Alaska’s legislature has given final approval to a bill designed to reform the state’s oil tax structure with significant tax cuts aimed to spur production and new investment.
On April 14, 2013, Alaska’s Legislature passed Senate Bill 21, an oil-tax reform bill aimed to encourage industry production and investment. The approval came on the final day of the 90-day legislative session after the Senate accepted amendments made by the House. The Senate passed the bill by a vote of 12-8, and the House passed its version by a vote of 27-12.
The bill, introduced on January 15th by Alaska Gov. Sean Parnell, aims to reduce tax rates, alter the credit system of the current oil tax structure. Among the significant changes, the legislation wipes out a monthly progressive surcharge feature of the current tax system and introduces a flat base tax rate. The progressive tax is based on a mechanism that increases tax rates as oil prices rise. It creates variable tax rates that dissuade investments when oil prices are high. The new legislation replaces the tax with a 35% base rate and a $5 per barrel tax credit tied to oil production. Gov. Parnell’s original version of the bill established a 25% flat tax.
The legislation eliminates state risk of paying $1 billion or more in tax credits when oil prices are low and ensures competitiveness when prices are high. The tax credits under the current system allow spending that does not necessarily result in new production. The restructured system replaces tax credits with tax incentives based on production.
Gov. Parnell applauded lawmakers for passing the legislation, which met his guiding principles by being fair, encouraging more production, restoring balance to the tax system, and ensuring competitiveness. The legislation creates a framework for a more competitive tax system that can provide a stable revenue stream for the state.
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