Jon Iversen: Alaska Supreme Court Overturns Tax Credit Bond Program

Stoel Rives tax partner Jon Iversen contributed an article to State Tax Notes titled “Alaska Supreme Court Overturns Tax Credit Bond Program” (PDF), published November 9, 2020. In previous columns, Iversen has discussed H.B. 331, which was passed by the Alaska State Legislature to remedy the state’s failure to pay off outstanding rebatable oil and gas production tax credits. However, the Bill faced numerous lawsuits, culminating in a Sept. 2020 Alaska Supreme Court ruling that the financing structure created by the Bill violates the Alaska Constitution.

H.B. 331 established the Alaska Tax Credit Bond Corp. as a public corporation to finance the purchase of tax credits designated in certain sections of the Alaska Statutes, including all rebatable oil and gas production tax credit certificates for specific credits. Provisions included in the bill were meant to address possible attacks on its constitutionality regarding violations of the statutory requirement to not dedicate future revenue for a specific purpose or the limitations on contracting for state debt.

A lawsuit challenged the bill on those two bases, and a judge of the Juneau Superior Court dismissed the complaint based on a failure to state a claim on which relief can be granted. On appeal to the Alaska Supreme Court, the court made its ruling that the Bill is unconstitutional — in part because it contracts state debt in violation of Alaska Constitution Article IX, section 8.22, and because it did not meet one of the limited exceptions in section 11 to the prohibition against the state contracting for debt.

Iversen concludes: “Now that the tax credit bond program contemplated by the Bill is no longer an option for holders of outstanding tax credits, these companies are left to play a waiting game, hoping for a meaningful appropriation to the oil and gas tax credit fund in the upcoming legislative session. Transferring credits to producers for use against production tax liability is also an option, although the market is limited in light of oil prices. Other options are being considered, although some will require legislative action, and it is unclear what will get traction.

“The next installment will include updates concerning potential options for holders of tax credits, the Fair Share Act initiative, and the upcoming legislative session that starts in mid-January. As usual, Alaska taxpayers are going to have a lot to think about.”