Alaska's New Petroleum Production Tax

Abstract

The Alaska legislature enacted a major change to the state system of taxation for oil and gas on August 6, 2006, retroactive to April 1, 2006. The new tax, passed after several false starts in the third special session of the year, would replace a tax on gross wellhead production value of oil and a tax on gross wellhead value of gas with a single tax on net income earned at the wellhead. This article attempts to put the decision in context. It discusses some of the major issues related to oil taxes, summarizes the historical pattern of state petroleum revenues, and considers the consequences of the major features of the current tax proposals. We examine the new PPT in the context of these three big questions, comparing patterns and trends over time in Alaska and relative to other states and nations. There is no perfect tax mechanism, and each question involves a principal tradeoff.