The Alaska Senate approved a measure to boost state taxes on oil and gas production on Wednesday. Lawmakers tacked it on to what would have been a routine renewal of a state oil royalty agreement.
Sen. Forrest Dunbar, D-Anchorage, sponsored the amendment to House Bill 194, saying it would close a corporate income tax loophole and potentially capture more than $100 million in new state revenues each year — at a time when Alaska is in dire need of revenue to pay for state services.
“Can we afford this loophole while we close schools? Can we afford this tax subsidy while we slash the permanent fund dividend? Can we afford this tax subsidy while our infrastructure languishes, while we struggle to recruit and retain state troopers and firefighters and maintenance crews?” Dunbar said. “The answer is no.”
The provision would impose the state’s corporate tax rate on oil and gas companies doing business in the state, at a maximum rate of 9.4% for companies whose net profits are more than $5 million per year.
Alaska’s oil prices are surging amid the Iran War, and state forecasters are projecting hundreds of millions in potential state revenue in the coming months. Despite the spike in oil prices, Dunbar said lawmaker action to capture more revenue from the oil and gas industry is long overdue.
“There is still a long term revenue problem in this state, regardless of short term prices connected to the Iran war,” he said. “Now is the time to do this. Prices for oil are high. These corporations are doing very well. You fix the roof when the sun is shining.”
The Senate approved the amendment by an 11 to 8 vote, then passed the underlying legislation by a 12 to 7 vote, with Sen. Kelly Merrick, R-Eagle River, absent.
The original legislation was introduced by the governor, and passed the Alaska House last year. It would renew a three-year oil royalty agreement between the state and Marathon Petroleum Corporation, for state owned oil to be processed at its refinery in Nikiski, on the Kenai Peninsula. The proposed contract is estimated to generate between $4 million to $18 million in state revenue.
However the bill’s sponsor, Sen. Jesse Bjorkman, R-Soldotna, objected to the new oil tax provision, saying the Senate should take time to evaluate how the tax measure would affect the broader industry and energy supply for Alaskans.
“I’m a no vote on this amendment, because we do need a legitimate plan,” he said. “We don’t rush things. We don’t do things in a half-cocked manner, because that’s how mistakes are made.”
He said lawmakers should model potential revenue measures so they know how they will function within a state fiscal plan.
Lawmakers have been hotly debating Alaska’s oil and gas tax structure for years. A bill introduced last year, Senate Bill 92, would change the way the state’s corporate income tax applies to the oil company Hilcorp, which is an S-corporation, and the state’s largest oil producer. Hilcorp is a privately held, Texas-based energy company that since 2020 has operated the Prudhoe Bay oil field in the North Slope, as well as most of the operations in Cook Inlet.
That bill is currently in the Senate Rules Committee and has not moved this year.
The measure approved by the Senate on Wednesday would enact state taxes not just on Hilcorp but many companies, and collect revenues that would otherwise be leaving the state, Dunbar said in an interview after the vote.
“To be clear, it’s not just Hilorp that might be affected by this, but that is one of the large, obvious holes we see in our oil tax structure right now that is causing us to shift tens of millions, and over the long term, hundreds of millions of dollars, from schools and roads and the permanent fund dividend to out of state companies and individuals,” he said.
The amended bill now goes to the House for a concurrence vote.
Dunbar urged support for the measure, citing financial woes in his own district where the Anchorage School Board has voted to close three elementary schools and cut hundreds of staff positions to help address a $90 million budget shortfall.
“I hope they agree that it’s not an acceptable world where the price is high and this industry is booming and we are closing Lake Otis Elementary School because we don’t have enough money,” he said.
Correction: A previous version of this story incorrectly identified the bill numbers, and misstated how the tax would be levied on companies’ income. The story has been updated.