Lawmakers to float new oil-tax alternative

Posted: Wednesday, July 12, 2006

Two Anchorage lawmakers aim to break a stalemate over the rewrite of Alaska's oil production taxes with an alternative version of a proposal to tax oil companies' profits.

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Republican Reps. Mike Hawker and Ralph Samuels have come up with a concept they hope other legislators will see as a compromise to the tax bill that has already been rejected twice this year.

The plan would still replace Alaska's production tax with one based on oil companies' Alaska profits, with the potential of increasing revenue to the state by hundreds of millions, if not billions, of dollars at high oil prices.

But Hawker and Samuels' proposal departs from the original in its approach to the most disputed part of the bill: the rate at which company profits would be taxed.

State lawmakers have twice failed to negotiate that base tax rate. First, the Senate rejected the House's rate of 21.5 percent at the close of the regular session. Then, the House rejected a conference committee's negotiated 22.8 percent rate in the first special session.

Both chambers dismissed Murkowski's 20 percent tax rate proposal, which was agreed to by the three oil companies with whom the governor negotiated tax and royalty terms for a natural gas pipeline.

Hawker and Samuels decided to take a different approach for the year's second special session, which begins Wednesday. Their idea is to base each oil company's tax rate on the level of capital investment that company makes in the state. If a company puts more money into the state, it will be taxed at a lower rate. If a company does not meet a certain level, it will be taxed at a higher rate.

The concept is meant to bring together those who want a 20 percent tax rate and those who want a 25 percent tax rate, as well as encourage oil companies to spend more money on capital projects in Alaska and slow the rate at which oil production is drying.

"The driving issue is the decline in oil production," Hawker said. "As in all these proposals, the devil is in the details. We've got to recognize the different circumstance of the small producers and explorers. But we're not going to get anywhere if we don't get to the table."

Samuels said the plan is really still a concept at this point - "We haven't fleshed out where the numbers would be" - and he and Hawker first wanted to see if it was practical enough to work. After conversations with Department of Revenue officials, Samuels said he thinks it could be done.

He said the next step will be for the pair to brief their fellow legislators and industry on the proposal, and from there it will take shape.

Theirs will be one of possibly three production tax proposals the Legislature may have before them this special session.

Murkowski plans to reintroduce a version of his 20 percent profits tax bill today, according to spokesman John Manly.

The governor will address a joint session of the House and Senate on Thursday about the two issues of the special session: the production tax changes and a bill giving Murkowski the authority to negotiate the gas deal with BP PLC, Exxon Mobil Corp. and ConocoPhillips.

Also, Senate Resources Chairman Tom Wagoner, R-Kenai, said he has a bill ready that would tax companies based on their gross production of oil and gas instead of their profits.

Wagoner first announced that plan earlier this month at an appearance supporting Republican gubernatorial candidate John Binkley, who has attacked Murkowski's oil tax plan and his gas deal with the three oil companies.

A tax on gross production would be less of an overhaul and more of an adjustment to the current tax system. That system is seen as being flawed because of a complex formula called the Economic Limit Factor that has allowed several oil fields to pay minimal or no production taxes.

Wagoner said he is willing to look at the proposal by Hawker and Samuels.

"I'm not going to tell you right now that mine is better than theirs," Wagoner said. "It's a new concept and I'm not going to dismiss it out of hand. But I've got to look at what it does to the little guy."

Legislative Democrats, the minority party in both the House and Senate, have been calling for a gross production tax for some time. They say it would be easier to implement and it would be harder for oil companies to cook the books, whereas they believe the companies could manipulate a net-profits tax.

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