Alaska LNG tax bill could swing state revenue by hundreds of millions

The Alaska Department of Revenue warned Monday that a complex tax bill for the Alaska LNG project could swing state revenue by hundreds of millions of dollars depending on how regulators interpret key provisions.

Senate Bill 280 would exempt the Alaska Natural Gas project from state and local property taxes while creating new volumetric and pass-through entity taxes. But the bill's complexity could trigger years of audits and litigation between the state and oil companies, according to Dan Stickel, chief economist with the Department of Revenue's Tax Division.

"We believe that is a likelihood. Or at least a distinct possibility that there would be increased tax appeals, potential dispute, and potential litigation," Stickel said during a Senate Resources Committee hearing Monday. He pointed to provisions where the department would make regulatory decisions about how lease expenditures are allocated between oil and gas, and requirements to publish detailed field and potentially company-specific prevailing value calculations.

Governor Mike Dunleavy introduced Senate Bill 280 to replace the 20-mill property tax with an alternative volumetric tax. The Senate Resources Committee began hearings on the bill in mid-April and rolled out a committee substitute last week that significantly increased the tax rates and added new revenue mechanisms. The substitute raises the volumetric tax to 15 cents per thousand cubic feet for the treatment plant and pipeline, and 55 cents for the LNG plant, while adding a construction impact fee of $1 million per mile of pipeline installed. Those rates would be fixed for 10 years, then adjusted annually for inflation.

The state would share half the revenue with municipalities where the facilities are located, with pipeline revenue also flowing to communities statewide through revenue sharing. At full operations, the volumetric tax would generate $255 million per year in unrestricted general fund revenue, according to the department's modeling. The construction impact fee would add up to $739 million during the build-out, distributed to affected communities through a grant program.

But the bill's most contentious provision would disallow North Slope gas costs from the oil production tax calculation, retroactive to January 1, 2026. Under current law, any lease expenditures on the North Slope can be applied to the oil tax calculation toward the 35 percent net profits tax, regardless of whether they relate to oil or gas. The bill would disallow any lease expenditures deemed to be for gas, starting retroactively from the beginning of 2026.

That change would require the department to develop regulations determining which lease expenditures relate to oil versus gas. Those decisions could shift revenue by hundreds of millions of dollars. "We would need to develop and implement the methodology for breaking out oil versus gas costs. Again, via regulation, and the decision-making on that regulation could have many millions of dollars of impact depending on which direction we go, potentially hundreds of millions of dollars of impact," Stickel said. "So that is a significant level of discretion that is being left with the Department of Revenue for policymaking there."

Senate Resources Committee Chair Cathy Giessel asked Stickel to confirm the stakes. "Did I hear you say correctly that this, the way the regulations are written and the way this law is interpreted could potentially mean hundreds of millions of dollars?" she asked.

"Yes," Stickel replied.

The bill would also create a new tax on oil and gas pass-through entities, including S corporations and partnerships that currently avoid corporate income tax. That provision would apply retroactively to 2026 and could generate between zero and $100 million per year from existing operations. The wide range reflects uncertainty about company profitability.

For the Alaska LNG project specifically, the pass-through entity tax could exceed $60 million annually by the late 2030s, once net operating losses from construction are exhausted.

Stickel emphasized the administrative burden the bill would create. Far less complicated methods exist for generating an equivalent amount of incremental revenue to the state, he said, suggesting lawmakers could adjust existing tax levers like production tax rates or minimum floors rather than adding new complexity. He noted that some of the provisions leave material decisions open to interpretation by the department.

The department requested additional staff to handle the increased oversight, potential disputes, and litigation the bill would likely trigger. "We just wanted to highlight that this would be a complex and potentially contentious provision so that it does not come as a surprise when we are requesting additional support and having litigation and audits and whatnot," Stickel said. The department would need to significantly expand its internal commercial analysis expertise to prepare for these analyses and be ready to provide requested assistance to the legislature.

The committee will continue reviewing the bill Wednesday, with additional presentations from the Department of Revenue and outside consultants.