Oil revenues leave Alaska unfazed by large tax declines

State experiences biggest plunge in tax revenues in nation

Posted: Sunday, November 29, 2009

Alaska had the biggest plunge in tax revenues of any state last quarter, according to a new report from the non-profit Rockefeller Institute.

Unlike other states, however, Alaska isn't worried. The nation's 49th state relies little on the types of taxes that run most states' governments, and instead makes its money off oil.

"We're not like other states," said Cherie Nienhuis, petroleum economist with the state Department of Revenue, which monitors tax collections.

The Rockefeller report showed a drop of more than 10 percent in tax revenues nationwide for the quarter ending in September, as states faced a combination of declines in sales, personal income and corporate income taxes.

That's forcing many states to balance their budgets by slashing state services and laying off employees.

In Alaska however, the reported 52 percent decline in those taxes represents only a small portion of the state's revenues. Of those taxes, the only one Alaska has is a relatively modest corporate income tax.

"In our budget, $500 million, as a percentage, is pretty insignificant," Nienhuis said.

The state's most recent forecast, made last spring, projects $440 million in corporate income taxes on the petroleum industry for the current fiscal year. That's from a total forecasted state income of $9.6 billion, including oil, investment, federal and other revenues.

During July 2008, oil prices hit $147 a barrel, allowing Exxon Mobil Corp. to post the largest quarterly company profit in history by topping $10 billion. Prices in the same quarter of 2008 averaged $130 a barrel, while they were closer to $70 a barrel this year, she said.

"There was almost a halving of the price between the two years," Nienhuis said.

As recently as 1994, corporate petroleum income tax was as little as $17.4 million as the industry struggled with low prices, but it rebounded to $605 million in 2008.

In Alaska, corporate income tax is based on operations of an entire company, not just what they do in Alaska. That means that while the state's economy is currently strong compared the rest of the nation, corporate income taxes can still take a significant drop.

"Corporate income tax is based on world-wide income, then they apportion it to the state of Alaska based on certain aspects of their operations here," Nienhuis said.

Those aspects include factors such as assets, employees and sales in the state.

Mining, tourism, fisheries and other industries also pay corporate income tax.

• Contact reporter Pat Forgey at523-2250 or patrick.forgey@juneauempire.com.

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