JUNEAU – Oil and gas companies operating in Alaska are expected to pay negative corporate taxes of $ 20 million in total for the next fiscal year.
Because Alaska’s state tax system is bound by federal tax law, the law allows companies to write off net operating losses against state corporate taxes worth five years. Businesses can either request that the refund be offset against future taxes or request a refund from the state.
Senator Bill Wielechowski, D-Anchorage, estimates the refunds will total around $ 300 million, and he doesn’t yet know how the state will cover the costs.
“It’s quite a shocking effect,” said Neal Steininger, director of the state’s administration and budget.
Oil and gas companies that made big losses in 2020 are expected to receive substantial refunds sufficient to bring their collective corporate tax payments below zero.
“For fiscal 2022, we estimate reimbursements related to the CARES Act to be $ 63 million, bringing net sales to negative $ 20 million,” said Dan Stickel, chief economist for the Alaska Department of the Treasury.
That’s a big change: In the spring of 2020, the state had expected to collect corporate taxes of $ 90 million from petroleum companies for this fiscal year, which begins July 1, 2021. Falling oil prices during the pandemic lowered that forecast and the CARES law did the rest.
Stickel presented the negative tax news when he presented a state revenue forecast to the Alaska Senate Finance Committee Thursday.
Given the size of the refunds, “we expect those refunds to come out the door in the forecast,” he said.
“We may write checks for hundreds of millions of dollars,” said Wielechowski.
This is not the first time the state has paid negative income tax to oil companies. In 2016 and 2017, low oil prices combined resulted in two years of negative corporate taxes.
Corporate taxes are one of four ways the state of Alaska generates income from oil exploration. The other three agents – property taxes, royalties, and oil taxes – have also depreciated significantly in recent years.
Nearly three quarters of the state’s $ 4.3 billion disposable revenue is expected to come from investments by the Alaska Permanent Fund in the coming fiscal year. Oil is expected to make up 19% of government revenue.
Senator Bert Stedman, R-Sitka, said the problem caused by the CARES Act was exacerbated by the departure of oil producer BP from Alaska. BP, a publicly traded company, paid corporate taxes. Hilcorp, who bought BP’s Alaska assets, is privately owned and pays no corporation tax.
In 2019, with BP and no write-offs on the CARES bill, the state raised nearly $ 218 million in corporate taxes from oil companies. Currently, the state doesn’t forecast collections to exceed $ 100 million a year from now by 2030.
Stickel told the senators that it was possible to fix the problem created by the CARES bill. The legislature would have to pass a law that decouples the state’s tax laws from federal laws. Neither the governor nor the legislature proposed such laws, but some members of the Senate Finance Committee said they are considering the idea.
Correction: The original version of this article incorrectly stated that the state imposed oil taxes of $ 218 million in 2019. That is how much corporate tax has been levied on oil companies.