Alaska lawmakers pitch ways to close gaping budget gap from state sales tax to cutting oil tax credits

shoppers in line
A long Costco line in Juneau in March 2020. Rep. Ben Carpenter is proposing a statewide sales tax that would be on top of any local taxes. (Rashah McChesney/KTOO)

Falling oil prices have left a massive hole in Alaska’s budget, and lawmakers are scrambling to propose alternative revenue streams to close the deficit. A revenue forecast released last week estimated the state has a shortfall of more than $450 million heading into the next fiscal year. 

Sen. Bill Wielechowski, an Anchorage Democrat, introduced a bill last week to increase oil tax revenue as a way to close the gap.

“It’s just really basic math — how are you going to make the math balance out? And it just doesn’t balance out at this point,” he said.

His bill, SB 114, would close the so-called “S-corp loophole.” That would require private corporations like Hilcorp to start paying the state corporate income tax of 9.4%. 

The bill would also reduce oil tax credits and limit the expenses oil producers can deduct from their state taxes. Wielechowski estimates the bill could add more than half a billion dollars to state revenue each year. And, he said, “this is the year to do it.”

“We’ve got hundreds of teachers positions that are open, you’ve got hundreds of vacancies at the Marine Highway, you’ve got roads that aren’t being plowed,” he said. “I think people are really starting to see the impacts of not funding our government.”

House Majority members expressed doubts about the bill during a news conference on Tuesday. House Resources Committee Chair Tom McKay, an Anchorage Republican, argued increasing oil production — not taxes — is the solution to Alaska’s budget woes.

“By bringing forth oil tax increases, it does the opposite, it puts a chilling effect on investment,” McKay said.

McKay said the bill would create “uncertainty and instability” in the oil tax structure as ConocoPhillips’ recently approved Willow oil drilling project moves forward. According to his campaign website, McKay has worked as a petroleum engineer since 1980 for a number of energy companies, including Conoco. 

Another bill, introduced Monday by Nikiski Republican Rep. Ben Carpenter, would create a 2% state sales tax.

Alaska has never had a statewide sales tax, and is among just a few states that don’t. The state also does not have a personal income tax, and is the only state to have neither. The largest proportion of Alaska’s revenue comes from oil.

Carpenter did not not respond to requests for an interview. But at a hearing Wednesday night, where he introduced his sales tax bill, he emphasized that it’s just one component of a larger plan. 

“I don’t take this lightly, bringing forward a bill that would institute a sales tax on Alaskans,” he said. “If we were having a conversation that didn’t include a bunch of other components of a fiscal plan, I would not be sitting before you.” 

More than 100 municipalities and boroughs around the state already have a local sales tax, between 1% and 7%, although Alaska’s largest city, Anchorage, does not have a local sales tax. The 2% statewide sales tax proposed by Carpenter would be collected on top of any local taxes. It would not make exemptions for groceries, medicine or other areas that have been exempted in previous sales tax bills, and in many other states. 

This month, Carpenter also proposed a bill to reduce corporate taxes in Alaska, which he said discourages companies from doing business in the state. The bill would reduce the cap on corporate taxes from about 9% to 2%, and make rates the same for all companies, regardless of size. Carpenter said his bill would reduce the state’s revenue by about $300 million for the fiscal year. 

Gov. Mike Dunleavy introduced a series of bills at the start of the year to set up a carbon sequestration industry in Alaska. The governor said carbon capture has the potential to bring “billions” of dollars to the state, but it’s unclear when it would start to generate revenue.

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Kavitha George is Alaska Public Media’s climate change reporter. Reach her at Read more about Kavitha here.

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