A Citizen’s Guide

JUNEAU — The House Resources Committee approved a new version of Gov. Sarah Palin’s oil tax bill Sunday night that substantially increased the amount of revenue producers would owe the state at today’s high oil prices.

Under an amendment proposed by Rep. Paul Seaton, R-Homer, the state would reap about $2.4 billion at current prices from the progressive surtax provision alone. The change would nearly double the $1.3 billion earned by the surtax in the governor’s original plan.

In exchange for the higher surtax rate, the committee left out the 10 percent gross tax on production at the state’s legacy fields sought by the Palin administration, Seaton said.

“That’s the trade off,” he said.

The surtax — often referred to as a “windfall profits tax” or “progressivity” — is designed to capture a greater percentage of oil company profits when prices skyrocket. The surtax under the existing petroleum production tax captures about $1.1 billion at current prices.

The price of West Texas Intermediate crude oil closed Friday on the New York Mercantile Exchange at $95.93 a barrel.

The panel also lifted the base tax rate to 25 percent of a company’s net profits in Alaska, up from 22.5 passed by the House Oil and Gas Committee. Taken together, the latest version of the bill, at oil prices of $80 a barrel, would capture about $1.4 billion more in fiscal year than the existing tax system.

As passed, the committee substitute would raise nearly $4 billion when oil prices reached $80 a barrel.

The surtax proposal would add 2 percentage points to the base tax rate once the net price of producing a barrel of North Slope crude topped $30 — about $53 a barrel on the West Coast market. The escalator would increase a percentage point for every $10 the net price of oil climbed above $30 a barrel.

The surtax would top out once the state’s combined tax rate reached 50 percent, which Seaton estimates would be at oil prices of $116 a barrel.

While the trigger for the surtax would be based on the net price of oil, the surtax itself would be calculated based on the gross value of production at the wellhead. The switch means producers could not deduct the cost of production from the surtax portion of their tax bills.

The committee substitute that Resources passed out late Sunday night after a two-day marathon mark-up reversed several additional changes to the original legislation made by the previous House panel.

Democrats on the nine-member panel were able to put their stamp on the bill with help from Seaton and fellow Republican, Resources’ co-chair Carl Gatto of Wasilla.

Fairbanks Democrat David Guttenberg also carried several amendments for the administration.

Critics of the changes said lawmakers fail to grasp the effects of many of the changes they’re making to the original bill. The industry has warned that altering the tax system for the second time in as many years could harm investment on the North Slope at times of declining oil production.

An attempt by Resources’ co-chair Craig Johnson, R-Anchorage, on Saturday to gut the fiscal provisions of the bill was defeated.

“If we’re open to business, then our sign isn’t plugged in,” Johnson said. “It’s my personal belief that we’ve already stepped over the line.”

The legislation now moves to the Finance Committe, where many of the gains won by Democrats over the past two days are likely to be reversed.

Finance Committee co-chairs Mike Chenault, R-Kenai, and Kevin Meyer, R-Anchorage, could simply set aside Resources’ version and pick up the bill as passed by the Oil and Gas Committee. No decision has yet been made on how to proceed, Chenault said Sunday night.

“It may take a week just to find out what all the changes they made in Resources do,” he said.

Chenault expects the final bill will include some sort of tax hike. However, he said he’d prefer to see an increase to the surtax rather than the base tax rate.

Among the changes to the bill approved by Resources:

• An amendment allowing the state to determine the cost of sending oil down the trans-Alaska pipeline for the purpose of calculating a company’s eligible deduction. Producers can currently deduct the full pipeline tariff rate filed with federal regulators, an amount the state claims is inflated. The administration says the change is worth an estimated $160 million a year.

• Added language limiting eligible deductions to investments made in Alaska only.

• A provision that would allow the Alaska Retirement Management board to purchase tax credits from companies for 92 cents on the dollar. The credits could then be sold to the state for 100 percent of their value with the profit being applied to the state employees’ retirement fund deficit.

• Reinstated disclosure requirements and penalties asked for in the administration’s original bill.

• Increased the exploration credit for new wells to 30 percent and 40 percent based on the distance from existing wells and infrastructure.

Contact Washington correspondent R.A. Dillon at dcnews@newsminer.com.