Cutting the state's future oil and gas tax credit obligation was an expected topic this session and a foundational goal of the Democrat-led majority.
Once reluctant to curb the industry incentive credits, Republican legislators have also acknowledged a need to limit the state's exposure to additional cash outlays while the Legislature overhauls the rest of state finances to close an ongoing budget deficit that this year is about
It does that.
However, HB 111, particularly the version that emerged in the
To that end, Grenn said during the floor debate that the bill tinkers with too much of the oil tax code and he would support legislation that more narrowly addressed the state's outstanding tax credit obligation, which is expected to be nearly
According to Tax Division Director
The bill now eliminates the sliding scale per barrel credit applicable to the large, legacy oil fields such as
The impact of the base rate tax change and elimination of per barrel credits is to make the effective rate equal to the statutory rate at the
Varying with market price by
Previous iterations of HB 111 reduced the per barrel credit at low prices but kept the 35 percent base rate.
At prices above
While killing the sliding per barrel credit is undeniably a significant policy change, supporters of the move note it mirrors what former Gov.
It is also a step to simplify the layered provisions of the current tax system, which the Legislature's tax consultant urged be done in some form, proponents contend.
That same consultant also noted
Additionally, the bill would keep the current 4 percent gross minimum tax, but “harden” it by preventing credits or deductions from taking a company's production tax liability below the 4 percent minimum. The
The change to the 25 percent tax rate combined with eliminating the sliding per barrel credit amounts to shifting the price at which the minimum gross tax kicks in from about
That's because of the increase in the effective net production tax rate at lower prices makes it greater than 4 percent above
Overall, the HB 111 headed to the
Language to require state approval for lease expenditures from development projects that could result in operating losses and thus carry forward deductions, as well as creation of a new, after-the-fact 15 percent “dry hole” cashable credit to lessen the burden on small companies with failed exploration projects was cut out of HB 111. The provisions were added in the
The lease expenditure review concept caused particular consternation from industry over the fear the
Net operating losses
As it stands, HB 111 would leave the current 35 percent net operating loss, or NOL, credit rate in place, but shift it from a cashable credit to a tax deduction held by explorers until a production tax liability is earned.
The key changes relate to NOLs held for the long-term.
It would automatically cut the value of NOLs by 10 percent each year they are held beyond seven years, a provision aimed to expedite production from greenfield projects.
A previous iteration of HB 111 that came out of the Resources Committee cut the NOL to 17.5 percent but then added an annual interest “uplift” to increase the value of the NOL back to nearly 35 percent of the original expenditure.
The current bill also includes a “ring fencing” provision that ties a net operating loss to the project from which it is accrued.
On to the
If history is any indication, the four hours of debate over HB 111 on the House floor Monday likely did little more than provide the requisite political theatre, as the bill still needs to pass the Republican-dominated
HB 247 phased out tax credits for Cook Inlet operators, which primarily produce natural gas for Southcentral energy needs but do not provide substantive production tax revenue to the state.
The more meaningful House floor vote will come after HB 111 is approved by a House-Senate conference committee, assuming it gets that far.
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