02/19/2025 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Eo 136 | |
| SB92 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 92 | TELECONFERENCED | |
| *+ | SSCR 1 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
February 19, 2025
3:30 p.m.
DRAFT
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator Bill Wielechowski, Vice Chair
Senator Matt Claman
Senator Forrest Dunbar
Senator Scott Kawasaki
Senator Shelley Hughes
Senator Robert Myers
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
SENATOR Kelly Merrick
Representative Elexie Moore
Representative Jubilee Underwood
COMMITTEE CALENDAR
SENATE SPECIAL CONCURRENT RESOLUTION NO. 1
Disapproving Executive Order No. 136.
- MOVED SSCR 1 OUT OF COMMITTEE
SENATE BILL NO. 92
"An Act establishing an income tax on certain entities producing
or transporting oil or gas in the state; and providing for an
effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SSCR 1
SHORT TITLE: DISAPPROVE EO 136
SPONSOR(s): RULES
01/27/25 (S) READ THE FIRST TIME - REFERRALS
01/27/25 (S) RES, FIN
02/19/25 (S) RES AT 3:30 PM BUTROVICH 205
BILL: SB 92
SHORT TITLE: CORP. INCOME TAX; OIL & GAS ENTITIES
SPONSOR(s): YUNDT
02/10/25 (S) READ THE FIRST TIME - REFERRALS
02/10/25 (S) RES, FIN
02/19/25 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
DUNCAN FIELDS, President
Kodiak Livestock Co-op
Kodiak, Alaska
POSITION STATEMENT: Testified in support of EO 136.
SENATOR ROBERT YUNDT, District N
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Sponsor of SB 92.
RYAN MCKEE, Staff
Senator Robert Yundt
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented the sectional analysis for SB 92.
DAN STICKEL, Chief
Tax Economic Research Group
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Answered questions on SB 92.
MICHAEL WILLIAMS, Manager
Corporate Tax Division
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions on SB 92.
ACTION NARRATIVE
3:30:25 PM
CHAIR GIESSEL called the Senate Resources Standing Committee
meeting to order at 3:30 p.m. Present at the call to order were
Senators Dunbar, Myers, Kawasaki, Wielechowski and Chair
Giessel. Senators Hughes and Claman arrived immediately
thereafter.
SSCR 1-DISAPPROVE EO 136
^EO 136
EO 136
3:31:12 PM
CHAIR GIESSEL announced the consideration of SENATE SPECIAL
CONCURRENT RESOLUTION NO. 1 Disapproving Executive Order No.
136.
CHAIR GIESSEL read the resolution:
[Original punctuation provided.]
SENATE SPECIAL CONCURRENT RESOLUTION NO. 1
IN THE LEGISLATURE OF THE STATE OF Alaska
THIRTY-FOURTH LEGISLATURE - FIRST SESSION
BY THE SENATE RULES COMMITTEE
Introduced: 1/27/25 Referred: Resources, Finance
A RESOLUTION
Disapproving Executive Order No. 136.
BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF
ALASKA:
WHEREAS the governor, under authority of art.
III, sec. 23, Constitution of the State of Alaska, has
proposed in Executive Order No. 136, to establish a
Department of Agriculture and transfer functions
relating to agriculture that are currently performed
by the Department of Natural Resources to the newly
established Department of Agriculture; and
WHEREAS art. III, sec. 23, Constitution of the
State of Alaska, provides that unless disapproved
within 60 days of a regular session by resolution
concurred in by a majority of the members of the
legislature in joint session, an executive order
becomes effective at a date designated by the
governor; 11
BE IT RESOLVED by the Alaska State Legislature
that Executive Order No. 136 is disapproved.
3:33:17 PM
CHAIR GIESSEL opened public testimony on SSCR 1.
3:33:49 PM
DUNCAN FIELDS, President, Kodiak Livestock Co-op, Kodiak,
Alaska, Testified in support of EO 136. He said the co-op, which
operated a slaughter facility and included most local livestock
raisers, has had a good working relationship with the
[Department of Natural Resources (DNR)], Division of Agriculture
but noted that funding has often been insufficient due to the
division's low priority within the Department of Natural
Resources. Despite concerns about costs, as indicated by a zero
fiscal note, the co-op advocated for the creation of a separate
department to support the agriculture industry in Alaska.
3:35:16 PM
CHAIR GIESSEL thanked Mr. Fields and sought to clarify that the
zero fiscal note [from the Department of Natural Resources, OMB
Component Number 0, dated February 18, 2025] was for SSCR 1 and
that EO 136 had a [Statement of Cost, dated February 11, 2025]
for $2.7 million.
3:36:06 PM
CHAIR GIESSEL closed public testimony on SSCR 1.
3:36:14 PM
CHAIR GIESSEL solicited the will of the committee.
3:36:18 PM
SENATOR WIELECHOWSKI moved to report SSCR 1, work order 34-
LS0452\A, from committee with individual recommendations and
attached fiscal note(s).
