Gov. Mike Dunleavy has serious issues with the Democrat-controlled State Senate’s decision to insert an S Corp tax provision into what he was hoping would be a clean bill to advance the Alaska liquefied natural gas pipeline project.

In June, House Bill 381 passed the House along a bipartisan vote of 35-4 but has been held up in the Senate, resulting in two special sessions this summer, with a third on the way.

The original House-approved version aims to replace a 2% annual oil and gas property tax with a tax based on the actual flow of gas through the pipeline. This would give developer Glenfarne an 80% tax reduction, a move the company says is necessary to make the 800-mile North Slope to Southcentral pipeline project pencil out.

The latest version of the bill was approved by the Senate Conference Committee on July 16, and essentially creates a new income tax on certain oil and gas pass-through entities by restructuring Alaska’s tax system to specifically target a small number of oil companies in Alaska.

“If the legislature passes the bill in its current form, I will veto it.”

“I appreciate the hard work the conference committee has put into this important legislation to provide property tax relief and advance the Alaska LNG pipeline to deliver gas for Alaskans,” Dunleavy stated on July 16. “However, including the S Corp tax provision introduced by the Senate raises serious concerns. By the conference committee’s own admission, this provision has not been adequately debated, tested, modeled, or analyzed.”

Dunleavy noted that HB 381 started as a “simple property tax relief and a straightforward volumetric tax as a replacement.”

Introducing a new S Corp tax provision in the bill complicates the legislation, he said.

“[A]nd could have unintended consequences that destabilize the business environment in Alaska and negatively impact Alaskans,” Dunleavy noted. “If the legislature passes the bill in its current form, I will veto it.”

Despite his misgivings, Dunleavy said the bill is very close to being satisfactory, and he has decided to call a third consecutive special legislative session this summer to allow lawmakers to finish the bill. That will begin on July 27 in Juneau.

“I will continue to collaborate with the legislature and look forward to signing legislation that helps move this project forward so we can provide a reliable source of energy for Alaskans for decades to come,” Dunleavy concluded.

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