Alaska Senate has a new move against the gasline: S corp tax with a carve out for some, not others

By SUZANNE DOWNING

July 14, 2026 – As behind-the-scenes negotiations continue over House Bill 381, the legislation designed to improve the financial outlook for the proposed Alaska LNG Project, a new proposal from the Senate Majority Coalition is raising questions about the seriousness of the Senate Majority’s tax obsession.

According to multiple sources familiar with the negotiations, Anchorage Democrat Sen. Bill Wielechowski is working on language that would exempt companies engaged in Cook Inlet natural gas production from the Senate’s proposed expansion of Alaska’s corporate income tax to S corporations and other pass-through entities. The reported exemption would also extend to Glenfarne, the private developer leading the Alaska LNG Project.

The proposal has not been publicly released, and lawmakers have not formally adopted it. But even the reported framework has prompted debate over what it says about Alaska’s investment climate.

The apparent rationale behind exempting Cook Inlet producers is straightforward: Southcentral Alaska is facing declining natural gas supplies, and lawmakers do not want to discourage drilling or investment needed to avert future shortages and higher energy costs.

Ironically, the proposed carve-out amounts to an acknowledgment that tax policy influences investment decisions. Lawmakers appear to recognize that imposing a new pass-through entity tax could discourage the private investment needed to sustain Cook Inlet gas production. Hilcorp alone has testified it is investing approximately $400–$500 million this year in Cook Inlet drilling, maintenance, and development—one of the busiest construction and drilling seasons in years. The company is increasing its annual well count from roughly 20 wells to more than 25 this year while delivering additional natural gas volumes to Enstar beyond existing contract commitments. Those investments are the result of continual reinvestment decisions, not mandates from the state. If lawmakers believe a new tax would jeopardize those investments in Cook Inlet, it becomes difficult to explain why the same tax would not influence investment decisions on the North Slope.

The proposed carve-out also overlooks a fundamental reality of the Alaska LNG Project. Every molecule of gas expected to enter the pipeline would come from fields operated by Hilcorp. Although Hilcorp owns only minority interests in Prudhoe Bay and Point Thomson, it is the operator responsible for developing those fields and determining the drilling and capital investment programs that sustain and grow production. Those decisions are driven by economics. Increasing the cost of investing in those operations through a new pass-through entity tax directly affects the economics of the upstream gas supply the Alaska LNG Project depends on. It also could increase the cost of supplying gas to the project itself, altering the very economics HB 381 is intended to improve.

That immediately raises another question: If lawmakers believe imposing a new tax on pass-through entities would discourage natural gas investment in Cook Inlet, why would the same tax not discourage oil exploration and development on the North Slope?

The proposal, as described by The Alaska Story sources, would continue applying the tax to pass-through companies operating on the North Slope, including major investors such as Hilcorp, Armstrong Energy, and HEX, the company that partnered with the Alaska Industrial Development and Export Authority to acquire leases in the Arctic National Wildlife Refuge lease program.

Those companies represent a different class of investor than traditional publicly traded C corporations.

For decades, Alaska has relied on privately held companies willing to assume substantial exploration risk, lengthy permitting timelines, regulatory uncertainty, commodity price swings, and political opposition in exchange for the possibility of future production.

That willingness to accept extraordinary risk has become increasingly important as larger publicly traded companies have reduced their appetite for frontier exploration.

The distinction may be especially significant in ANWR, where developing oil resources will require companies willing to invest hundreds of millions, potentially billions of dollars while navigating years of litigation, permitting challenges, and organized opposition from national environmental groups.

Those are precisely the kinds of risks privately held companies have historically been willing to undertake.

Hilcorp has provided another example outside the oil fields. That company has remained a major sponsor of the Iditarod despite repeated national campaigns by animal-rights organizations, including PETA, criticizing both the race and its corporate sponsors. Hilcorp has continued its support despite the predictable reputational pressure that accompanies involvement in high-profile Alaska institutions. Other major companies pulled support after PETA’s ongoing threats.

