Alaska Enacts Tax Increase on Oil Industry

Declaring “the time where the state takes back its sovereignty,” Alaska lawmakers recently approved a tax increase that raises the base tax rates on oil companies’ profits and imposes stricter credits and deductions for correlating operating expenses. The legislation, which is supported by Governor Palin, was the primary topic of a special legislative session. It raises the base tax rate on oil companies’ net profits from 22.5 percent to 25 percent. Additionally, it adds an escalator of 0.4 percent for every $1 that net oil prices rise above $30 a barrel. These measures are expected to bring Alaska an addition $1.5 billion in tax revenues.

The legislation is intended to replace last year’s tax overhaul that was authored by then-governor Murkowski and has since been embroiled in the still-unfolding federal corruption probe involving the alleged bribing of lawmakers by VECO Corp., an oil-services company. The former legislation, which was never enacted into law, was intended to be frozen for decades and included a lengthy pipeline contract with BP, ConocoPhillips, and Exxon Mobil. The new measures aim to counteract the estimated $800 million shortfall in expected tax revenue that would have resulted from Governor Murkowski’s plan.