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Murkowski says plan will benefit Alaskans

Posted: Monday, February 27, 2006

In his transmittal letter accompanying House Bill 488, Gov. Frank Murkowski laid out his arguments for adopting the proposed new tax regime for oil and gas production and the incentive tax credit mean to encourage further exploration and production.

The bill will greatly improve Alaska’s oil and gas tax system, the governor said, by encouraging investment in the state, making tax administration more predictable, better reflecting the variable economics of oil and gas development and “providing Alaskans with a fairer share of the value” of oil and gas produced in the state.

Here is a quick look at some of the effects of House Bill 488 as currently written:

· Eliminate the oil production tax, the gas production tax, and the economic limitation factor currently used to determine production taxes.

· Replace them with a 20-percent tax on net profits the administration is calling a petroleum production tax (PPT).

· Allow deduction for upstream costs, including expenses and capital investment before the tax was applied.

· Make producers eligible for a yearly $73 million allowance before taxes. That is, if net profits fell under that mark, there would be no tax. Taxes would apply to amounts in excess of $73 million.

· Provide for a 20-percent tax credit for capital investment. This would apply even when the capital outlay also is used as a deduction for figuring net profit.

· Allow a 20-percent credit against certain operating losses.

· (These last two credits could not be used to reduce a taxpayers’ tax obligation below zero, but unused credits could be carried forward to the next tax year or sold to other taxpayers.)

· Permit producers, within certain limits, to deduct capital costs incurred between July 1, 2001, and July 1, 2006.

· Allow oil conservation surcharge payments to be used as credit against the production tax.

· Preserve elements of the current gross-value tax system, effectively preserving the existing body of regulations, interpretations and case law governing oil and gas production built up over decades.



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