AK seeks big payday in tax case

Public document suggests 'a potential for hundreds of millions of dollars'

Posted: Thursday, March 08, 2007

A highly confidential claim of unpaid income taxes could result in a windfall for the state of Alaska, but apparently it's one the state should have collected years ago.

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Information about corporate income taxes is closely held within state government. However, information that is publicly available suggests "a potential for hundreds of millions of dollars," according to a Department of Law document.

Testifying before the House Finance Committee, Larry Ostrovsky of the Department of Law said it was pursuing some "very, very significant income tax cases that I can't talk about in open session."

The hints about the size of the case come from supporting material provided in the Department of Law's supplemental budget request.

It says: "Tax Division is working on a high-level corporate income tax case with a potential for hundreds of millions of dollars in settlement."

Few taxpayers in Alaska could be subject to a bill that high except BP. In 2000, British Petroleum began a series of corporate mergers, which resulted in its taking ownership of most assets of the former Atlantic Richfield and selling off others.

The Alaska Budget Report, a Juneau-based newsletter known for its expertise on state issues, has identified BP as the likely taxpayer in question. The report said BP had earlier claimed the merger and sale transaction would not result in any taxes owed.

BP spokesman Daren Beaudo said he could not confirm or deny that his was the company in question.

"We don't comment on taxpayer confidential information," he said.

Department of Law officials said in transition reports to Gov. Sarah Palin that they were working to "determine whether the state should litigate or settle a confidential corporate income tax dispute involving a substantial amount of money."

Rep. Beth Kerttula, D-Juneau, said the likelihood of a big settlement was good.

"The Department of Law is very careful before they file disputes," she said.

Kerttula is a former oil and gas attorney for the department, but said she had no information that wasn't already publicly available.

"From my experience with the department, those attorneys are very good and have a very good chance of prevailing, or a good settlement," she said.

The state and the taxpayer are now believed to be in settlement talks, since the Department of Revenue issued a finding last September that the sale of the taxpayer's assets amounted to business income on which taxes should have been paid.

The talks are likely to continue through the spring and summer.

Were the state to gain the hundreds of millions in unpaid taxes, the money would be required by law to be deposited in the Constitutional Budget Reserve, where it would not be readily available for the Legislature to spend.

Palin had already planned to make a substantial contribution to rebuild the reserve, and a big settlement could free up additional money for the state budget.

Palin spokesperson Meghan Stapleton said she was unaware of the issue, and then subsequently did not return phone calls.

As the tax dispute continues, Alaska faces numerous other disputes with BP, including administrative, civil and criminal matters.

Those involve claims before state and federal regulators of overcharging on the trans-Alaska oil pipeline, lawsuits over the disputed Point Thomson natural gas field and a civil and criminal investigation stemming from oil spills caused by corrosion on North Slope oil lines.

Those disputes may amount to billions of dollars.

• Pat Forgey can be reached at patrick.forgey@juneauempire.com.

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