A Citizen’s Guide

Joe Balash, a senior staffer in the office of North Pole Sen. Gene Therriault, has been working for more than a week to get a series of amendments adopted to the Senate version of the governor’s oil tax reform bill.

The bill is still before the Senate Resources Committee. Chair Tom Wagoner, R-Kenai, has said he wants to move the bill out today, but so far committee member Sen. Ben Stevens, the Anchorage Republican who is also Senate president, has held things up by claiming to need more time to review the proposed changes.

Stevens has not returned my requests for comment.

Senate Resources meets Wednesday at 3 p.m. If the bill doesn’t move today, it will have to wait until Monday because Wagoner is out of town the rest of the week. While the chairman could let the bill go in his absence, it’s highly unlikely Wagoner will do so. The Balash amendments clarify how the value of oil and gas is determined and what expenses the oil companies can claim as legitimate deductions.

The Legislature’s tax consultant reviewed the tax credits and deductions provisions of the governor’s proposal and found a number of loopholes where the state could potentially lose revenue.

Among the consultant’s recommendations is adoption of auditing powers held by the Internal Revenue Service to review expenses claimed by related companies and subsidiaries. The administration claims it already has sufficient auditing powers to deal with the issue and says the additional language is unnecessary.

“We think they’d be expensive to administer and we don’t think we need them,” said Jim Clark, the governor’s chief of staff. “We want them out of the bill.”

Dan Dickinson, director of the tax division at the state Department of Revenue, said the amendments were pretty straightforward.

“Some of this stuff we felt we already had and other stuff was included in the governor’s bill,” Dickinson said.

Dickinson said the state has dealt with similar tax issues in the past and has the experience and powers to handle future tax matters.

The committee is also considering an amendment that would drop tax credits on federally regulated facilities.

The Federal Energy Regulatory Commission, or FERC, sets tariffs on pipelines based on what it cost the operators to build the line and other processing facilities. Some lawmakers are concerned that the oil companies that would build and operate the gas pipeline might be able to convince FERC to set a rate to use the pipeline without taking into account the tax credits the companies received from the state.

••••

A growing number of legislators are asking why the administration of Gov. Frank Murkowski is pushing a profits production tax based on oil companies’ net profits, which are the companies earnings after expenses.

Most production taxes are a percentage of the gross value of the oil at the wellhead, which the Legislature’s advisers maintain is a simpler method of determining the true value of the oil.

The problem with a net profits tax is that it encourages taxpayers to claim as many expenses as possible to reduce their liability.

The state could face an uphill battle determining what expenses are legitimate and which are bunk. Lawmakers are already complaining that the tax credits and deductions in the governor’s bill are poorly defined and leave the state open to being gamed by the industry, which is why the Senate Resources Committee is considering amendments to clarify what expenses are viable.

“The challenge is always going to be how you define expenses with a net profits tax,” said Juneau Democratic Sen. Kim Elton.

Asked if they’ve considered switching to a tax based on gross profits, though, lawmakers acknowledge it may be too late.

“We’re five weeks of sweat into the proposal and we have six weeks to go, so I don’t think there will be any change now,” Elton said.

Staff writer R.A. Dillon can be reached at (907) 463-4893 or rdillon@newsminer.com.