Senate hearing begins on bill to tax oil and gas "pass-through" entities; Department of Revenue provides preliminary revenue estimates

Senate Bill 92, sponsored by Senator Robert Yount, received its first public hearing Feb. 19 before the Senate Resources Committee. The bill would impose a 9.4% tax on profits attributable to petroleum production and pipeline transportation earned by entities that currently file federal returns as pass-throughs (sole proprietorships, partnerships or S corporations) when those entities report more than $5,000,000 in qualified taxable income for a tax year.

Senator Yount said the measure "works to level the playing field and ensure that all oil and gas companies who operate in Alaska are charged at the same rate regardless of whether they're designated as a c corporation or an s corporation." The bill targets only oil- and pipeline-related activity and would not, as drafted, extend to pass-through entities that do not derive profits from oil or pipeline operations.

The bill's key provisions, as summarized in a sectional by Ryan McKee (staff to Senator Yount), include:

- A tax at an effective rate mirroring current corporate income tax rates (9.4%) on profits from petroleum production and pipeline transportation for qualified entities that are not taxed as C corporations; the tax applies only to profits above $5,000,000 in a tax year.

- An aggregation provision that allows the commissioner of revenue to aggregate income of two or more entities when their income could be reasonably attributable to a single entity.

- Direction that revenues be deposited into a fund for energy and electrical grid projects or upgrades.

- Conforming changes across existing income-tax provisions to replace the word "corporation" with "taxpayer" or "entity" where needed, plus uncodified sections on applicability, transition and retroactivity. The bill sets a retroactive date of Jan. 1, 2025, for taxable years beginning on or after that date.

Department of Revenue officials (Dan Stickel, chief economist; Dale Yancey, tax director; and Michael Williams, corporate tax manager) answered questions from the committee and described the fiscal-note approach. Stickel said the department treated the bill as retroactive to Jan. 1, 2025 for modeling: revenues associated with calendar-year 2025 would largely be collected as true-up payments when affected taxpayers file their 2025 annual returns.

Stickel and the department's technical staff reported a ballpark fiscal estimate of approximately $133 million for FY2026 under the bill's baseline assumptions, plus an additional roughly $53 million for the January'to'June 2025 retroactive period that the department expects could be captured as part of FY2026 receipts if the bill is enacted with retroactivity, producing a larger FY26 impact in the fiscal-note presentation. The department described its methodology as extrapolating a taxable base (roughly $1.4 billion in the FY26 estimate) and applying an effective rate to arrive at the estimate; staff repeatedly noted they could not disclose company-level details because of taxpayer confidentiality rules.

Committee members pressed the department on several policy and technical questions, including:

- Which entities would be affected: Department of Revenue staff said the bill targets entities filing under 26 U.S.C. Subchapter S and similar pass-through structures but declined to name specific taxpayers because of confidentiality.

- Production and investment shares: Revenue staff said roughly two'thirds of Alaska oil and gas production (about 65% in the FY26 forecast) comes from entities currently subject to the corporate income tax; the remaining roughly one'third is produced by non'C-corporation entities. The department estimated total allowable lease expenditures statewide of about $8.2 billion in the FY26 forecast horizon, without attributing an exact share to S corporations.

- Timing and forecast shape: The FY26 estimate is larger because the bill is drafted with retroactive application to Jan. 1, 2025; staff said this timing produces a one-time increase in FY26 receipts that then declines over the forecast horizon as a share of total revenue in the department's model.

- Interaction with federal tax rules: Committee members asked whether state taxes paid by entities would reduce owners' federal liabilities; Revenue staff said entities would deduct state taxes on federal returns and that state tax deductions typically reduce federal taxable income, but the federal reduction would not be a dollar'for'dollar offset.

Several senators and stakeholders requested further analysis: independent CPA modeling of company- and owner-level tax impacts, detailed Prudhoe Bay unit revenue and investment data, analysis of how converting to or from C corporation status would change behavior, and broader economic modeling of effects on production, investment and jobs. Senator Hughes also raised technical concerns that differences in allowable federal deductions could make the change less neutral across entity types; Senator Wilikowski and others emphasized a constitutional duty to capture maximum benefit from resource extraction and urged more transparency on who would be affected.

No committee vote or formal action on SB 92 was taken at this hearing; the bill remains in committee. Members set expectations for follow-up materials from Department of Revenue and for additional modeling before further committee action.