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During her State of the State Address in January, Governor Sarah Palin indicated that her administration would carefully
watch the Petroleum Profits Tax (PPT) that the Alaska Legislature embarked on in 2006, at the structure was untested – and
work to ensure the state’s production tax provides fair value to Alaskans.
“Getting fair value for our known resource is the only way we can be self-sustaining and less reliant upon the federal
government,” Palin said in her address. “It also fulfills the mandates in our State Constitution. But inherent in that
responsibility is also the need to explore for more.”
In May, Governor Sarah Palin directed the Department of Revenue (DOR) to review the performance of the PPT. Anticipated
revenues were down by hundreds of million of dollars and Alaskans recognize that PPT was a result of a political compromise.
Given the cloud of unethical and illegal activities – including oil service company executives pleading guilty to bribery
and two legislators’ recent guilty verdicts in federal corruption trials – they have to question if that compromise was tainted.
The tax needs to create stability by ensuring that both Alaskans and industry receive an equitable share of the state’s
nonrenewable resources; the public must have confidence in the state’s oil and gas tax.
When it became clear that a change was needed, the governor directed DOR to develop a proposal to address the deficiencies with PPT.
DOR requested input from the Department of Natural Resources, and with a collection of oil and gas consultants, the team analyzed a
variety of potential tax structures. The team included DOR’s economists and accountants, DNR’s Division of Oil and Gas commercial
analysts, geologists and engineers, and attorneys from the private sector and the Department of Law.
The governor’s principles for developing a new oil and gas tax:
• the tax system should be as transparent as possible to maximize public confidence and minimize risk to the state of taxpayer manipulation
• the tax system should provide a fair share of revenue to the state
• the tax system should create an attractive investment climate for new oil and gas explorers to discover new fields, and for existing producers to re-invest in existing fields, including development of our heavier oils and natural gas.
The final plan, Alaska’s Clear and Equitable Share (ACES), is the product of a multi-agency team including DOR’s economists and
accountants, DNR’s Division of Oil and Gas commercial analysts, geologists and engineers, and attorneys from the private sector and
the Department of Law.
Under the ACES plan, the state will have a gross tax-based safety net for revenues when prices dip, or costs rise, while maintaining
the full benefit of a net-based system that will provide a greater share of value from our oil and gas resources while still spurring
new investment. ACES also includes a number of needed tools for protecting the state’s interests in light of the net-based approach.
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