House sends profit-based oil tax bill to Senate

Major changes may occur in upper chamber version

Posted: Monday, August 07, 2006

The Alaska House on Sunday approved a change in the state's production tax system to one based on oil company's profits.

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Moments before the final vote, word circulated that BP Exploration (Alaska) Inc. was shutting down Prudhoe Bay, the nation's largest oil field and the center of Alaska's economy, due to transit line corrosion.

House leaders pressed on with the vote anyway, despite protests by House Minority Leader Ethan Berkowitz, D-Anchorage, that it should be delayed to assess the situation.

"It has no relation to the bill," said Rep. Norm Rokeberg, R-Anchorage, after the floor session.

Indirectly, it may. The bill includes a system of tax credits and deductions for direct lease expenditures, under which BP could partially subsidize replacing the corroded transit line, as well as the cost of the shutdown.

The measure passed 31-8, largely on the strength of a bloc of Republican legislators and Bush Democrats. The Bush legislators may not necessarily like the bill, but their rural districts would receive a substantial amount of state money to reduce their energy costs if it passes.

One of those Bush legislators, Rep. Woodie Salmon, D-Beaver, said every year that Republican majority leaders "stack all this money" for them, but then they make receiving it contingent on getting the rural lawmakers' votes on big issues.

"If that's the only way we're going to get money, that's the only way we're going to get money," Salmon said.

The measure next goes to the Senate, where it could change drastically. Sen. Tom Wagoner, R-Kenai, has a proposal to switch the measure from a tax on oil companies' net profits to one based on the gross value of oil and gas production, but it's not known whether he has the votes to get it passed.

Proponents of the gross tax say it's a simpler and more transparent way of calculating taxes, whereas a net-profits tax could be manipulated by the oil companies to drive their tax burden down.

Rep. Eric Croft, D-Anchorage, said he believes the net-profits bill would dismantle the state's production tax completely.

"We're making a tragic mistake," he said.

Sponsors of the bill said the concerns were overstated, and a net-profits tax would encourage exploration and development of new fields in Alaska. Gov. Frank Murkowski, who introduced the net-profits concept in February, has threatened to veto a gross production tax bill if it passes the Legislature.

One of the effects of the net-profits bill would be to partially subsidize the development of the Point Thomson natural gas field, which is operated by Exxon Mobil Corp., one of three companies negotiating with the state to build a gas pipeline to Canada.

Giving Exxon Mobil and the other leaseholders a possible $4 billion tax break drew anger from several legislators. Rep. Max Gruenberg, D-Anchorage, noted the company has still not paid a $4.5 billion punitive damages judgment stemming from the 1989 Exxon Valdez oil spill.

"The tanker captain has paid for that, the company has not," Gruenberg.

Some Republicans also expressed unease with the net-profits tax bill, but they united to push through this measure, rather than walk away without a tax rewrite for the third time this year

Those who were unsure said a provision to re-examine the tax and its effects by 2011 gave them some comfort.

"We're going to know, and if it doesn't work, there's a way for us to come back," said Rep. Paul Seaton, R-Homer.

Under the bill, a tax rate would be set for each company between 20 percent and 25 percent of that company's profits in the state. The actual percentage would be based on the level of capital investment each company makes in the state - the more a company invests, the lower its tax rate.

At about $55 per barrel, the tax rate would begin to rise so the state shares more of the oil wealth at high prices.



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