Revenue Dept. outlines plan to alter tax credit program

By Tim Bradner

Alaska Journal of Commerce


State Department of Revenue officials are providing some details on pending changes to an oil and gas tax credit incentive program intended to spur new development.

Last summer Gov. Bill Walker vetoed $200 million of a $700 million state appropriation to pay for industry tax credits, arguing the cost of the program was no longer affordable with a deficit of nearly $3 billion.

Walker promised that a replacement to the tax credits would be developed, but one that is less expensive.

The result is that a draft of a bill to be introduced in the 2016 session of the state Legislature will be made public soon, state Revenue Commissioner Randy Hoffbeck told a group of Commonwealth North members Dec. 11.

Hoffbeck said the existing tax credit program for explorers will expire July 1, 2016, as is currently scheduled, except for companies drilling in “Middle Earth,” an informal name for the largely unexplored basins of Interior Alaska.

Those tax credit will continue until 2021.

Also, a net operating loss credit program, intended mainly to help small producers and developers, will continue.

However, there will be an annual cap of about $100 million on state payments to refund these, Hoffbeck said. This is down from $500 million for all tax credit payments in the current state budget year. 

The proposed changes will also include more transparency so that citizens can know who the tax credit payments are going to, except that confidential information would be protected as is now, the commissioner said.

Under current law there can be no information made public by the Revenue Department on which companies are receiving the tax credits, the commissioner said.

In an email, state tax director Ken Alper said a $1.1 billion “transition fund” is proposed to be established to pay for credits that companies have applied for that have not been paid, or for tax credit application that are expected in fiscal year 2017.

“These are primarily tied to expenditures made in calendar year 2015 that will be applied for when companies making their tax filings next spring, and approved for repurchase (by the state) between June and August 2016,” Alper wrote in the email.

Other changes will include the application of the Senate Bill 21 oil production tax structure to Cook Inlet, which will mainly result in the elimination of a 20 percent capital expenditure credit that was also eliminated on the North Slope with the passage of SB 21, but retained for Cook Inlet, Alper said.

A well lease expenditure credit for Cook Inlet would also be repealed.

The net effect of this, Alper said, will be to reduce the current “stacking” of credits in Cook Inlet that result in 55 percent to 65 percent of new developments being paid for by the state, and bringing that amount down to about 25 percent, the current level of the net operating loss credit in the Inlet.

Exploration companies drilling wells will continue to be helped by the net operating loss credit, which will pay 35 percent of approved costs on the North Slope and 25 percent in the Inlet.

Meanwhile, the state is developing a loan program to help small companies develop fields once oil or gas has been discovered. Alper said the eligibility for a state loan will be linked to proven oil and gas reserves, meaning that a discovery must be made.

“We don’t believe this is an appropriate mechanism to support exploration (and prior to discovery) as there is a much lower likelihood that there will eventually be production that would repay the loan,” Alper said.

Hoffbeck told Commonwealth North that the state development corporation, the Alaska Industrial Development and Export Authority, is being looked at as a possible mechanism to make these loans.

AIDEA is already making loans tied to oil development, although mainly in facilities such a drill rigs and surface infrastructure.

12/16/2015 - 1:06pm