Senate committee advances bill to tax oil-and-gas pass-through entities over Hilcorp objections

Juneau, Alaska

The Alaska Senate Resources Committee on April 4 voted 5-2 to report Senate Bill 92 to the next committee with an indeterminate fiscal note. The committee substitute would apply the state's existing 9.4% top corporate income tax rate to qualifying pass-through entities that earn more than $5 million in oil-and-gas taxable income, with the tax to be apportioned in the same manner as oil-and-gas C corporations.

The bill matters because it would change which business structures in the oil-and-gas sector pay Alaska corporate income tax and could shift a modest share of per-barrel profit from producers to state government. The Department of Revenue told the committee the fiscal impact is uncertain; under one scaling scenario the department estimated roughly $50 million in additional revenue for fiscal 2025 (a half-year) rising to about $130 million in fiscal 2027, but its official fiscal note said the range could be as low as $0 and as high as $150 million per year depending on worldwide income, apportionment and commodity prices.

Hilcorp Alaska, the largest operator on the North Slope and a major Cook Inlet producer, opposed the bill in testimony. Luc Sorge, identified in the hearing as senior vice president for Hilcorp Alaska, told the committee the company has invested billions in Alaska operations since arriving in 2012 and that those investments have reversed decades of expected decline at Prudhoe Bay and other fields. Sorge said the company's investments produced a so-called 'Hillcorp wedge' of additional output that, in his calculations, is worth hundreds of millions of dollars in production taxes to the state. He warned that the bill would 'undermine the stability' that Hilcorp cited as necessary to attract financing and make long-term Arctic and Cook Inlet investments, and said he could not model the bill's precise dollar impact to the company in an open committee hearing.

Dan Stickel, chief economist with the Department of Revenue, presented the department's analysis and answered committee questions. Stickel explained the bill's mechanics: it would be retroactive to Jan. 1, 2025, exempt the first $5 million of oil-and-gas pass-through taxable income, and tax the amount above that at the 9.4% top rate. The department's scenario work shows the bill would shift roughly $0.40 per barrel of producer profit to the state under its baseline assumptions (about a 2% change in government take), but that effect varies widely by price, field type and company cost structure. Stickel told the committee the department's numerical estimates assume no behavioral change by producers; he said behavioral responses (changes to investment or production) are unknown and a major source of uncertainty.

Committee members pressed Hilcorp for company-level figures. Sorge said Hilcorp contributes 'well north of a billion dollars a year' in total state revenues (royalties, production taxes, property taxes and other payments) but repeatedly declined to disclose private financial ratios and specific internal rates of return in an open session, citing confidentiality.

Lawmakers debated five offered amendments before reporting the bill. Highlights of amendment activity recorded in committee:

- An amendment offered by Sen. David Myers (l.3) to extend the new tax to all pass-through businesses statewide failed on a 1-6 vote. Myers argued for parity across industries; other members opposed broadening the bill.

- An amendment (l.4) to narrow the measure so it applied only to oil-and-gas companies also failed, 2-5.

- An amendment from Sen. Hughes (l.5) lowering the new pass-through tax rate to 5% failed, 2-5.

- A technical clarification (l.7) the committee adopted clarified that entities meeting the unitary-business tests would be combined for tax purposes (intended to prevent splitting related oil-and-gas activities across entities to avoid tax). Committee counsel said the change reflected Department of Revenue guidance and removed ambiguity about application to groups of affiliated entities.

- An amendment to grandfather in acquisitions before Jan. 1, 2026 (l.8) failed, 2-5.

After debate, Sen. Josh Wilikowski moved the committee's report of the committee substitute for Senate Bill 92 (work order 34LS0540\L) out of committee with an attached indeterminate fiscal note. The roll call was: Kawasaki, Wilikowski, Dunbar, Clayman and Chair Giesel voting yes; Hughes and Myers voting no.

What the bill would do and why lawmakers differ

Dan Stickel told the panel that under current Alaska law the corporate income tax applies only to C corporations; pass-through entities (LLCs, partnerships, S corporations) currently do not pay Alaska corporate income tax because Alaska has no individual income tax. SB 92 would bring qualifying pass-through oil-and-gas entities into the state corporate income tax base using a $5 million threshold and the existing apportionment rules the state uses for oil-and-gas C corporations. Stickel's presentation emphasized that the state tax code adopts the Internal Revenue Code by reference for many calculations and that apportionment rules and worldwide accounting historically matter for taxable status in Alaska.

Supporters of the measure in committee argued the bill increases state revenue share from resource development. Opponents, including Hilcorp, said the measure would undermine Alaska's investment climate, disproportionately affect independents, and could discourage future capital for both Cook Inlet and North Slope projects. Several senators raised that the department's modeling assumes no change in company behavior and that potential behavioral responses are a key unknown.

Next steps

The committee reported the substitute to the finance committee with an indeterminate fiscal note and direction that legislative legal staff make technical and conforming changes. Finance will receive the Department of Revenue appendix slides and fiscal materials; the bill will face further hearings there.

Votes at a glance

- Committee report (move SB 92 CS out of committee): Passed, 5-2 (Yes: Kawasaki, Wilikowski, Dunbar, Clayman, Giesel. No: Hughes, Myers). - Amendment l.3 (extend tax to all pass-throughs): Failed, 1-6. - Amendment l.4 (limit tax to oil-and-gas only): Failed, 2-5. - Amendment l.5 (lower pass-through tax rate to 5%): Failed, 2-5. - Amendment l.6: Withdrawn. - Amendment l.7 (unitary-business clarification): Adopted (technical/conforming). - Amendment l.8 (grandfather acquisitions before 2026): Failed, 2-5.

Committee chair Senator Giesel adjourned the hearing. The bill will next be considered by the Senate Finance Committee.