3:36:38 PM
SENATOR HUGHES objected.
3:36:39 PM
CHAIR GIESSEL invited Senator Hughes to speak to her objection.
3:36:44 PM
SENATOR HUGHES emphasized the once in a multi-generational
opportunity to establish a Department of Agriculture, citing its
potential benefits and cost-effectiveness compared to existing
departments. She highlighted support from producers and the
Alaska Food Strategy Task Force, noting the department's
potential to contribute to the state's GDP and address new
agricultural opportunities due to climate change.
3:38:27 PM
SENATOR HUGHES discussed the limitations of the current Division
of Agriculture. She said the current commissioner indicated that
he could not handle the 35 or 36 recommendations from the task
force due to other priorities within his department. She
emphasized the importance of having a seat at the cabinet table
for future governors, emphasizing the long-term benefits.
3:40:37 PM
SENATOR HUGHES argued that petty politics should not hinder the
establishment of the Department of Agriculture, citing past
support from legislators and the importance of supporting
farmers and ranchers. She noted federal support for locally
grown, nutritious food and the potential for exports to
countries like Japan.
SENATOR HUGHES suggested delaying the establishment of the
Department of Agriculture could put Alaska in a disadvantageous
position in the future and said it was an issue of life and
safety, arguing that good, nutritious food was essential for
community health and education. She argued against comparing the
Department of Agriculture to education funding, stating that the
Department of Agriculture was crucial for providing nutritious
food for children in schools.
SENATOR HUGHES reiterated the small financial impact of the
Department of Agriculture and the tremendous bipartisan support
it had in the public. She said she hoped members would not let
petty politics prevent the establishment of the Department of
Agriculture, emphasizing its long-term benefits.
3:43:16 PM
SENATOR CLAMAN raised a point of order. He objected to
references to "petty politics", and said it impugned the motives
of other members of the committee and the legislature.
3:43:25 PM
SENATOR HUGHES urged members to consider what was best for
Alaskans and the [agriculture] industry, a responsive and
efficient system to remove barriers and coordinate activities
like transportation and product movement. She concluded by
stating she would vote against moving the rejection out of
committee.
3:44:10 PM
CHAIR GIESSEL recognized the presence of Senator Kelly Merrick,
Representative Elexie Moore and Representative Jubilee Underwood
in the audience.
3:44:28 PM
SENATOR WIELECHOWSKI clarified that voting to move [SCCR 1] out
of the committee was not a rejection of [EO 1] but a necessary
step to send it to the Finance Committee. He explained the
unique constitutional structure that allows for a joint vote
even if the motion is not moved out. He emphasized that
positions created by EO 1 were not related to farming but were
part of a new bureaucracy within the government. He highlighted
the significant fiscal note attached to EO 1, amounting to $2.7
million to start, with expected additional costs of millions
more in following years. He pointed out the $500 million deficit
expected in the next two years and the Finance Committee's
scrutiny of bills with fiscal notes. He said there was a
possibility he would vote for [EO 1] in the end but stressed the
importance of evaluating the financial implications first. He
concluded by urging members to support the motion's referral to
the Finance Committee.
3:46:46 PM
SENATOR CLAMAN said he would be voting to move the [SSCR 1] to
the Finance Committee. He also said it would be appropriate for
a joint session to take up. He said supporting [SCCR 1] or
voting not to support a Department of Agriculture was not
equivalent with a lack of support for the [agriculture] industry
in Alaska. He pointed out that current initiatives proposed and
presented to the legislature would be supported by the current
[Division of Agriculture] structure. He urged passing [SSCR 1]
to the next committee.
3:47:38 PM
SENATOR KAWASAKI noted his participation in the Food and Farm
Caucus and said creating a Department of Agriculture was often
discussed; he emphasized the complexity of creating a new
department. He noted that he had co-sponsored a bill introduced
by Representative Thompson in 2011, and he supported an
agriculture department separate from the current DNR structure.
He argued that the creation of a new department should be
debated in a deliberative committee setting rather than on the
floor of the house or during a joint session. He expressed
support for advancing the issue to the Finance Committee for
further consideration.
3:49:05 PM
SENATOR HUGHES relayed clarification from the Farm Bureau that
the administrative positions referred to in the Statement of
Cost for EO 136 would be relieved of administrative duties that
they now do to increase their opportunity to focus on the
producers. She said the deputy commissioner and commissioner [of
the new department] would be focused on working with the
producers and the ranchers rather than on administration.
3:50:12 PM
CHAIR GIESSEL found the objection was maintained and asked for a
roll call vote.
A roll call vote was taken. Senators Dunbar, Claman,
Wielechowski, Kawasaki and Giessel voted in favor of reporting
SCCR 1 with individual recommendations and attached fiscal note
from committee for further consideration and Senators Myers and
Hughes voted against it. The vote was 5:2.
