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Measure would halt corporate income tax cuts

State estimates breaks would cost Alaska $100 million over next 9 years

Posted: Thursday, March 24, 2005

Gov. Frank Murkowski on Wednesday filed a bill to eliminate new tax breaks for oil and gas, fishing, mining and other industries operating in the state.

Murkowski's measure separates tax cuts approved last year by Congress from Alaska's corporate income tax system, which is based on federal law and follows all federal changes unless the Legislature intervenes.

The state Department of Revenue estimates the tax cuts would cost Alaska about $100 million over the next nine years, or more than $10 million per year. Last year, the state took in about $338 million in corporate income taxes, according to Chuck Harlamert, chief of operations for the state's tax division.

With this bill, Alaska's corporate income tax revenue should remain level, according to the Department of Revenue.

Alaska Oil and Gas Association executive director Judy Brady said Wednesday that she was struggling with the bill but the association had not taken a position on it. Rep. Vic Kohring, chairman of the House Oil and Gas Committee, was less ambivalent.

"It's denying their ability to be able to retain their deductions," Kohring said. "To me, that's a tax increase."

The tax deductions, which are to be phased in at the federal level this year through 2010, are part of the American Jobs Creation Act passed by Congress in 2004.

Under the act, corporate taxpayers can deduct a percentage of the money they make in extracting, producing and manufacturing their products. The purpose is to make U.S. companies more competitive overseas by reducing their domestic tax burden, according to a summary by the U.S. House Committee on Ways and Means.

But corporations operating in Alaska would be allowed to deduct production profits made in the state, in other states and abroad, resulting in a revenue decline with no benefits to Alaska, according to department officials.

"They will get the deduction that the (federal government) built into the law," said Dan Dickinson, director of the state tax division. "The state decoupling will have no effect on that. But they get lower taxes in Alaska with us getting no advantage out of it. That's why this bill is a good thing."

About 81 percent of the state's corporate tax base would qualify for the tax cuts, and 96 percent of that number are oil companies, Harlamert said.

Brady called the measure troubling and said it could send up a red flag for companies operating in the state.

She said while the measure is not a tax increase, "for a few short moments you had a decrease in your taxes and then they say 'Nope, we're taking it back."'

Kohring said this bill, on top of Murkowski's oil production tax increase in February, is a disappointing double whammy against the industry by a Republican governor.

"To me, this is an anti-oil industry bill that is going to do nothing but hurt the industry," Kohring said. "We're supposed to be the party that's supposed to be friendly to business, particularly to the oil industry, which is our bread and butter, our ace in the hole."

Murkowski spokeswoman Becky Hultberg said the bill maintains the state's corporate tax structure and that the governor has always supported the oil industry. In fact, she said, the bill goes toward creating regulatory certainty the industry has said it needs to increase investment in Alaska.



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