A Citizen’s Guide

When trying to understand total government take of oil companies’ revenue on North Slope production, it’s important to remember that the tax rate is just one part of the total.

Federal income tax accounts for about 35 percent of the total government take.

The remainder belongs to the state:

• Royalty 12.5 percent.

• Property tax 2 percent.

• State income tax is effectively 4.7 percent. The state income tax rate is actually 9.7 percent, but that’s only on companies’ Alaska-based income. The Department of Revenue considers the effective tax rate to be about half that.

• The proposed net profits tax, or severance tax, is 23.5 percent under the House version, 22.5 percent in the Senate bill.

Add all those together, and you get the total state and federal government take.

The House bill would set total government take—both state and federal—at 62.7 percent for current oil prices. The Senate version puts total government take at 59.9 percent at today’s prices.

State take under those two scenarios would be 40 percent and 35.6 percent, respectively. (The federal portion therefore would be 22.7 percent and 24.3 percent respectively.)

Barry Pulliam, senior economist for legislative consultants Econ One Research, said the severance tax doesn’t have as big an effect on government take because companies can deduct it from their state and federal income tax.

The companies also do not pay severance tax on royalties, which are also deductible on their income taxes.

The increase in revenue under the severance tax to the state comes largely at the expense of the federal government.

At $40 a barrel, the House’s 23.5 percent base tax rate would result in an effective tax rate 12.7 percent because of the effect of the deductions and tax credits included in the oil tax bill.

The effective tax rate increases because of the “windfall” provision, or escalator, that increases the base rate as oil prices climb.

The House version includes an escalator that would increase the base tax rate by 0.25 percent for every $1 the price of oil goes over $50 a barrel. At $70 a barrel, the effective tax rate would be 23.7 percent.

The Senate version includes a lower escalator (0.1 percent) that would be triggered once the price of oil hits the $50 mark. At $70 a barrel, the Senate version would have an effective tax rate of 19 percent.