Posted: Nov. 16, 07

I (Randy Griffin, Fairbanks resident) sent the following email (in yellow box below) to all 20 state senators in Juneau (capital of Alaska) on Nov. 13, 2007.
I sent a similar email to all 40 of the representatives of the Alaska State House on Nov. 12, 2007. Alaska has a total of 60 state legislators.
Governor Sarah Palin called a 30 day special session which started on October 18, 2007. The Governor wants the Alaska Legistature to approve her oil tax bill (HB 2001) ("ACES") which would increase the base tax rate on oil company profits from 22.5 % to 25%. It would also revise the existing Petroleum Profits Tax (PPT) in other ways, such as disallowing certain oil field repair cost deductions. The new PPT oil tax was passed in 2006.

Dear (state) Senator:
Please pass the exempt tax auditor provision of Governor Palin’s oil tax bill. It is very important that Alaska gets the skilled tax auditors that it desperately needs.
   In February 2006, the Alaska Department of Revenue reported that its audit staff had an 80% vacancy rate due to recruitment difficulties.
   The Dept. of Revenue tried to solve this problem in Feb. 2006, by seeking exempt status (exempt from union pay scale limitations) for corporate income tax forensic auditors, by way of House Bill 485. (HB 485 also sought exempt status for state pharmacists.)
   On May 4, 2006 the House voted to remove the exempt tax auditor provision from HB 485. All of the Democrat representatives (except for Rep. Richard Foster) voted to delete the tax auditor provision. Some of the Republican representatives, including Tom Anderson and Lesil McGuire, joined the Democrats. HB 485 was ultimately signed into law in June 2006, but it only exempted pharmacists.
   I believe the tax auditor provision was struck down so as not to anger the powerful unions. But it is time to put Alaska’s fiscal interests first, in spite of any union objections.

I believe it is bad timing to raise the oil tax rates at this moment. They can be raised anytime, such as during the regular legislative session or during a special session next summer or the year after.
   The gas line proposals for the AGIA are due on November 30. The big question is will the producer lease holders on the North Slope be able to go along with the proposals of the prospective gas line builders. Why muddy the waters at this time with a third tax increase in just 3 years. That would weaken the State’s position in its effort to get a gas line.
   It may be that the window of opportunity has passed, but if there is any chance that we can get a gas line, we should put our full efforts in doing so. It is extremely important for our long term future.
   During the negotiations for the proposed 2006 gas line fiscal agreement, the oil companies stressed the need for fiscal certainty so that they could adequately plan for the massive and somewhat risky investment of a gas line. Guaranteeing 30 + years of fiscal tax certainty may indeed be impractical and unwarranted. But why are we so anxious to demonstrate to the investment world such a frenetic frequency of tax rate hikes.
   The corruption scandal is a flimsy reason to jack up the tax rates. Law enforcement and the courts are dealing ably with the few that sought to gain money improperly. Bribery provides a good reason to revisit any legislation that was involved, and the present special session is an excellent opportunity to study the important and complex subject of oil taxation. But any final legislation should be based solely on the fiscal facts of oil extraction and future development.
Oil companies should be able to
deduct legitimate oil field expenses even if they are “unexpected”.
Businesses in the U.S. pay taxes based on their net profits. The U.S. Internal Revenue Service does not micromanage businesses to see if legitimate wear and tear was due to “negligence” or if it occurred “unexpectedly”. “Unexpected” repair costs can be deducted or depreciated.
   Businesses do not want to see wear and tear on their equipment, but it is part of life. They do not make money from wear and tear and breakdowns. They are naturally motivated to keep their equipment maintained.
   There is a balance between getting the full and good value out of a piece of equipment and replacing parts prematurely that still have good life in them.
            Sincerely, Randy Griffin, PO Box 73653, Fairbanks, Alaska, 99707

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