Governor Sean Parnell has learned the lesson succinctly stated by my governor, Bobby Jindal: When you want less of an activity, tax it. When you want more of the activity, reduce taxes on it.
In this instance, the tax in question is “Alaska’s Clear and Equitable Share”, or ACES. It has been mischaracterized as a Windfall Profits Tax, but the effect is much the same. Technically, it is a severance tax, which is a common form of taxation in the producing states, usually applied as a flat percentage of the value of oil produced. ACES, though, throws in a few unique wrinkles: it is a tax on the producer’s net profit on a barrel of oil (profit being determined at the field level, and based on the cost to find and develop reserves in that particular field). In addition, the tax rate escalates with the market price of a barrel of oil, further leveraging Alaska’s share of revenues should oil prices soar.
These taxes are in addition to the state’s royalty take as mineral owner of many of the leases. More background here.
Gov. Sean Parnell said Thursday that he wants to give oil and gas companies greater incentives to do business in the state, a plan he says will boost production and create potentially hundreds of new jobs for Alaskans.
The plan comes amid forecasts of slumping oil production on Alaska’s North Slope and concerns by some Republican lawmakers that a state tax on oil and gas production — passed two years ago at the urging of then-Gov. Sarah Palin — is doing more harm than good and hindering new development.
A report released Thursday by the state Department of Revenue did not attribute industry woes to the tax; in fact, it found the tax was performing as expected. However, it did recommend ways the system could be improved to spur additional development, including expanding tax credits for drilling and well work costs.
Parnell said the recommendations strike a balance between protecting Alaska’s interests and declaring the state open for business. While the state currently has billions of dollars in budget reserves, Parnell said its economy is struggling and he’s trying to create more jobs and opportunities. The estimated hundreds of millions of dollars in additional tax credits are a small price to pay, he said, for a state that runs on oil and gas revenue. [emphasis added]