3:50:36 PM
CHAIR GIESSEL announced that EO 136 and SSCR 1 were reported
from committee on a vote of 5 yeas and 2 nays.
SB 92-CORP. INCOME TAX; OIL & GAS ENTITIES
3:51:04 PM
CHAIR GIESSEL announced the consideration of SENATE BILL NO. 92
"An Act establishing an income tax on certain entities producing
or transporting oil or gas in the state; and providing for an
effective date."
CHAIR GIESSEL gave an overview of S corporations in Alaska. She
pointed to the Department of Commerce, Community and Economic
Development (DCCED), Division of Corporations, business and
professional licensing website for a definition of S
corporations: small business entities that opt to be taxed under
subchapter S of the Internal Revenue Code.
3:52:15 PM
CHAIR GIESSEL continued with her overview of S corporations in
Alaska and explained that S corporations do not pay federal
income taxes; instead, taxes are levied on shareholders based on
their ownership percentage. She listed some of the criteria to
qualify as an S corporation.
3:53:21 PM
CHAIR GIESSEL said Alaska adopted the federal tax code when it
became a state eliminated and eliminated its personal income tax
in 1980. This meant that S corporations were no longer subject
to corporate income tax. S corporations were relatively rare at
the time but have since become quite common in Alaska and
elsewhere and the resulting tax structure surrounding these
entities became known as the S corporation loophole. She said
closing the S corporation loophole has been recommended since
2014, including a recent recommendation in the Department of
Revenue's January 2021 Indirect Expenditure Report for the
state. The Department of Revenue estimated that over fiscal
years 2022 and 2023, Alaska lost $194 million in revenue due to
this loophole.
3:56:40 PM
CHAIR GIESSEL noted that the owners of S corporations, typically
high-income earners, usually own large companies and pay the top
marginal income tax rate to the federal government. She said the
owners would benefit from a 37 percent reduction in federal
income taxes if the loophole were closed. She mentioned a
[August 28,] 2019 news article by KTUU which reported the lost
revenue for the State of Alaska resulting from the sale of
British Petroleum's leases on the North Slope to HilCorp [a
privately owned S corporation].
3:57:49 PM
CHAIR GIESSEL explained that this background information was
intended to provide history about the impacts of S corporations
on Alaska as they were the subject of SB 92.
3:58:07 PM
CHAIR GIESSEL invited Senator Yundt to introduce SB 92.
3:58:32 PM
SENATOR ROBERT YUNDT, District N, Alaska State Legislature,
Juneau, Alaska, Sponsor of SB 92 paraphrased the sponsor
statement.
[Original punctuation provided.]
Sponsor Statement
Senate Bill 92 works to level the playing field and
ensure that all oil companies that come to Alaska to
extract our mineral wealth are charged at the same
rate regardless of whether they are designated as an S
corporation or a C corporation. The new 9.4 percent
tax would apply only to entities making over $5
million in profits from oil production or pipeline
transportation. Other S corporations operating in
Alaska that do not work in oil production or
transportation would not be included in SB 92.
3:59:06 PM
SENATOR YUNDT said closing the unintentionally created, decades
old loophole pertaining to S corporation oil developers and gas
developers would only apply to entities making over $5 million
in profits from oil and gas production or pipeline
transportation. He emphasized that other S corporations
operating in Alaska that do not work in oil and gas production
or pipeline transportation would not be included in SB 92.
3:59:33 PM
SENATOR YUNDT said he filed SB 92 before he received a response
from the Department of Revenue (DOR). He said it was not a
personal thing and he was not attacking any one company. He said
everyone should be treated the same. He expected to review
numbers from the DOR and he emphasized that the discussion would
be about real money with real impacts to average Alaska
families. He advocated for the public [legislative] process.
4:00:45 PM
SENATOR DUNBAR asked whether there were people available to
answer questions.
CHAIR GIESSEL listed three representatives from the Department
of Revenue (DOR) who were available online to answer questions.
CHAIR GIESSEL
4:01:10 PM
SENATOR DUNBAR asked whether there would be invited testimony
prior to the opportunity to ask questions of the DOR
representatives.
CHAIR GIESSEL clarified witness availability with the sponsor of
SB 92 and recommended the presentation of the sectional analysis
for SB 92.
4:02:45 PM
RYAN MCKEE, Staff, Senator Robert Yundt, Alaska State
Legislature, Juneau, Alaska, provided the sectional analysis for
SB 92.
[Original punctuation provided.]
Sectional Analysis
SB 92
Section 1: Tax on income attributable to a qualified
entity; energy and electrical grid projects or
upgrades fund
This section establishes a tax on business entities
making profits in state on petroleum production or
pipeline transportation that are not established as C
corporations (C-corps) for tax purposes under Internal
Revenue Service (IRS) tax code. Sole proprietorships,
partnerships, entity's that has elected to file
federal returns under 26 U.S.C. 1361 - 1379 (Internal
Revenue Code); must pay a tax of 9.4 percent annually
mirroring the percent tax that C-corps pay to the
state, but only on profits over $5 million.
