A bill that would extend the state’s corporate income tax to companies like Hilcorp is making its way through the Alaska Legislature.
Senate Bill 114 is sponsored by Anchorage Democrat Sen. Bill Wielechowski. It would extend income taxes to companies that are not publicly traded — like oil and gas company Hilcorp, which is Cook Inlet’s dominant oil and gas producer, and falls under the “S-Corporation” designation.
As it stands, S-Corps do not pay income taxes to the state. Only publicly traded corporations like ConocoPhillips, Alaska Airlines and Walmart pay income tax in Alaska.
Designated C-Corps, on the other hand, are taxed at a rate of 9.4% on income over $4 million.
The bill would also reduce the per-barrel break for companies by $3 per barrel of oil at certain price thresholds.
Fadil Limani with the state Department of Revenue said the legislation could have a positive short-term boost to the state’s finances, bringing in as much as an additional $1.1 billion in the next fiscal year, according to estimates from his department, presented at a Senate hearing Monday.
“However, it could have long-term impacts, negative impacts, to the state, based on the decisions that oil companies will make as it pertains to their future investment outlook,” he said.
The legislation comes in a heightened moment for the state’s oil and gas industry, with warnings about shortfalls in natural gas production in Cook Inlet.
Kara Moriarty, executive director of the Alaska Division of Oil and Gas, said that’s one of the reasons her association opposes the bill.
“Any change to Alaska’s tax system truly does need to be analyzed both on impacts of our state economy and North Slope, as well as the Cook Inlet,” Moriarty said at the hearing.
The change in the production tax rate would not *directly* impact production in Cook Inlet. The state years ago set permanent tax ceilings on Cook Inlet oil and gas aimed at keeping Southcentral energy prices low. The majority of energy used on the Railbelt comes from Cook Inlet natural gas, from Hilcorp.
“The oil and gas production tax changes in SB 114 would not directly impact the Cook Inlet tax calculation, but it would raise taxes overall on some companies doing business in Cook Inlet that also do business on the North Slope,” said Department of Revenue Spokesperson Aimee Bushnell said in an email. Hilcorp is the only such company.
Anchorage attorney Robin Brena, who specializes in oil and gas taxes, spoke on behalf of the bill, Monday. He said it’s time for companies like Hilcorp to pay their fair share, as the state struggles to pay for public services, like education and the marine highway.
“I cannot imagine how we could do an any-worse job of maximizing the benefit to the people from our natural resources, than we are doing now,” Brena said.
He said the tax burden should be on private companies, not on the public. Legislators and the governor both are considering new taxes to address the budget shortfall.
Senate Bill 114 will get another hearing Thursday.