Alaska Gov. Sean Parnell proposed legislation this week to overhaul the state’s oil tax structure.
The measure would eliminate a monthly “progressivity tax,” or surcharge on high oil prices, and restructure the tax credit system with the hope of encouraging more oil production, according to a statement Tuesday by the governor.
Parnell said the current progressive tax-rate structure creates highly variable tax rates, limiting the upside for investors at high oil prices.
The legislation would keep a 25% base tax rate with a “20% gross revenue exclusion for new oil,” he said.
“Encouraging new production by lowering tax rates and simplifying the current system will promote growth in the economy and provide a more stable and long-term revenue stream for the state,” Parnell said.
When oil prices are high, the current tax-rate structure creates high variable tax rates collected monthly, and takes more profit from companies than in other places like North Dakota, Alberta and Texas, according to a fact sheet from the governor’s office.
Parnell’s push follows a similar attempt last year to lower oil taxes.
Fitch Ratings upgraded Alaska earlier this month to AAA from AA-plus, matching the gilt-edged ratings by Moody’s Investors Service and Standard & Poor’s.
Fitch said it raised its rating because of Alaska’s “maintenance of very substantial and growing reserve balances and the continuation of conservative financial management practices at a time of strong revenue performance.”
The state gets 92% of its unrestricted general fund revenues from oil-related activities, according to Fitch.