The Commissioner of Revenue shall aggregate the
taxable income of two or more entities when their
income could be reasonably attributable to a single
entity.
And finally, revenue from the tax is deposited into a
fund for use on energy and electrical grid projects or
upgrades.
Section 2: Deletes the word "corporation" and replaces
it with "taxpayer" as it relates to the IRS reporting
requirements.
Section 3: changes "corporation" to "taxpayer that"
and "or entities that" as relates to taxable activity
both inside and outside the state.
Section 4: deletes "corporation" and adds "taxpayer"
and "entities" as it relates to reporting requirements
to the IRS.
Section 5: deletes "corporation" and adds "taxpayer"
as it relates to what shall be excluded when computing
taxable income for the "taxpayer".
Section 6: deletes "corporation" and adds "taxpayer"
as it relates to dividends and royalties taxable to a
"taxpayer".
Section 7: deletes "corporation" and adds "taxpayer"
as it relates to a "taxpayer" failing to comply with
this chapter.
Section 8: Deletes orporation" and adds "an entity"
as it relates to tax obligations from royalty
agreements with the Alaska Legislature per AS 43.82.
4:05:07 PM
MR. MCKEE continued to present the Sectional analysis
Section 9: Amends the uncodified law of the State of
Alaska by adding a new section that reads as follows;
"APPLICABILITY. This Act applies to an entity with
qualified taxable income over $5,000,000 for a tax
year beginning on or after January 1, 2025."
Section 10: Amends the uncodified law of the State of
Alaska by adding a new section related to the
transition, payment of tax.
Section 11: Amends the uncodified law of the State of
Alaska by adding a new section related to
retroactivity of regulations.
Section 12: Sets a retroactive date to January 1st
2025
Section 13: Set the effective date.
4:06:09 PM
SENATOR DUNBAR asked for clarification of the fiscal note from
the Department of Revenue (DOR), OMB Component Number 2476,
dated February 14, 2025. He noted that there was a $180 million
increase anticipated for FY 2026 as a result of SB 92. He asked
for a clarification regarding calendar year and fiscal year
calculations.
4:07:08 PM
DAN STICKEL, Chief, Tax Economic Research Group, Department of
Revenue (DOR), Juneau, Alaska, explained that SB 92 as currently
written would be retroactive to January 1 of 2025. DOR assumed
that all revenues for calendar 2025 associated with SB 92 would
be received in fiscal year 2026, probably as a true-up payment
when 2025 annual returns were filed. He said the fiscal year
2026 estimate, if the bill were to be effective July 1, 2025,
would be about $133 million. The additional $53 million
estimated revenue was for the January through June of 2025 time
period.
4:08:05 PM
SENATOR DUNBAR noted that the drop in anticipated revenue
between FY 26 and FY 27 was not because of an anticipated drop
in [oil and gas] production, but because of the timing [of SB
92's effective date]. He asked how much production tax was paid
or would be paid [in FY 26] by entities that would be included
in the withdrawal from the current exemption.
4:08:53 PM
MR. STICKEL said he could not speak to specific entities due to
taxpayer confidentiality. However, he explained that about two-
thirds of production comes from C corporations, specifically 65
percent for fiscal year 2026, with this share expected to
increase. He said a ballpark estimate for the production tax
forecast for fiscal year 2026 is $441 million, with the
implication that non-C corporations contribute the remaining
one-third of the production tax.
4:10:32 PM
SENATOR DUNBAR asked whether $441 million was the production tax
paid by all entities or just by C corporations.
4:10:44 PM
MR. STICKEL said $441 million was the fall 2024 forecast for
production tax from all entities.
4:10:57 PM
SENATOR DUNBAR noted that one-third [of $441] was about $150
million, the amount forecast to be paid by current S
corporations [if SB 92 passed]. He said S Corporations appear to
pay about 40 percent less in taxes than [C corporations]. He
emphasized the scale of the legal distinction [between S
corporations and C corporations] and the potential impact of SB
92.
4:12:20 PM
SENATOR WIELECHOWSKI asked DOR which entities would be affected
by SB 92.
4:12:38 PM
MR. STICKEL deferred the question to a DOR technical expert.
4:13:06 PM
MICHAEL WILLIAMS, Manager, Corporate Tax Division, Department of
Revenue (DOR), Anchorage, Alaska, referred to SB 92, Section 1,
subsection (e) which identified the entities targeted by SB 92,
any entity operating as a sole proprietorship partnership as
defined under 26 USC, 1361.
4:13:47 PM
SENATOR WIELECHOWSKI asked for the names of those entities.
4:13:57 PM
MR. WILLIAMS said those were the qualified entities under SB 92,
but he could not name any entities specifically. He said he was
limited under the provisions of AS 43.05.320 to speak about the
entities generally, but not specifically. He reiterated that the
entities defined under the [federal] Internal Revenue Code were
operating as either sole proprietorship partnership or an S
corporation.
