Governor: 'Undue influence' pushed controversial tax

Posted: Sunday, August 05, 2007

Gov. Sarah Palin announced Friday she wants Alaska's controversial Petroleum Profits Tax revamped and promised to have a proposal ready for review by Sept. 4.

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The tax is not producing the money that was promised, the Palin administration has concluded. Given the corruption allegations - and convictions - surrounding those involved in pushing for the PPT last year, Palin wants a special session on Oct. 18 to revisit the issue.

"Examination of the public records associated with the public corruption probe and indictments surrounding the passage of PPT last year provide sufficient evidence to conclude that the outcome of the PPT vote was the result of undue influence," Palin said.

Palin's decision to revisit the tax was opposed by oil industry representatives but praised by two Democratic Juneau legislators.

House Speaker John Harris, R-Valdez, had requested Palin hold the session, joining an earlier request by House Democrats. Palin noted that reconsidering the tax was not a partisan issue.

Web links

For the Department of Revenue report on the Petroleum Profits Tax, visit Docs 2007/PPT Report 8-3-07 Final.pdf

See related article: Palin leaves session location decision to legislature

Palin and Commissioner of Revenue Pat Galvin said they're not ready to say if their proposal will include a change in PPT's fundamental structure from a tax on new profits to a tax on total revenue.

Given the federal corruption probes that have raised questions about the honesty of half a dozen legislators' votes, Palin said the Legislature should review the PPT as soon as possible to maintain the integrity of the tax system.

Palin's Department of Revenue on Friday released a report on the tax detailing several problems, including bringing in less revenue than projected and not spurring the kind of new investments that had been hoped for.

Galvin said the state drastically underestimated the cost of oil production on Alaska, which nearly doubled in the last year. Under the new system, that cost the state significantly, he said.

Galvin said his department had not yet determined whether all those costs were properly deductible.

Galvin said the PPT was both complicated and difficult to audit, making it difficult to predict revenues from year to year.

"Any wide swings between what is anticipated and what is received can be a significant problem for the state," he said.

Galvin and Palin said they had not yet determined whether the PPT's tax on profits should be abandoned in favor of a simpler plan to administer tax on total revenues, but Galvin's report hinted such a recommendation might be coming.

"The state's experience with the PPT puts a spotlight on the risks associated with a net profit-based tax system," the report concluded.

The imposition of the PPT was retroactive for several months, something that is allowed with tax bills. Galvin said the state had not yet determined whether its Sept. 4 proposal would be retroactive, or to what date.

State Rep. Beth Kerttula, D-Juneau, said she hopes Palin comes back with a proposal to replace the PPT with a tax on total revenues.

"This law needs to be changed, and it needs to be a gross tax," she said.

The Alaska Oil and Gas Association, an oil industry supported group, opposes changing the tax system, said Marilyn Crockett, the group's executive director.

"It would have been our strong preference that PPT not be reopened," she said.

She said the evidence of its success was the hundreds of millions of dollars in additional state revenue that it brought compared to the previous Economic Limit Factor tax.

"It's working like it was intended, generating additional new revenues," she said.

Kerttula said that was because the ELF tax simply was not working, and it inappropriately exempted from taxation several profitable oil fields.

"Comparing what we were getting under ELF isn't appropriate, she said. "Under ELF we had a terrible, broken system."

• Contact Pat Forgey at 523-2250 or

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