Issue Position: Gross Severance Tax

Issue Position

1. Primary benefit of a "gross" rather than "net" system is it eliminates
ambiguities that always arise with a new taxing system.

* Maintaining the gross system eliminates the added audit or accounting reviews and their costs necessary in a net system.

* Maintaining the gross system eliminates the possible legal actions for disputes
and subsequent costs involved in those disputes.

* Note that the Constitutional Budget Reserve was established with settlements
from years of litigation on tax and royalty disputes.

2. Work draft version "Y" accomplishes the following:
* Eliminates the Economic Limit Factor (ELF) from the current severance tax
except for the Cook Inlet Basin (effect is that tax on current production in
Cook Inlet remains the same; new production is 12.5% for first 5 years, and
then 15%).

* The statewide severance tax rate is then 15%, with specific credits.

* Increases existing exploration credits -- providing incentives for exploration
activities by the industry. Result of this is that current accounting practices
will continue.

* Provides for a new 25% credit for development well costs -- a very limited
activity as opposed to "net" system. -- for further incentive.

* Provides for a 7,500 barrel per day field allowance.

* Provides for a progressivity feature -- begins at $40.00 with a rate of rise of
.003.

Source