A Tale of 2 Taxes

JUNEAU, Alaska — An Alaska lawmaker -- who has done an analysis of the state's tax structure for oil companies -- says there is evidence that questionable negotiating skills have cost Alaska dearly in oil tax revenues.

Senator Bill Wielechowski (D-Anchorage) analyzed a system called "Separate Accounting" -- the  oil income tax that Alaska had in place back in 1982.

Under "Separate Accounting", companies operating in the state were allowed only to deduct  expenses on investments that they had actually made here in Alaska. Wielechowski thinks it was far superior to the system that replaced it called, "Worldwide Apportionment". In fact he says there's evidence that the new system has cost the state anywhere from $24 to $60 billion in lost revenues and lost investment opportunities.

Here's how his argument works.

Weilechowski says that the old system of taxation -- "Separate Accounting" -- was sort of like a group of friends going out to a restaurant -- and each friend getting their own separate check. A bit cumbersome -- but when you split expenses that way, no one can get stiffed on the billl. Everyone is paying for what he or she actually ate.

But Wielechowski says that the new system Alaska is under "Worldwide Apportionment" is like a group of friends going out and getting a single bill -- and then having everyone chip in at the end of the night. That works fine, unless you order a burger and your friends order caviar. If that happens, you end up getting stiffed.

The Senator's number cruncher -- Michelle Sydeman -- has done the math. She believes there's evidence that the state of Alaska's share of the oil pie started dropping off by hundreds of millions of dollars a year after the switch to "worldwide Apportionment.

She submitted her numbers to an analyst at the state's Legislative Finance division, and on March 20th -- Rob Carpenter wrote back saying that if Sydeman's figures were correct, then the state had not just lost the hundreds of millions, that those losses would have been compounded by lost investment opportunities. Caprenter said that -- assuming a conservative return of 6% a year on the added revenue -- the losses to the state -- over 30 years-- would have amounted to $24.8 billion dollars.

He then went on to say that if the state had -- instead -- invested in the S&P 500 during that period of time, the cost to Alaska could have been $59.7 billion.

Wielechowski says the reason "Worldwide Apportionment" is -- in his opinion -- bad for the state is because it allows oil companies to deduct the expenses of disasters that have absolutely nothing to do with Alaska. If a dictator is overthrown in Libya, and an oil company loses money there, the expense could show up as a deduction in Alaska.

If a well blows out in the Gulf of Mexico, then the expenses associated with that -- not counting fines and penalties -- are also deductible here in Alaska.

That's why Wielechowski wants "Worldwide Apportionment" abandoned. He's proposed a measure that would see "Separate Accounting" restored.

But the Alaska Oil And Gas Association -- a pro-industry group -- disagrees with Wielechowski.

Late thursday they wrote Channel 2 news saying, "If the intention is to increase taxes on oil producers, the change will take Alaska in the wrong direction." The AOGA goes on to say, "The total government take -- on North Slope Production -- is already one of the highest in the world."

But Wielechowski disagrees. He points out that a barrel of oil in Alaska generates far more revenue for oil companies than say a barrel of recovered in North Dakota. North Dakota wells aren't as productive, he says. They produce a fraction of the oil volume that a well in oil-rich Alaska produces. And he says that to get that oil out of the ground, you have to do expensive "fracking" in North Dakota -- which you don't have to do to wells at the North Slope.

The debate is likely to intensify. Wielechowski wants to get a measure -- to restore "Separate Accounting" to Alaska's oil tax code.

With just 2 weeks left in the session, it's far from clear whether Wielechowski's measure can make it to the floor of the senate for a vote.