Stoel Rives tax partner Jonathan Iversen contributed an article to State Tax Notes titled “Trials of the Season” (PDF), published April 26, 2021. In his latest column, Iversen provides an update on Alaska’s budget woes, on possible tax hikes and fiscal uncertainty still faced by the state’s taxpayers, and on the state’s ongoing inability to make payment to holders of over $700 million in rebatable oil and gas production tax credits.
In 2020, Alaska’s state budget was hurt by the combination of the increase in fuel supply caused by the Saudi-Russian price war and the reduction in demand due to the pandemic, leading to a drop in oil prices as well as forcing oil and gas producers to cut production and lay off workers.
Iversen is guardedly optimistic that the state is climbing out of its budget crisis. The Alaska Department of Revenue forecast higher oil prices in spring 2021 compared to fall 2020, which, combined with anticipated production increases, will lead to an expected increase in unrestricted general fund revenue of $332 million for fiscal year 2021. DOR predicts an even greater increase in anticipated unrestricted general fund revenue for fiscal year 2022 — $460 million.
In November 2020, Alaska voters rejected the Fair Share Act initiative, which if it had passed would have change existing laws to significantly increase production taxes on oil produced from Alaska’s largest fields. Iversen notes that the rejection has not stopped legislators from continuing to try to pass legislation to increase taxes on the oil and gas industry and taxpayers in general or from introducing several bills to increase Alaska corporate income taxes.
Regarding the rebatable oil and gas production tax credits, Iversen writes: “Fiscal 2020 and 2021 saw no appropriation from the Legislature for purchase of the credits from the oil and gas tax credit fund. As of March 15, $744 million in tax credits awaits purchase, and almost half this queue dates to credits earned before 2017.”
He concludes: “The Legislature still has ample time to help — or harm — Alaska taxpayers and holders of rebatable tax credits. This is a stressful and uncertain time for Alaskans and companies doing business here. When it comes to stability for taxpayers and fairness to holders of rebatable tax credits, it is clear that Alaska still has a lot of digging to do.”