Alaska’s Tax regime has changed dramatically from Senate Bill 21, which passed last year. The law has proven controversial, however, with the latest challenge coming from two Democratic state senators. KDLG’s Chase Cavanaugh has the details.
Alaska has a unique structure when it comes to taxation. With no statewide income or sales taxes, it makes the majority of its revenue from oil tax. The tax scheme from 2007 to 2013 was known as ACES, taking 25% of the first $30 in net profits from an oil barrel, along with a .4 percent take of each further dollar in profit. That was replaced last year with Senate Bill 21, raising the base rate to 35%, but removing the add-on tax. Governor Parnell signed the legislation with the understanding that oil production was on the increase, but State Senator Hollis French disagrees.
"We see that there's a long term trend of declining production that began back in 1989 and continues all into the future according to the governor's revenue sources book. We seen this decline in production and we see also the billion dollar defecits we're experiencing under SB 21, the same time you have the governor saying he thinks that we're gonna look back in 3-5 years and say "hey this is great, we got significant new production." We thought we had to alert the public that that's not the future we see and to bring our concerns in the form of a challenge to the governor."
Senator French, along with his colleague Sen. Bill Wielechowski, are concerned that without a significant ramp up in oil production, SB 21 puts too much potential state revenue into the hands of oil companies, as well as lacking provisions encouraging said companies to invest in Alaska. To that end, the two have proposed legislation that would put SB 21 to the test.
"We'll give SB 21 five years to work. If at the end of that time, it has not produced one barrel of oil more than we made the last year of ACES in 2013 and a dollar more revenue than we would have made had ACES had been in effect, then SB 21 is repealed and ACES is reinstated retroactive to 2014."
If SB 21 did not make the profits the state expected, the oil companies would immediately owe the difference in taxes in 2019 as if ACES was already in effect. Although the legislation is currently only a challenge letter, French says it would be an effective way for the governor to legitimize his stance on SB21.
"I think this an opportunity for the governor and those who support SB21 to really put it in writing, to make it legal. In street vernacular, you'd be putting money where your mouth is. If they really believe this is going to work, then they should make it legal and ensure Alaskans they're doing their constitutional duty the way I see our constitutional duty, which is to get the maximum benefit of that resource for all of the people."
Additional information on the challenge can be found at the website of the Alaska Senate Democrats.