Alaska on the hook for $160 million in lost taxes, thanks to weakness in state law
BP, ConocoPhillips, ExxonMobil and Hilcorp spent lavishly in 2020 to defeat an oil tax increase, claiming this was the way to “SAVE JOBS and THE PFD.”
“This ballot measure goes too far. It is bad for jobs and puts our economy at risk. There has to be a better way for Alaska,” the oil companies said through their front group, “OneAlaska.”
“We can make a better future for Alaska. Together,” the front group promised.
The so-called “Alaska leadership team” of OneAlaska featured the usual Chamber of Commerce suspects, but the big donors who provided nearly every dime spent to defeat the initiative stayed in the background.
OneAlaska never revealed the secret better way for Alaska or how the oil companies plan to SAVE JOBS and THE PFD. The website with those promises is defunct.
I thought about this disappearing act as legislators began learning that the state would soon be giving tens of millions in refunds to the oil industry thanks to a weakness in state tax law and provisions in the federal COVID-19 bailout law from last spring.
OneAlaska forgot to mention any of this before the November election. The Dunleavy administration forgot to publicize it or try to fix the problem.
Now it is true that the refunds the state will make to the oil companies have nothing to do with the oil production tax, which was the subject of the initiative, but they certainly relate to the overall tax burden of the companies in Alaska. The payments amount to a retroactive corporate subsidy.
The federal bailout law allows companies to “carry back” net operating losses from 2018-2020 and qualify for federal tax refunds.
The weakness in Alaska law is that the state corporate tax law automatically adopts federal tax code by reference, so Alaska has to follow the bailout law refund provisions unless the Legislature modifies the state law, which it hasn’t.
The pandemic and the collapse in oil demand hit oil companies hard in 2020 and the Alaska firms will be eligible to apply 2020 losses to earlier years, helping create a $70 million total state loss in 2021-2022.
BP, ConocoPhillips and ExxonMobil should not be eligible for refunds from the state for taxes they paid to Alaska in past years. But Alaska has failed to correct a loophole in state law and the Dunleavy administration hasn’t proposed a plan to do anything about it
The administration has also not tried to fix another weakness in state law—the one that allows Hilcorp to avoid paying the corporate oil and gas income tax paid by the other companies. Hilcorp is a limited liability company and is exempt from that tax under state law.
The impact on the state treasury from tying our laws directly to federal rules gets even worse when the full range of companies that pay corporate income taxes are counted. The state tax refunds for companies that are not in the oil and gas business could exceed a total of $90 million in FY 2021-2022.
The combined two-year impact could mean refunds and reduced revenue in the range of $160 million, with $70 million of that a loss in oil money.
Alaska’s law is structured so that it is one of only four states that allow the five-year “carryback” on state corporate taxes, according to this review of the national situation. Other states have disallowed these provisions, so the COVID bailout law had little impact on that part of their finances.
Anchorage Sen. Bill Wielechowski said there is an easy fix the state can make—decouple the state law from the federal law, but the governor and Legislature haven’t acted.
“That said, every day that goes by means it’s another day we’ve potentially sent money out the door. There seems to be no urgency to fix it, and by the time it’s fixed the refunds will likely have been issued,” he said.
The Dunleavy administration knew about this potential costly problem last spring, not long after the federal law had been approved, and informed the co-chairs of the House Finance Committee May 12.
Revenue Commissioner Lucinda Mahoney, asked Monday by Sen. Bert Stedman if the state planned to propose legislation, refused to answer the question.
In May she said wrote to Reps. Neal Foster and Jennifer Johnston that the federal bailout loss carry back provision—for both oil companies and other corporate income tax payers—could cost the state $100 million in fiscal year 2021 and $100 million in fiscal year 2022, an estimate now revised to about $160 million over two years.
Your contributions help support independent analysis and political commentary by Alaska reporter and author Dermot Cole. Thank you for reading and for your support. Either click here to use PayPal or send checks to: Dermot Cole, Box 10673, Fairbanks, AK 99710-0673.