The same willingness to tolerate political and public-relations risk often distinguishes companies willing to invest in difficult resource projects. Tax policy influences where investment capital flows.

If Alaska creates a tax structure that makes pass-through entities less competitive than traditional C corporations, it risks discouraging one category of investor that has historically been willing to finance some of Alaska’s most challenging energy projects.

Even the reported Cook Inlet exemption may prove largely illusory. Companies such as Hilcorp operate as unitary businesses, meaning Alaska taxes are based on enterprise-wide accounting and apportionment principles rather than simply isolating one revenue stream from another. It is difficult to understand how lawmakers intend to tax the same legal entity while exempting selected portions of its business. How would Alaska treat Hilcorp’s Lower 48 operations? How would apportionment be calculated? Tax practitioners have already questioned whether the proposal is compatible with long-established principles of unitary business taxation and the Multistate Tax Compact. Rather than creating parity, the proposal could produce exactly the opposite result by taxing companies on a broader share of their business while denying them the apportionment protections generally afforded under existing law.

The reported Cook Inlet exemption also raises potential legal questions. Because Hilcorp is the dominant producer on the North Slope while also maintaining major Cook Inlet operations, exempting one region while taxing another could invite scrutiny over whether the legislation effectively targets a narrow group of companies rather than establishing a generally applicable tax policy.

If there was ever any doubt that this proposal was designed to target a single company, carving virtually everyone else out of the bill removes much of that doubt. Rather than broadening the tax base, the proposal increasingly resembles a tax aimed primarily at Hilcorp and its owner. That distinction is likely to become central in any constitutional challenge alleging unequal treatment or arbitrary classifications under Alaska law.

Such distinctions could become the subject of litigation if enacted, particularly if affected companies argue the law creates arbitrary classifications or unfairly singles out certain businesses. Whether such a challenge would ultimately succeed would depend on the final language of any bill and subsequent court review.

The prospect of litigation could also significant impact the gasline project itself. Investors considering multi-billion-dollar infrastructure projects value fiscal stability and certainty. If the company responsible for operating every producing field that will supply gas to the Alaska LNG Project is simultaneously forced into years of litigation challenging the project’s enabling legislation because of a targeted tax, it creates exactly the type of uncertainty that discourages investment. The irony would be difficult to ignore: legislation intended to improve the economics of the gasline could instead delay investment by embroiling one of its essential upstream partners in years of legal uncertainty.

The broader irony is in plain view: The purpose of HB 381 is to encourage private investment by improving the economics of the Alaska LNG Project and demonstrating that Alaska welcomes the billions of dollars in private capital necessary to build one of North America’s largest energy infrastructure projects. Attaching a new tax on one class of energy investors sends the opposite signal.

Rather than advancing a clean investment measure, the Senate Majority Coalition continues to insist on attaching an unrelated tax proposal that delays final passage while potentially discouraging future private investment in Alaska’s energy sector.

Supporters of the reported exemption may view it as a practical effort to protect Cook Inlet gas production during an emerging energy shortage.

Critics counter that if lawmakers acknowledge the tax would discourage investment in one producing basin, it becomes increasingly difficult to explain why identical investment decisions on the North Slope would not be affected in the same way.

As the special session enters its final days, and adjournment required on July 19, the debate has grown beyond a single tax proposal.

At issue is whether Alaska intends to compete aggressively for every source of private capital willing to invest in high-risk resource development, or whether it will narrow that pool by imposing additional taxes on one category of investors while exempting others.

The practical question is no longer whether Alaska should encourage investment in Cook Inlet while discouraging it elsewhere. The question is whether Alaska can realistically expect investors to commit tens of billions of dollars to the Alaska LNG Project while simultaneously increasing taxes on the very company responsible for operating every field that will supply the project’s gas. That contradiction lies at the heart of the debate surrounding HB 381.