The House and Senate conferees on Alaska HB111 agreed to end refundable tax credits and repealed the fund itself. Use of production tax credits was modified, allowing limited explorers to apply exploration tax credits against corporate income tax. Purchased or self-generated production tax credits may be used against prior year liability provided such liability is “not subject to an administrative proceeding or litigation.” Tax credits for net operating losses were repealed, replaced with a carried forward deduction beginning July 1, 2017 and ring-fenced in certain circumstances. If the lease or property is not producing and it creates the carry-forward net operating loss in the segment, then the loss may not be used until regular production commences from that lease or property. By the 11th year, if regular production has not commenced the value of the loss is decreased 10% annually. Where leases or property have regular production, the value of a loss decreases by 10% annually beginning with the 8th year. Interest on all delinquent taxes was modified to the federal reserve rate + 5.25% compounded quarterly with the three-year limitation on the application of interest removed.
In summary, Alaska HB111 does 3 things:
- Ends cash payments from Alaska to oil companies
- Changes how companies carry forward losses, either 7 or 10 years
- Changes the interest rate to the federal reserve rate of 5.25% on delinquent taxes
HB111 has passed the House and Senate and has been transmitted to the Governor. This Bill takes effect on January 1, 2018.