In my latest column for State Tax Notes, I look at the challenges that Alaska, and particularly the state’s oil and gas industry, has faced in 2020 thanks to the COVID-19 pandemic, low oil prices and the threat of a major increase to Alaska’s oil and gas production tax.
The state of Alaska is highly dependent on its oil and gas industry for tax revenues. The state’s budget has taken a hit from the combination of the increase in fuel supply caused by the Saudi-Russian price war and the reduction in demand due to the pandemic, which has led to a drop in oil prices as well as forcing oil and gas producers to cut production and lay off workers.
The Alaska Department of Revenue estimated in late 2019 that its unrestricted general fund revenue would be $2.1 billion in fiscal 2020 and $2 billion in fiscal 2021, which starts July 1. In April, DOR issued a revenue forecast in which it revised the earlier forecasts downward to $1.6 billion for fiscal 2020 and $1.2 billion for fiscal 2021, largely due to the drop in oil prices.
As well as the challenges resulting from the pandemic and price war, a group has proposed the Fair Share Act initiative, which if passed would change existing laws to significantly increase production taxes on oil produced from Alaska’s largest fields. “The initiative is a substantial threat to the Alaska oil and gas industry and would be detrimental to the economics of large oil fields in Alaska,” according to Iversen.
The next article will include a status report on the Alaska Supreme Court appeal concerning the constitutionality of the tax credit bond program and a more in-depth discussion about the initiative.
Read the article here.
Originally published as “Alaska’s Perfect Storm” on June 29, 2020, by State Tax Notes. June 29, 2020.