New oil-tax credit proposal would nearly eliminate program by 2020
The Alaska House is inching toward a compromise on oil tax credits, the heart of a stalemate this session that’s kept lawmakers from moving forward on other parts of a fiscal plan to address the state’s $4 billion budget gap.
Instead of paying cash subsidies to companies, under the a new draft version of House Bill 247, made public Tuesday afternoon, the state would implement a carry-forward lease expenditures system, equivalent to a tax deduction that can be applied to future tax payments.
“This approach is consistent with Federal tax treatment of business losses,” according to a summary of the new draft by Rep. Craig Johnson, chair of the House Rules Committee.
The new draft version of HB 247 would eliminate the tax credit program by Jan. 1, 2020, and allow just one credit in the “middle earth” region — the area between the North Slope and Cook Inlet – to close-out as scheduled in 2022.
“They’re relabeling it lease expenditures credits, but it’s really still a tax credit,” said Rep. Chris Tuck of the new proposal. “So it’s just a shifting to try to make it look like that we’re pulling off tax credits off the budget.”
Kara Moriarty, president and CEO of the Alaska Oil and Gas Association, said cash credits can serve a different purpose than deductions, and that losing them will still have an effect on every company in the state.
“Those refundable credits are the very thing that attracted some companies to Alaska,” Moriarty said in an interview Tuesday evening. “It’s a high cost of business here, so those credits help stabilize that high-cost environment.”
Rep. Tammie Wilson said she can’t support the new draft of the bill, but for a different reason. The state has changed oil tax regimes five times in the past 10 years, which she calls bad for business.
“As long as it’s working on the Slope and we’re seeing more oil come down the pipe, why would we want to change it?” Wilson said. “Why would you want to invest, if you did invest and now, all of a sudden, I’m going to tell you well we don’t have money so we want to change the game. And we do that all the time, and we’ve just got to stop.”
According to the Alaska Department of Revenue, the change would save the state between $225 and $290 million by 2020, ramping up to $305 to $390 million in savings by 2022. The governor’s bill, as originally proposed, would have saved as much as $495 million by 2018.
HB 247 has been in the House Rules Committee for nearly two weeks as the House has struggled get the 21 votes necessary to pass the measure. Tuesday’s new version is the first visible sign of progress.
Leadership in both bodies have agreed that HB 247 must be addressed before taking up new revenue measures like a restructuring of the permanent fund for government, or a broad-based tax.
The House Rules Committee is expected to meet Wednesday to take-up the new draft.
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