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Alaska Competes with Federal Oil Tax Rates

1 min readBy: Justin Higginbottom

Republican state legislators in Alaska asked Gov. Sean Parnell to revise the state’s oil taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. policy, specifically the legislation passed by former Gov. Palin entitled Alaska’s Clear and Equitable Share (ACES). ACES made changes to a previous oil tax reform that moved Alaska from a gross revenues tax to a net profits tax on oil and allowed for some deductions for operating costs. This reform was predicted to increase oil tax revenue by stimulating investment but after oil tax revenue fell, Palin increased the tax rate—from 22.5% to 25% with a movable base that increases with crude oil prices—and decreased available deductions. Now legislators are claiming that the Alaskan oil business is suffering because of ACES.

From Tax Analysts (gated):

The letter [from Republican legislators] cited an announcement by ConocoPhillips Alaska that it would not drill any exploration wells for the first time since 1965. Instead, the leading North Slope explorer plans to drill offshore in federal waters, which are not affected by the state tax. BP also reduced its capital budget for Alaska by 15 percent, blaming declining oil production, higher costs, and higher taxes in Alaska.

Oil is important for Alaska. While the state has the third-best business tax climate in the country, it collects the most tax revenue per capita of any state. That is because the state relies heavily on taxing oil. Noted in our Alaska page:

Before the Trans-Alaska pipeline was finished in1977, taxpayers in Alaska bore the second-highest tax burden in the country. By 1980, with oil tax revenue a certified bonanza, Alaska repealed its personal income tax and started sending out checks instead. The tax burden plummeted, and now Alaskans are the least taxed.

More on Alaska taxes here.