State responds to production tax lawsuit by Exxon, Hilcorp, SAE

Kristen Nelson

Petroleum News

The state of Alaska has responded to a complaint filed in June by Exxon Mobil Corp., Hilcorp Alaska LLC and SAExploration Inc., against the Alaska Department of Revenue’s 2017 advisory bulletin which the complaint said “re-interprets Alaska’s tax code and regulations to increase the tax burden on taxpayers by approximately $110 million in 2018 and to retroactively impose back taxes of $50 million (plus an unspecified amount of interest) for tax years 2014-2017.”

The complaint said the 2017 advisory bulletin reversed the position the Department of Revenue had taken in a 2011 advisory bulletin, a reversal made without public comment or due process.

In its July response the state denied that any public process is required for issuance of advisory bulletins and denied that the Tax Division of the Department of Revenue “adopted” the 2017 advisory bulletin. The state also denied that it was required to rescind the 2011 advisory bulletin, and “denies any characterization of the 2017 Advisory Bulletin inconsistent with its text.”

The state said in its response that Revenue “admits that Revenue Online allows taxpayers the option to enter tax credits in any order” but “denies that such an option relieves taxpayers of the duty to accurately report and pay tax.”

The complaint argued that prior to the 2017 advisory bulletin, “DOR’s mandatory tax reporting system Revenue Online allowed taxpayers to apply the Sliding Scale Credit to a taxpayer’s tax liability first and then apply the New Oil Credit and Other Credits to the remaining tax liability.” Prior to the 2017 advisory bulletin, the complaint said “DOR acknowledged in the 2011 Advisory Bulletin that North Slope Producers could reduce their tax liability below the Minimum Tax by using the New Oil Credit and the Other Credits.”

In its response the state denied that characterization of the 2011 advisory bulletin and said that bulletin “speaks for itself.”

The state denied the allegations that Exxon and Hilcorp would be liable for “retroactive taxes,” and said they “may owe tax due to Alaska Statutes and the Alaska Administrative Code.”

As for advisory bulletins interpreting statutes, the state cited Alaska statute as providing that “the department may issue … advisory bulletins stating the department’s interpretation of provisions of this chapter and of regulations adopted under this chapter.” The state said that “advisory bulletins are non-binding.”

The complaint had requested that the court find the 2017 advisory bulletin “contrary to law and therefore void” and that Revenue is prohibited from enforcing the bulletin’s conclusions, analysis or methodology.

The state asks that the complaint be dismissed with prejudice, that the plaintiffs be awarded no relief and that the defendant be awarded its attorneys’ fees and costs of defending the suit.

The case is scheduled to be heard in 2019.

- KRISTEN NELSON