4:14:42 PM
SENATOR WIELECHOWSKI stated that it was not known which entity
or entities would be affected by SB 92 or that DOR
representatives were legally bound not to tell [legislators]. He
asked whether DOR could tell the committee how much profit was
made in Alaska by the entities which would be addressed by SB
92.
4:15:11 PM
MR. WILLIAMS said that figure was provided by Mr. Stickel as
part of the estimate for revenue provided in the fiscal note. He
said he could not speak to the profit otherwise.
4:15:30 PM
SENATOR WIELECHOWSKI acknowledged that the committee was
provided a figure for the tax. He asked Mr. Stickel to provide
the figure for the [estimated] profit.
4:15:41 PM
MR. STICKEL, providing for taxpayer confidentiality, explained
that DOR took the existing corporate income tax forecast for the
companies that were currently subject to the corporate income
tax and extrapolated an estimated tax base that included the
companies that would be added under SB 92. It was assumed the
added companies would have a similar level of profitability on a
per barrel equivalent of production basis.
4:17:06 PM
SENATOR MYERS asked why the Department of Revenue (DOR) was
projecting a drop in revenue, reflected in the fiscal note by
Department of Revenue (DOR), OMB Component Number 2476, dated
February 14th, 2025.
4:17:33 PM
MR. STICKEL said the projected decrease had to do with the
estimated share of production expected to come from C
corporations versus non-C corporations. He said after fiscal
year 2026 DOR expected a growing share of the total production
to come from companies subject to the corporate income tax.
4:18:04 PM
SENATOR MYERS said the amount of tax an entity pays isn't
determined by the level of production, but by the amount of
money made. He said if one entity is producing more oil, it does
not mean a neighboring entity would produce less. He asked for
clarification about the projected tax drop.
4:18:36 PM
MR. STICKEL explained that DORs revenue forecasts reflect the
expectation that production from non-C corporations would
decline over the time horizon of the fiscal note.
4:19:08 PM
SENATOR CLAMAN asked Senator Yundt to which companies SB 92
would apply.
SENATOR YUNDT responded that it did not matter to him; any
[company] that was not a C corporation that was pulling away a
lot of the ground.
4:19:31 PM
SENATOR CLAMAN asked whether Senator Yundt expected SB 92 to
apply to Hilcorp.
SENATOR YUNDT answered: possibly.
4:19:39 PM
SENATOR CLAMAN addressed DOR and said it was his understanding
that under the current structure, C corporations, whether in the
oil business or in other business would pay the same taxes. He
asked whether that was right.
4:20:32 PM
MR. STICKEL said he was not a CPA, but that one of his
colleagues was and might be able to answer.
4:20:53 PM
MR. WILLIAMS clarified that his licensure was as an enrolled
agent, like a CPA. He suggested that the question be re-phrased
to ask whether the entities currently pay any corporate income
tax. He said they do not because Alaska does not currently have
a personal income tax. He said these were pass-through entities
where the profits pass through to the shareholders and the
shareholders bear the burden of any personal income tax at the
federal level and at the state level. Because there is no
[Alaska] state income tax, there is no state income tax for the
shareholders of the entities.
4:21:44 PM
SENATOR CLAMAN clarified that his question was regarding C
corporations rather than S corporations. He asked to compare a C
corporation that is in the oil business and one that is not in
the oil business. He noted that C corporations are taxed in
Alaska and asked whether they would both be taxed the same,
based on their profits.
4:22:11 PM
MR. WILLIAMS said C corporations in different businesses are
taxed using different apportionment models. He affirmed that all
C corporations do pay corporate income tax.
4:22:42 PM
SENATOR CLAMAN asked, under SB 92, would the S corporations in
the oil and gas business pay corporate income tax while the S
corporations in business other than oil and gas (continue) not
pay corporate income tax.
4:23:21 PM
MR. WILLIAMS said it was his understanding that SB 92 was
targeted only to oil and gas entities. He said any S Corporation
that was not an oil and gas producer, or transporter would not
be subject to [corporate income tax].
4:23:44 PM
SENATOR CLAMAN posed a hypothetical for which a current S
corporation has a single share-holder. He said that S
corporation would not pay state [corporate income tax] , but
would pay federal tax on their personal tax returns. He asked
whether that was correct.
MR. WILLIAMS said he was correct.
4:24:35 PM
SENATOR CLAMAN altered the hypothetical. If SB 92 becomes law
would it be the case that the S corporation covered by SB 92
would pay the state corporate income tax and the share holder's
federal tax would be directly reduced by the state tax paid.
4:25:06 PM
MR. WILLIAMS said the entity would be responsible for the
[state] tax liability, not the shareholder. He said the entity
could take a deduction for state income tax on its federal tax
return.
