Dunleavy sends Legislature LNG tax bill with flat 2% S corp tax

Governor Mike Dunleavy lowered the disputed tax on oil and gas S corporations to a flat 2% in a compromise Alaska LNG bill he transmitted to the Alaska State Legislature on Wednesday, according to his office. The governor's office said the revised tax and oversight framework could clear the way for the project to begin securing financing, the stated purpose behind the changes.

The bill is identical to the Conference Committee version of House Bill 381 except for three changes. It keeps the S corporation income tax at the lower flat rate. It delays the tax's effective date to Jan. 1, 2030, or to first commercial gas through the pipeline, one year later than the conference version. And it removes a provision that could have reduced state education aid for boroughs receiving gas line tax revenue.

"I have never been in favor of new taxes on Alaska's producers, and I still am not," Dunleavy said in the release. "This bill is a compromise that removes a significant barrier to moving the gas line forward."

Dunleavy said the compromise contains no new concepts, and that the legislature has debated and voted on earlier versions containing each provision. Lawmakers reconvene in Juneau on Aug. 20.

The measure carries the tax and oversight framework for a project that has drawn extended legislative debate this year. Alaska levies its oil and gas property tax at 20 mills of assessed value. HB 381 proposes to replace certain state and municipal property taxes on eligible Alaska LNG project property with an alternative volumetric tax on throughput. Alaska News previously covered a House Resources Committee hearing at which the Department of Revenue described a 15-cent per thousand cubic feet pipeline rate that would cut the project's annual tax burden from nearly $750 million to roughly $200 million by 2033, using the department's baseline capital-cost assumption of $46.2 billion in real 2026 dollars. Earlier coverage also noted that the Kenai Peninsula Borough would receive 48.4 percent of base Phase 2 revenue under the exemption structure, and that five borough mayors testified against the tax structure in Senate Bill 280, citing revenue losses and inadequate impact compensation.

The governor's release contains no response from legislators, borough governments, or the developer.

The tax provisions in the conference version take effect only on conditions: $80 million in total payments to the state, project labor agreements, and construction of a spur line to serve the Fairbanks area. Whether the legislature accepts the three changes is the open question when it returns to the Capitol next week.