The Alaska Citizen's Guide to the Budget


1.2.1.1 General Fund Oil Revenues $ 1.596 billion in 2002

Since the late 1970s most general fund revenues have come from petroleum. They can fluctuate considerably from year to year due to volatility in the price of oil, but since 1989 they have been on a downward trend of about 6% per year (real inflation-adjusted revenues) due to declining production and real price (4% annual decline in production and 2% annual decline in real price). Revenues will continue to fall due to continued decline in the effective severance tax rate even though production is now projected to hold approximately constant at 1 million barrels per day through 2010.

The Big 4

Severance Tax (production tax) is a percentage of the value of production of oil at the wellhead (12.25% for the first five years of production and 15% thereafter). The percentage falls for less productive fields according to a formula known as the Economic Limit Factor (ELF).

Royalties are the payment to the state by the oil companies for the right to produce the oil on state land. Most currently producing leases pay a fixed 12.5% royalty based on the wellhead value. A portion of the royalties (about 25%) is paid directly into the Permanent Fund, bypassing the General Fund.

Corporate Income Tax on Petroleum is based on the Alaska share of the worldwide profits of the oil companies operating in the state. The Alaska share of worldwide profits is determined by a 3-factor formula including sales, production, and capital investment. The marginal tax rate is 9.4%.

Petroleum Property Tax (ad valorem tax) is 20 mills (2%) of the replacement cost of all the oil and gas production, transportation, and processing facilities in the state. Most of the total amount collected is passed through directly to local governments that have oil and gas facilities within their boundaries and is not reported as revenue to the state.

The Others

A small amount of revenue comes from the conservation tax levied at 4 mills ($.004) per barrel, from bonuses when the state leases land, from rents on leases, and sharing of federal royalties from production on federal land within the state.

General Fund Petroleum Revenues Anticipated for FY 2002 (billion $)

Total Anticipated July 2001
$ 1.596
Total Anticipated Spring 2001
$ 1.421
--Severance Tax
$ .516
--Royalties
$ .648
--Income Tax
$ .200
--Property Tax
$ .043
--Other
$. 014
Source: Alaska Department of Revenue, Revenue Sources, Spring 2001.

A small portion of oil and gas revenues does not go into the General Fund. About 25% of royalties go into the Permanent Fund. Revenues from the settlement of prior year disputes over taxes and royalties go into the Constitutional Budget Reserve. The production tax surcharge for hazardous spill ($.05 per barrel) goes into the Hazardous Release Fund.

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Page updated January 7, 2003

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