4:25:29 PM
SENATOR CLAMAN observed that the entity [S corporation] would be
paying [corporate income] tax at the state level and the owner
[shareholder of the entity] would pay [income tax] at the
federal level. He asked whether the individual share-holder's
federal tax obligation would be reduced by the equivalent amount
the entity paid for state corporate tax.
4:26:08 PM
MR. WILLIAMS affirmed that the entity would deduct the tax paid
to Alaska, lowering the distributable share of its income to the
shareholder. The shareholder would then have less reportable
income resulting in commensurate reduction in federal tax.
4:26:39 PM
SENATOR CLAMAN asked whether the reduction would be the exact
same amount; for example, if [the entity] paid $50 million to
the state of Alaska, would the [shareholders] federal tax be
reduced by $50 million.
4:26:58 PM
MR. WILLIAMS said it would not be an exact dollar for dollar
reduction because the deduction [for the individual shareholder]
would be taken before computing federal taxable income.
4:27:23 PM
SENATOR HUGHES acknowledged the opening comments for SB 92 and
clarified that the fiscal plan working group did not recommend
the specific measure in question but only considered it as part
of a broader package including a spending cap and budget control
measures.
4:28:31 PM
SENATOR HUGHES requested a copy of the book referenced by the
chair and emphasized the distinction between a recommendation
and a consideration. She recalled a public panel discussion and
questioned the sponsor of SB 92 about his apparent change in
stance regarding oil taxes, particularly concerning Hilcorp. She
inquired whether the sponsor consulted with major North Slope
operators like Conoco, Exxon, Santos, and others before
proposing the bill and suggested consultations did not occur.
4:30:04 PM
SENATOR YUNDT said he had no recollection of the referenced
panel and asked that it be shared publicly.
4:30:13 PM
SENATOR HUGHES asked whether SB 92's sponsor was aware of any
independent modeling analysis on the consequences of passing SB
92. She noted potential impacts to specific companies, Alaska's
economy, oil production, job growth, investment, and attracting
other companies and businesses to the state
4:30:53 PM
SENATOR YUNDT said he was not aware of any and he looked forward
to reviewing the results of modeling as part of the public
[legislative] process.
4:31:00 PM
CHAIR GIESSEL affirmed that there would be modeling and referred
to a presentation by Commissioner Lucinda Mahoney, Department of
Revenue (DOR), on August 10, 2021 in which the commissioner
cites concern about $67 million pass-through tax consequences
for FY 2022. She also noted that British Petroleum (BP) Alaska
concurrently reported paying $804 million in taxes and royalties
to the state of Alaska in 2018. She acknowledged the sum
included production taxes and royalties.
4:31:58 PM
SENATOR WIELECHOWSKI, with permission from the chair, quoted DOR
Commissioner Lucinda Mahoney, August 5, 2021: "These are some of
the revenue options that the governor would support, as long as
there was support from the legislature. Some of our oil and gas
producing companies are not paying corporate income taxes due to
the way their legal structure is set up. We are proposing that
those entities begin to pay corporate income taxes and establish
parity in the oil industry."
4:32:41 PM
SENATOR WIELECHOWSKI addressed Department of Revenue (DOR)
representatives and noted that [the legislature] did not know
which entities do not pay taxes. He asked whether DOR could
disclose which companies do [pay taxes], for example,
ConocoPhilips as a C corporation.
4:33:05 PM
MR. STICKEL said DOR could not say whether any particular
company does or does not pay taxes. He said DOR takes
confidentiality very seriously.
4:33:27 PM
SENATOR WIELECHOWSKI argued that it was a matter of public
record that ConocoPhillips was a C corporation. He challenged
whether DOR could state that on the record.
4:33:37 PM
MR. STICKEL said he was not positive whether that was or was not
a matter of public record.
4:33:48 PM
CHAIR GIESSEL suggested asking Legislative Research Services for
a list of C corporations.
4:33:58 PM
SENATOR WIELECHOWSKI asked whether it was a fair statement to
say the vast majority of oil-producing companies in Alaska were
C corporations.
4:34:14 PM
MR. STICKEL affirmed that about two thirds of oil and gas
production in Alaska is by companies that are C corporations.
4:34:27 PM
SENATOR WIELECHOWSKI emphasized Alaska's unique status as a
resource development state, mandated by its constitution to
maximize benefits from non-renewable resources like oil and gas.
The state captures revenue through royalties, production taxes,
property taxes, and corporate income taxes. He argued that a
loophole allowing one-third of production to avoid corporate
income tax creates an unfair disparity, contradicting the
constitutional obligation to optimize resource benefits. He said
SB 92 aimed to address this issue.
4:35:50 PM
SENATOR MYERS said his information may be outdated, but it was
his understanding that there were 28 non-C Corporation oil and
gas entities in Alaska. He asked how many of those 28 companies
would be affected by SB 92.
4:36:26 PM
MR. STICKEL said he could not provide an exact number. He
referred to the
4:37:13 PM
SENATOR MYERS asked that the request for C corporation
information from Legislative Research Services include all C
corporations, not just oil and gas corporations.
