Oil tax standard deduction plan, defeated once, makes a comeback

Posted: Tuesday, November 13, 2007

Trying to lower the risk that skyrocketing oil field costs will limit the state's tax revenues, the Alaska House of Representatives has amended the state's Petroleum Profits Tax to include a new standard deduction amount for operating expenses.

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House Democrats led by Rep. Beth Kerttula, D-Juneau, succeeded narrowly Sunday in making the change, after failing in a similar effort Saturday night in the House Finance Committee. The amendment passed 21-19.

Kerttula said a gross tax was what "many of us, in our hearts, truly wish for," but were unable to get through the Legislature. A standard deduction limits some of the concerns they had with a net tax, she said.

Sen. Kim Elton, D-Juneau, said the amendment so far hasn't been discussed much in the Senate.

"It will get an awful lot more now, and it intuitively makes sense," he said.

The bill had some strong opposition in the House, however.

Rep. Bob Roses, R-Anchorage, called the change "grossly unfair."

"We've started adding more things into the bill to make it much more difficult for the producers to do business," he said.

"Now we're going to say we're going to limit the amount of deductions you can take for your expenses," he said.

Kerttula called it a compromise that allows her and others who preferred a gross tax on all oil company income to support the Palin administration's proposal for a net tax on company profits.

Rep. Mike Doogan, D-Anchorage, said the net tax plan had too many variables, but fixing a standard deduction for operating expenses would eliminate the risk that deductions may come in far above expectations, eating up the companies' income and the state's tax revenue.

"In my view we need to fix at least one point," he said. "If we don't, we're never going to know how much money we're going to bring in."

Credits for capital expenditures, such as new equipment, remain unchanged.

That lets the oil companies continue to be rewarded for investing in Alaska, said Rep. Les Gara, D-Anchorage.

"The thing we want to incentivize more than anything is exploration capital expenditures," he said.

The adoption of a standard deduction is only set for the first few years, and then has to be reviewed. Elton said that will help the state with the difficult job it has had in trying to hire adequate auditors to look at the newly detailed tax returns.

"This seems to make the job an awful lot easier on our auditing team as we swing into a new tax system," he said.

• Contact Pat Forgey at 586-4816 or patrick.forgey@juneauempire.

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