State law allows Hilcorp to avoid paying tens of millions in taxes, compared to BP
As a limited liability company, Hilcorp does not have to pay the oil and gas corporate income tax that BP has long paid in Alaska, a tax under which BP may be paying $30 million a year or more.
“Corporate income tax is levied on oil and gas C-corporations as a percentage of their worldwide net income apportioned to Alaska,” the state’s revenue sources book says.
The petroleum corporate income tax is estimated to produce $210 million in this fiscal year, with most of that paid by ConocoPhillips, Exxon and BP.
HIlcorp does not pay that tax since it is not a C-corporation.
The sale of BP’s Alaska assets to Hilcorp, a privately held company controlled by Texas billionaire Jeff Hildebrand, is one reason why the Alaska Legislature needs to revise the state oil tax structure as soon as possible.
If BP is paying $30 million, (we don’t know the amount because that is confidential), the loss of that sum would be enough to allow Alaska schools to keep up with inflation each year, said former Rep. Les Gara.
Gara tried as a legislator to amend state tax law so that companies like Hilcorp would pay an income tax, but in 2017 the Senate refused to consider any tax measures, killing the effort.
The measure Gara introduced that year, HB 36, is a good starting point for the debate that must begin about oil taxes.
“Under HB 36, oil companies that are not already subject to the corporate tax will be taxed at the same rate and in the same manner as the current corporate tax for oil companies that are C-corporations,” he wrote in 2017.
As it is, Hilcorp stands to be the largest business in Alaska not subject to a corporate income tax.
Businesses used to pay tax under the state income tax law, but it was repealed in 1980. Those that are not C-corporations have not paid state income taxes since then.
Only Alaska and Florida have taxes on C-corporations, but fully exempt the income of “pass-through businesses,” such as limited liability companies.
“As early as 1998, Alaska Deputy Revenue Commissioner Deborah Vogt observed that ‘[i]n a place that doesn’t have a state income tax you’d be an idiot to start up a C-corporation.’” Matthew Gardner of the Institute on Taxation and Economic Policy, wrote in testimony on Gara’s bill.
The Hilcorp situation is only one of the aspects of oil taxation that needs a new review by Alaska. Another is the production tax rate and the tax credits under existing law.
The oil and gas tax initiative is going to lead to a healthy statewide conversation on the topic, which has been suppressed for too long by gridlock in state government.
(If you want to contribute financially to this independent reporting and analysis project, you can do so here through PayPal. Or simply mail checks to: Dermot Cole, Box 10673, Fairbanks, AK 99710-0673. Thank you.)