Out of Control Policy Blog

A Taxing Lawsuit

This seems too cute by half.

The state of Alaska is preparing a lawsuit against BP to recover taxes that would have been collected if the company hadn't experienced a production shutdown.

As this article explains, in 2006, BP was forced to shut down part of its production facility at Prudoe Bay, when corrosive pipes led to a 200,000 gallon oil spill. The company was fined $20 million for the spill and spent several months repairing the ipeline. The repairs caused production to be several million gallons less than it otherwise would have been.

The state argues that their failure to maintain the pipeline caused the state to lose 'hundreds of millions" in tax revenue it would have received if production hadn't been interrupted.

Yes, you can read that sentence again. Remember, this isn't about paying taxes on the oil that was spilled. It is about paying taxes on oil that is still in the ground.

So, if a company has a bad quarter, are they liable to pay taxes of earnings they would have generated if they hadn't made a misstep. Does the "failure" to execute a good marketing campaign make a company liable for lost earnings? Does Toshiba owe taxes on the HD-DVD players it would have sold if it hadn't lost the format wars?

Bonus chilling quote

Explaining why the legislature provided an initial $4 million to build the legal case, Rep. Bill Stoltze (R) said:

"We have a pretty good track record when we supply money to the Department of Law for litigation. The state doesn't lose a lot of cases."

Indeed.

Michael Flynn is Director of Government Affairs


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