4:37:44 PM
CHAIR GIESSEL affirmed the request and pointed to page 190 of
the Indirect Expenditure Report, which said there were 11,700 S
Corporations in the state.
4:38:02 PM
SENATOR MYERS said he would like a list of C corporations, those
which were taxed.
CHAIR GIESSEL asked whether the request could be refined to
request a list of C corporations that make over $5 million per
year, those which would be affected by SB 92.
4:38:17 PM
SENATOR MYERS argued that fairness in taxation should be the
primary focus, rather than the specific industry or method of
making money. He suggested that if fairness was the goal, then
the tax system should be evaluated without bias towards
companies in the oil and gas sector or those structured as C
Corporations. He noted that SB 92 under discussion would set a
tax threshold for companies making over $5 million, but points
out that other C Corporations, which may be taxed at a lower
rate, could also be considered in the discussion of fairness.
The exact tax figures were not recalled, but he said the tax
rates for companies below the $5 million threshold were
significantly lower.
4:39:21 PM
CHAIR GIESSEL noted that the top tax bracket for Alaska, 9.4
percent, begins at $222,000.00.
4:39:40 PM
SENATOR DUNBAR observed that C corporations do tend to be
significantly larger than S corporations and because [Alaska]
does not have a personal income tax, it just makes good sense
for those small entities to become an LLC or an S corporation.
If one of the S corporations were to purchase the assets of a C
corporation, he asked whether those assets would fall under the
S Corporation.
MR. STICKEL affirmed that they would.
4:40:27 PM
SENATOR DUNBAR noted the projected reduction in revenue from S
corporation entities under SB 92. He noted that if one of the S
corporations were to purchase the assets of current C
corporation entities, bringing the assets into the S
corporations fold, he asked whether the increase in production
would fall under the S corporation.
4:41:12 PM
MR. STICKEL affirmed that they would.
4:41:20 PM
SENATOR DUNBAR noted purchasing activity of corporations on the
North Slope. He said if SB 92 did not pass, C corporation tax
revenue would continue to fall and there would be no concomitant
increase in S corporation tax revenue.
4:41:51 PM
SENATOR CLAMAN suggested that the legislature cound benefit from
an independent accountant's perspective on SB 92. He proposed
that an accountant not affiliated with the Department of Revenue
could provide a clearer understanding of how the bill might
affect tax payments to the state of Alaska versus the federal
government. He questioned whether the bill redistributes taxes
or increases the overall tax burden for businesses, suggesting
that a detailed analysis might be necessary to clarify this.
4:44:06 PM
CHAIR GIESSEL concurred. She further noted that the owners of an
S corporation may live in a state that does levy a state income
tax and would then be taking profits made in Alaska and
transferring them to another state. She counted this as another
example of lost revenue to the state [of Alaska].
4:44:40 PM
SENATOR CLAMAN said a CPA should be able to answer that for the
committee as well and he said DOR would be less able to provide
this clarification.
4:44:55 PM
SENATOR CLAMAN referred to SB 73 sponsored by his office and the
C corporation tax exemption which he said benefited smaller C
corporations for a decade and was under consideration for
reinstatement. He said there were over 100 C corporations in
Alaska that the exemption applied to and a number of
corporations that were not that big, that were subject to the S
corporation tax.
4:45:37 PM
SENATOR HUGHES raised concern about the constitutionality of
bills that target specific companies or industries. She
suggested addressing this topic in a future meeting. She also
questioned the fairness of SB 92, highlighting that large
companies like Exxon Mobile and ConocoPhillips could deduct
reserve depletion and intangible deduction costs from their
federal taxes, while S corporations, which do not have these
federal deductions, would be disadvantaged. She concluded by
saying SB 92 might inadvertently create a new problem while
trying to solve an existing one.
4:47:28 PM
SENATOR WIELECHOWSKI noted that taxation [policy] was based on a
rational basis test and he argued there was a rational basis
[for SB 92] due to the constitutional mandate to maximize
resource benefits. He noted that different companies were being
treated differently. There was fundamental unfairness and he
said SB 92 would balance the playing field. He suggested that if
SB 92 tilted the field in the other direction, an S corporation
could convert to a C Corporation if they felt they were being
treated unfairly.
SENATOR WIELECHOWSKI asked DOR how many barrels of oil were
being produced by S corporations.
4:48:35 PM
MR. STICKEL said he did not have an exact number, but for FY
2026 the estimated production [by S corporations] was about 35
percent on a barrel of oil equivalent statewide.
4:49:49 PM
SENATOR WIELECHOWSKI asked whether DOR knew the amount of
investment in the Alaska oil industry by S corporations.
4:50:00 PM
MR. STICKEL said DOR had not broken out [oil industry
investments] by C corporation vs. non-C corporation. He said the
estimate for FY 2026 was about $8.2 billion of statewide
allowable use expenditures. He emphasized this estimate was for
the total industry, encompassing all entities.
