Response to Questions About the Windfall Profit Tax on Alaskan North Slope Crude Oil

Pursuant to a congressional request, GAO answered questions concerning the amount of windfall profit tax collections on Alaskan North Slope oil and the methods used to determine oil producers' tax liabilities.

GAO found that, since North Slope oil is transported long distances by integrated oil companies for processing in their refineries, the removal price is the basis for calculating the windfall profit tax. The windfall tax for calendar year 1982 totalled $1.04 billion. Usually, the removal price for domestic oil is equivalent to the sales price. Producers deduct overland and waterborne costs from the market value of their oil to determine its cost. Producers also deduct pipeline losses and tariff costs from the market value. For windfall profit tax purposes, most North Slope producers are using net-back methods to establish the oil's removal price. Although the Internal Revenue Service (IRS) has issued revenue rulings to ensure consistency among net-back practices, the rulings do not address all the differences that exist. IRS plans to develop and issue in early 1985 further guidance to producers on removal price determinations.