House reinstates hike in oil tax bill

Legislature approves 25 percent rate after committee rejected it

Posted: Monday, November 12, 2007

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The House approved a tax hike on oil companies net profits to 25 percent Sunday afternoon, just one day after the House Finance Committee voted to keep the current rate of 22.5 percent.

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Gov. Sarah Palin called lawmakers back to Juneau to consider a second tax hike in as many years saying the current law is tainted by federal corruption probe and is falling short of expectations.

On Sunday, four Republicans and two Democrats successfully put the higher rate Palin sought back into the bill with an amendment. It passed 26-14.

Republicans backing the amendment were Mike Kelly of Fairbanks, Bill Stoltze of Chugiak, Nancy Dahlstrom of Anchorage, and Wes Keller of Wasilla; Democrats included Les Gara of Anchorage and David Guttenberg of Fairbanks.

Kelly said the higher rate is a way for the Legislature to "set ourselves on a course to restoring trust."

"We have been given a place to go, a place to land by the governor," Kelly said. "I implore you to give her the 25 (percent) rate."

Contrary to the expected free-for-all debate on this rate, no one else spoke out and the House quickly approved the change.

Based on a market price of $80 a barrel this rate, plus other fiscal changes, that could mean an additional $1.15 billion to the state's coffers for fiscal year 2009.

The tax rate has been the most publicly divisive component of the tax law review, but unlike last year, the debate does not fall heavily along party lines.

Those favoring the rate say its essential for the state to get its share and that it helps provide a stable tax law.

Opponents, however, say the state risks being viewed as unstable to the current and potentially new investors who see a second straight tax hike.

North Slope leaseholders BP PLC, ConocoPhillips and Exxon Mobil Corp. have the most immediately at stake among Alaska's oil industry players.

All three issued their strongest comments as the committee hearings drew to a close at week's end.

They stressed that higher taxes weaken the prospects of future investment, especially in the exploration of heavy oil, which costs more to produce, ship and refine.

Kevin J. Mitchell, an Anchorage-based vice president for the Houston-based ConocoPhillips, went first, imploring the 11-member House Finance Committee to rethink 25 percent.

"As I look at all of this, this is not a welcome sign for increasing investment in the state," he said. "This is increasing the barriers.

"It's either increasing the barriers to entry for new players or increasing the barriers for existing investors as they look at their investment opportunities in the state."

Claire Fitzpatrick reminded lawmakers that the costs on the North Slope already are escalating.

"It makes it ever harder and harder," she said. "If there is little or no upside potential, then the incentive for us to increase our risk changes."

The oil tax has been at the heart of a federal corruption probe that started in Juneau with state lawmakers and has stretched to Capitol Hill, where Sen. Ted Stevens and Rep. Don Young, both Republicans from Alaska, are under scrutiny.

Prior to the floor session, state Rep. Gabrielle LeDoux, R-Kodiak, delivered a letter to House Speaker John Harris, R-Valdez, addressing potential conflicts with House members who have strong ties to the oil industry.

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