4:50:36 PM
SENATOR WIELECHOWSKI asked whether the estimates suggest S
corporations were responsible for 35 percent of the $8.2 billion
investment.
4:50:51 PM
MR. STICKEL said DOR could not break out exactly how much of the
investment was by C-corporations vs. non-C corporations. He said
the 35 percent extrapolation would yield a ballpark estimate.
4:51:18 PM
SENATOR WIELECHOWSKI assumed a large portion of the $8.2 billion
investment was at Willow, owned by ConocoPhillips, and at Pica,
owned by Santos. He concluded that the [oil and gas] S
corporations were probably in Prudhoe Bay. He asked DOR to
provide [oil and gas] investment numbers at Prudhoe Bay for the
last 10 years by year, broken down and specifying the percentage
of investment by the S corporations.
4:51:59 PM
MR. STICKEL said DOR could provide the most recent version of
the breakout of lease expenditures for Prudhoe Bay as had been
provided to the legislature in the past. He said they could not
specify how much of [the investment] was attributable to S
corporations in particular but could provide the analysis for
Prudhoe Bay versus other [indisc].
4:52:37 PM
SENATOR WIELECHOWSKI asked what the total Prudhoe Bay investment
was and who the Prudhoe Bay producers were.
4:52:48 PM
MR. STICKEL said he did not have that information at hand but
could provide it to the committee. He said the operator at
Prudhoe Bay was Hilcorp and Exxon was a large working interest
owner and he said there were other working interest owners as
well. He said Department of Natural Resources (DNR) had detailed
information and Department of Revenue (DOR) would be happy to
include that information in their response [to the committee] as
well.
4:53:30 PM
SENATOR WIELECHOWSKI criticized the lack of transparency in
Alaska, highlighting the inability of policymakers to access
crucial data such as investment amounts, production percentages,
and profits. He said independent experts have consistently rated
Alaska's transparency laws as among the worst globally,
hindering effective decision-making. He emphasized the need for
reform to better understand the impact of policies on affected
companies and improve policy-making accuracy. He referenced
Governor Hickel's view that the legislature acts as the state's
board of directors, making decisions without knowing who will be
impacted or how. He said this was not the right way to make
policy in this building or anywhere.
4:54:40 PM
CHAIR GIESSEL said the committee would get what data they could.
She noted that the 35 percent figure was interesting and
helpful.
4:54:49 PM
SENATOR MYERS requested the Department of Revenue (DOR) to
provide figures from the fall 2018 revenue forecast for the
Prudhoe Bay unit. He asked specifically for the projected
royalty and production tax revenue from the fall 2018 forecast.
He also requested the actual figures for the Prudhoe Bay unit as
of fall 2024, focusing again on royalties and production tax
revenue.
4:56:25 PM
SENATOR DUNBAR commended the sponsor of SB 92 for their work. He
affirmed the challenge to make decisions when [the legislature]
was not legally allowed to know how S corporations would be
impacted by the $5 million limit in SB 92 vs. $10 billion or $20
billion, for example. He suggested that the current figure
seemed fair and anticipated further deliberation.
4:57:23 PM
CHAIR GIESSEL [held SB 92 in committee].
CHAIR GIESSEL reiterated that it was the legislature's
responsibility to get the maximum benefit for the state's
resources.
4:58:04 PM
There being no further business to come before the committee,
Chair Giessel adjourned the Senate Resources Standing Committee
meeting at [4:58] p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SSCR 1 Fiscal Note (S)RES.pdf |
SRES 2/19/2025 3:30:00 PM |
SSCR 1 |
| 2.12.25 EO 136 Department of Agriculture Statement of Cost.pdf |
SRES 2/19/2025 3:30:00 PM |
SSCR 1 |
| SSCR01A.pdf |
SRES 2/19/2025 3:30:00 PM |
SSCR 1 |
| 2.12.25 EO 136 Dept of Agriculture DNR presentation SRES.pdf |
SRES 2/19/2025 3:30:00 PM |
SSCR 1 |
| 2.12.25 Legal Memorandum, Governor's Executive Order establishing a Department of Agriculture.pdf |
SRES 2/19/2025 3:30:00 PM |
SSCR 1 |
| 25-015mjt.pdf |
SRES 2/19/2025 3:30:00 PM |
SSCR 1 |
| SB 92- Sectional Analysis.pdf |
SRES 2/19/2025 3:30:00 PM |
SB 92 |
| SB 92- Sponsor Statement.pdf |
SRES 2/19/2025 3:30:00 PM |
SB 92 |
| SB0092A.pdf |
SRES 2/19/2025 3:30:00 PM |
SB 92 |
| SB 92 Fiscal Note DOR.pdf |
SRES 2/19/2025 3:30:00 PM |
SB 92 |
| 2.19.25 SB 92 Combined Historical Documents Provided by (S)RES.pdf |
SRES 2/19/2025 3:30:00 PM |
SB 92 |