Alaska editorials: Mining industry should work with state on tax rewrite

Posted: Monday, April 02, 2007

This editorial first appeared in The Anchorage Daily News:

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Will Alaska's mining industry learn from the mistakes of its brethren in the oil and gas and cruise ship industries?

Will the mining industry look at its 52-year-old tax rates in Alaska and realize it's time to work on a new structure, one that matches today's larger mines?

We hope so. It's in everyone's best interests that the industry work with legislators.

The oil industry had long resisted changes to the state's production tax formula. The companies kicked and grumbled, resisted and argued at most every opportunity. And what did they get for their opposition? The Murkowski administration in 2005, by administrative order, changed the tax calculation at Prudhoe Bay and its satellite fields, imposing a major tax increase on oil production. The governor wanted to show the industry that not talking about reforming taxes was a painful mistake.

Then lawmakers the next year totally rewrote the state's oil and gas production tax laws, pretty much doubling the tax rate at today's prices. And the public last fall almost passed a punitive billion-dollar annual tax on natural gas reserves in the ground, as punishment for North Slope producers' pace in developing a gas pipeline.

The cruise ship industry also has a long history of fighting any new taxes or state regulation. And their prize for that battle? Voters last year passed three new taxes on the industry, along with several pages of new environmental laws.

You would think that the mining industry would look at these recent actions and figure they could be next. Several legislators, led by Homer Republican Paul Seaton, want to rewrite the state's mining production tax laws. Rep. Seaton has a bill in this year to make some pretty big changes in the laws, including elimination of the 3 1/2-year tax holiday on new mines and raising the tax rate. No one expects his bill to pass this year, just as it failed last year, but he is gaining support in the Capitol. A lot of lawmakers look at last year's $2.75 billion worth of mining production in Alaska, the industry's projected $34 million in state production taxes this year and its 1950s tax rates, and figure it's time for some changes.

It is time. The industry has changed quite a bit from the small mines of Alaska when the original production tax was first adopted in 1913. But the investment and commodity price risks have grown too. Any change in mining taxes needs to take those realities into account.

The industry no doubt is worried but has indicated a willingness to talk. Our advice is to keep talking, accept the fact that the tax laws should be changed and strike a fair deal.

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