Alaska’s Senate voted 15-4 Monday night to rewrite the state’s production taxes on oil and natural gas. It was the second time this year that the Senate has approved a rewrite, and the vote was the first of a legislative special session, which began May 10 (see Daily GPI, May 22).

Opposition came from Democrats who worry that the tax rate is too low and that oil companies could manipulate their deduction for costs in order to reduce their tax liability. The bill could come up again in the Senate before being passed to the House as Senate Minority Leader Johnny Ellis, D-Anchorage, has served notice of reconsideration, the Associated Press reported late Monday.

The rewrite of Alaska’s production tax would replace the current system with a 22.5% tax on the profits oil companies derive from their Alaska operations. (The House previously approved a 21.5% tax.) Companies also would receive a 20% tax credit on capital investment they make in the state. The tax provision includes an escalator that would raise the tax by 0.1% for every dollar per barrel when the price of oil rises above $35 minus companies’ costs. When costs are $15 per barrel, the escalator would start when oil passes $50/bbl, for example.

The tax is intended to raise Alaska’s revenues when oil prices are high. At current oil prices, state economists have estimated that Alaska would collect about $1.2 billion more next year under the new tax plan than it would under the current tax structure.

The special session was called mainly to give state lawmakers the opportunity to review terms of a draft contract struck between Alaska Gov. Frank Murkowski and ConocoPhillips, BP and ExxonMobil for development of the Alaska Natural Gas Pipeline. Murkowski wants the new tax terms to be incorporated into the pipeline contract to give the trio of producers the tax certainty they say they need before they can develop the long-sought gas pipeline.

Public meetings on the contract are going on now, and the contract will go before lawmakers later this year.

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