The Alaska House rejected a state Senate effort to impose corporate income taxes on energy producer Hilcorp and other similarly structured oil and gas companies.
It was the House’s first floor vote in this two-year Legislature on a major oil and gas tax measure — and a moment that illustrated a major policy disagreement between two Democrat-heavy bipartisan coalitions.
Leaders of the Senate majority have repeatedly pushed to impose new or higher taxes on oil and gas businesses in an effort to correct a structural budget deficit that emerged when oil prices crashed in the mid-2010s.
But on Monday, four members of the slimmer bipartisan majority in the House explicitly rejected increasing taxes on companies developing the state’s most lucrative natural resources.
“This policy creates uncertainty at the exact moment Alaska needs more energy development,” said Rep. Chuck Kopp, an Anchorage Republican and the House majority leader. Kopp last year signed onto an Anchorage Daily News op-ed opposing new oil and gas taxes.
He was joined in opposing the bill by three other members of the bipartisan House majority, which holds 21 of the chamber’s 40 seats — Rep. Alyse Galvin, an Anchorage independent, Rep. Robyn Frier, an Utqiagvik Democrat, and Rep. Carolyn Hall, an Anchorage Democrat — and all 19 minority Republicans.
“It is a change in policy which is going to be discouraging to Hilcorp, and is going to send a very negative, unfortunate message to others who would wish to invest in Alaska's resource industry at a time when we are at the center of oil and gas discussion in our country,” said Eagle River Republican Rep. Dan Saddler, a member of the minority.
Last month, the Senate inserted the tax measure, which would subject Hilcorp and other oil and gas S corporations to the state’s up to 9.4% corporate income tax, into a lower-profile bill approving a sale of state-owned oil to Marathon Petroleum’s Kenai refinery shortly before passing it.
So-called S corporations have been exempt from income taxes since Alaska repealed its personal income tax in the 1980s. Taxes on S corporations are typically assessed on company owners as personal income, unlike more familiar C corporations, such as ConocoPhillips, which pay taxes at the corporate level.
Backers of the change, proposed as an amendment to the bill by Anchorage Democratic Sen. Forrest Dunbar, argued in the Senate that the existing tax code leaves a loophole: while most large oil and gas companies pay corporate income taxes, Hilcorp and other pass-through businesses organized as S corporations do not.
Many House members said the measure hadn’t been properly vetted or studied, though senators backing the change say they’ve modeled it thoroughly. Other House members objected to such a consequential measure being attached to an otherwise relatively routine bill.
Most members of the bipartisan House majority voted in support of the change.
“I believe this is a defining question for many of us, who, I think, recognize that our state has moved past looking for the fiscal cliff and is now out beyond it,” said Rep. Ky Holland, an independent from Anchorage. “It's now time for us to decide, are we willing to take some difficult votes and take some difficult action?”
Dunbar expressed disappointment at the vote in a post on social media.
“The Anchorage School District is being starved into closing schools and increasing class sizes. State operations and maintenance crews struggle to keep roads clear all over Alaska due to under-staffing. The PFD has been cut, and cut, and cut. But somehow, we still have enough cash to hand $100 million to a billionaire in Texas,” he said, referring to Hilcorp owner Jeff Hildebrand.
The bill now heads back to the Senate, which can either vote to accept the House’s original version of the bill or set up a conference committee to work out a final draft.
