JUNEAU — Oil and gas companies operating in Alaska are expected to collectively pay negative $20 million in state corporate income taxes next fiscal year because of last year’s federal coronavirus relief bill, the CARES Act.
Because Alaska’s state tax system is linked to the federal tax code, that law allows businesses to write off net operating losses against five years’ worth of state corporate income taxes. Companies can either ask for the refund to be applied against future taxes or to request cash back from the state.
Sen. Bill Wielechowski, D-Anchorage, estimates the refunds will total about $300 million, and he doesn’t yet know how the state will cover the cost.
“It’s a pretty shocking impact,” said Neal Steininger, director of the state Office of Management and Budget.
Oil and gas companies, which recorded large losses in 2020, are expected to receive significant refunds, enough to drive their collective corporate tax payments below zero.
“For fiscal year 2022, we are estimating $63 million in CARES Act related refunds, bringing the net revenue to a negative $20 million,” said Dan Stickel, chief economist for the Alaska Department of Revenue.
That’s a huge change: In spring 2020, the state had expected to collect $90 million in corporate income taxes from petroleum companies during that fiscal year, which begins July 1, 2021. Plunging oil prices during the pandemic lowered that projection, and the CARES Act did the rest.
Stickel presented the negative-tax news as he delivered a state revenue forecast Thursday to the Alaska Senate’s finance committee.
Given the size of the refunds, “we’re expecting in the forecast that these refunds will be cash out the door,” he said.
“We’re going to be writing checks for hundreds of millions of dollars, possibly,” Wielechowski said.
This isn’t the first time the state has paid a negative income tax to petroleum companies — in 2016 and 2017, low oil prices combined to create two years of negative corporate income taxes.
Corporate income taxes are one of four ways the state of Alaska collects revenue from oil extraction. The other three means — property taxes, royalties, and oil taxes — have also declined significantly in value during recent years.
Nearly three-quarters of the state’s $4.3 billion in available revenue is expected to come from the investments of the Alaska Permanent Fund in the coming fiscal year. Oil is forecast to account for 19% of the state’s revenue.
Sen. Bert Stedman, R-Sitka, said the problem caused by the CARES Act was compounded by the departure of oil producer BP from Alaska. BP, a publicly traded corporation, paid corporate income taxes. Hilcorp, which bought BP’s Alaska assets, is privately owned and does not pay corporate income taxes.
In 2019, with BP in place and no writeoffs from the CARES Act, the state collected almost $218 million in petroleum property taxes. Now, the state doesn’t forecast collections to exceed $100 million in any year through 2030.
Stickel told senators that it would be possible to fix the problem caused by the CARES Act. Legislators would have to pass a law decoupling the state’s tax laws from federal laws. No such legislation has been proposed by either the governor or the Legislature, but some members of the Senate Finance Committee said they are considering the idea.
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February 01, 2021 at 09:00AM
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Forecast: Oil and gas companies will pay negative Alaska corporate income taxes - Anchorage Daily News
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