Alaska’s oil tax system is complicated even by tax standards — legislators say that’s not necessarily a bad thing — but Republican Gov. Mike Dunleavy’s secretive handling of the system raises new and pressing problems for the state.
This week, Dunleavy vetoed legislation that legislators hoped would break through what has been several years of stonewalling by the Department of Revenue over the oil and gas industry’s tax payments to the state. Legislators say they’re concerned the Dunleavy administration could be cutting sweetheart deals with the oil industry, effectively allowing hundreds of millions of dollars in back taxes to go unpaid.
At the root of the issue is the state’s tax system itself. Alaska’s system, which ping-ponged between different setups throughout the 2000s, is currently set up as a net profits tax rather than a tax on total profits. That means oil and gas companies can deduct their operating expenses from their tax bill, a process that requires a massive accounting and auditing effort to ensure the expenses are accurate.
Sen. Bill Wielechowski, a longtime outspoken critic of the oil industry who helped write the bill that Dunleavy vetoed, said the oil industry, like all businesses, pushes the limits of what’s an allowable expense for their operations in Alaska. He recalled one case where an oil company attempted to deduct the cost of a rental car in London against their Alaska production taxes.
“We have had experts tell us for years that we have the most complex oil and gas tax system in the world, and so it makes it very easy for creative accountants and tax attorneys to manipulate that system in their favor,” he said.
Wielechowski said, though, while he believes there are merits to having the current tax structure, like giving the state better insight into such a critical industry, that it ultimately relies on having an administration that is willing to fight for what it’s due. He pointed to the Alaska Constitution’s language calling for the state to utilize its natural resources for the “maximum benefit” of its residents, questioning if Dunleavy and Department of Revenue Commissioner Adam Crum were really living up to that duty.
He said the steep decline in assessment payments during Dunleavy’s term, dropping from hundreds of millions of dollars a year to about $200,000 last year, should be raising alarm bells. Whether there has been a change in economics in the state’s oil industry or a change in policy in the Dunleavy administration’s handling of the tax settlements is unclear, as the administration has ceased reporting settlement activity in the same manner it had until a year into Dunleavy’s first term in office.
“Is it possible? Yes.” Wielechowski said when asked if there could be an economic explanation for the drop in payments. “Is it probable? I’d say it’d have to be an extremely unusual set of circumstances. It would almost have to be for the first time in state history that the oil industry is providing us with completely clean accounting information, and that’s not to diminish the industry or anything … But historically, when you look at the numbers that have resulted from the tax settlements and royalty settlements, what you find is that, yeah, the industry has taken an oil industry friendly interpretation of the law every time. And now, all of a sudden, in the last three or four years, they’re not doing that anymore?”
Or as Legislative Budget and Audit Committee Chair Elvi Gray-Jackson, who has also been fighting to get this information for years through the state’s legislative auditor, put it when discussing the governor’s veto of Senate Bill 183, “They’re making it easy for us to wonder, well, What is the problem? What is out there that you don’t want us to know?”
Wielechowski said that in the big picture, the difficulties in getting to the bottom of the tax assessment drop-off highlight the problems with the state’s overall tax system. He said that while the complex system may be better for the state in some cases, it requires a Department of Revenue that is committed to pursuing what the state is rightfully due. If the Dunleavy administration did, in fact, cut sweetheart deals with the oil companies to let creative accounting slide or settle assessments for pennies on the dollar, Wielecwhoski says it shows there’s too much discretion in the system.
“We all know that there are certain administrations that bend over backwards for the industry, but it seems like Crum has just gone so far over the acceptable limits,” Wielechowski said, “But how do you prove it? This is the problem: we have some of the worst transparency laws in the world … and our tax system is structured in such a way that the state of Alaska loses in every instance. We lose at low oil prices, we lose at mid-range oil prices, we lose at high oil prices … This is an abomination of what a tax structure should be.”
While making any changes to the state’s tax structure is a long-shot as long as Dunleavy wields the veto pen, Wielechowski said there’s certainly merit to looking at changes to the underlying tax structure to make it simpler and less easy for industry-friendly politicians to game.
“There is a lot of merit to having a net profits tax,” Wielechowski said. “However, when you have an executive branch that is tipping the scales in favor of the oil industry against the people of Alaska, then this is exactly what we were worried about.”
Matt Acuña Buxton is a long-time political reporter who has written for the Fairbanks Daily News-Miner and The Midnight Sun political blog. He also authors the daily politics newsletter, The Alaska Memo, and can frequently be found live-tweeting public meetings on Bluesky.
