stedman, says oil and gas companies have pointed to the importance of a stable fiscal regime before they commit to development.   And he says the decoupling issue is the most unstable element in state law.

I’d expect the current impact on the treasury to be very small – in the tens of millions versus almost $200-million a couple of years ago.   But it pales in comparison to a $2-Billion negative number.   So if you have an issue like that embedded in your tax structure, and you make a change in oil,  you better make sure you look at the net effect or you have no net at all.

Stedman says the decoupling issue will likely be included in a more-comprehensive oil tax bill.