BP settles tax dispute for $416 million

Posted: Tuesday, April 11, 2000

JUNEAU (AP) -- A tax settlement with BP Exploration (Alaska) poured $416 million into the state's budget-balancing reserve Monday, but the infusion may not help Alaska's long-term financial situation much.

The settlement stems from disputes over the corporate income tax the company owed for the years 1991 through 1996, according to the Department of Revenue. By state law, the details of the dispute and the agreement were not disclosed, and the company declined to provide details.

''Our tax returns are confidential,'' said Ronnie Chappell, a BP spokesman.

State law requires oil companies to apportion a part of their worldwide income to Alaska and pay tax on that amount. The apportionment is based on the company's property, extraction and sales in the state.

''In many corporate income tax disputes there's questions over how you compute those numbers,'' said Deputy Revenue Commissioner Neil Slotnick. ''The issues often have to do with how you figure income, how you attribute income to the state of Alaska.''

The money goes into the Constitutional Budget Reserve, the account the Legislature uses to fill the gap between state spending and general revenue, which comes mostly from oil revenues and taxes. The deposit boosted reserves to about $2.6 billion, Slotnick said.

The reserve is expected to run dry within five years or so as oil revenue dwindles and the budget gap widens. Monday's deposit will do little to change those forecasts because a rough estimate of settlements in pending cases are figured into Department of Revenue's projections about the reserve.

''We knew this dispute was out there,'' said Slotnick, adding that the estimate of the settlement was conservative.

More precise estimates of the amount the state will need from the reserve in this fiscal year and fiscal 2001, along with projections on how long the account will last, will be disclosed when the department presents its spring revenue forecast later this week.

Any effect the settlement has on attempts to craft a solution to the state's long-term financial problems is likely to be minimal.

In an election year, many lawmakers are already wary of tackling the problem after voters' rejection of last year's plan to use earnings from the Alaska Permanent Fund to balance the budget.

Plans to balance the budget offered this year have received little attention in the Legislature.

''I think that if a person wants to duck their responsibility for political reasons this could be an excuse to use,'' said Rep. John Davies, D-Fairbanks, one of a handful of lawmakers backing a plan to fill the budget gap with taxes and earnings of the Permanent Fund.

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