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Alaska editorial: The big picture: Oil tax reform justified by information at hand

Posted: April 11, 2012 - 11:06pm

This first appeared in the Fairbanks Daily News-Miner:

The Alaska Legislature does not need a better microscope to see what’s wrong with the state’s oil tax system. The problem is best seen with the numerous wide-angle lenses already available.

During recent debates in Juneau, some legislators noted that the state Department of Revenue has not completed highly detailed, final audits of oil company tax payments from the past few years.

Without that information, they assert, the state should not lower oil taxes in an effort to attract more reinvestment in Alaska’s oil patch.

But a tax rewrite clearly is justified by the information already available.

It’s true that the state still lacks final audits that detail how the state has fared under its current tax system, Alaska’s Clear and Equitable Share, which was enacted in 2007.

The state doesn’t possess completed full audits yet because of the complexity of the current tax system and the failure of the administration and Legislature to give the Department of Revenue the manpower and tools to do the analysis quickly.

So Revenue Commissioner Bryan Butcher was taken to task at a March 26 hearing of the Senate Finance Committee regarding the absence of comprehensive audits of oil company tax returns.

But no such comprehensive audits were used during the debates leading up to passage of ACES in 2007, the commissioner noted. Nor were they used in the debate on creation of the system in place prior to ACES, he said in comments to the Daily News-Miner.

Commissioner Butcher said his department can confidently assess the ACES tax rates using what are called “desk audits,” monthly and slimmed-down tax return audits performed in advance of the comprehensive audits. Desk audits, he said, give the department “an accurate read of the companies’ tax returns.” A company must pay a hefty penalty if the comprehensive audit later shows it underpaid its taxes.

These audits give policymakers sufficient aggregated information about tax payments, credits and deductions to know that something needs to change. While work in oil-producing regions across the globe has boomed in recent years, Alaska has been left behind.

One of the most forceful critics of the state’s lack of final audits has been Sen. Bert Stedman, R-Sitka and co-chairman of the Senate Finance Committee. However, he has not let his concerns about the audits blind him to the broader problem.

Stedman’s committee last week was busily amending the Senate’s reform bill, and — surprise — the legislation offers reduced oil tax rates. While the Senate bill still doesn’t reduce rates as much as advocated by the industry and Gov. Sean Parnell, the point here is that even Stedman apparently considers final audits to be a unnecessary prerequisite for corrective action on oil taxes.

We don’t need those audits to know that Alaska’s tax structure is not competitive with most other oil regions. Some legislators remain unconvinced of that fact, despite hearing from numerous consultants who have delivered the same message.

One of those consultants last year explained the risk of delaying action and seeking ever more analysis of where Alaska’s tax structure places it in the global competition for reinvestment of the billions being raked in by oil companies.

“Any production losses that are occurring now with the current tax system will continue to accumulate,” wrote Roger Marks of the firm Logsdon & Associates in a report prepared for the Legislative Budget and Audit Committee.

Marks, who previously worked many years for the state as a petroleum economist, added that “the question is how much more useful the information is beyond what we have now.”

Alaska is at a pivotal moment, and its leaders have the information they need to move forward.

They’ve heard from the consultants, from the administration, from the oil industry and from the supporting businesses that rely on the oil industry to keep thousands of Alaskans employed.

Changes on the scale of those proposed by the governor and adopted last year by the House are the best hope for seeing greater oil production, and putting more Alaskans back to work, even though it will cost Alaska some significant revenue in the near-term.

Alaska can’t afford to sit, to continually seek more information, as the flow of oil continues to decline.

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