AK Statute 43.55.023
The Core Meaning
Alaska Statute 43.55.023 provides a transferable tax credit for qualified oil and gas exploration expenditures to incentivize development in under-explored regions, specifically contrasting the Cook Inlet against the North Slope.
This section analyzes the legislative intent and functional mechanics of the statute. Unlike standard deductions, AS 43.55.023 functions as a direct offset against the Production Tax liability, and in certain historical contexts, provided cashable refunds from the state treasury (a mechanism that has seen significant legislative tightening).
🎯 The Objective
To mitigate the high barrier to entry for exploration in Alaska's frontier basins. The statute acknowledges that logistical costs in Alaska are significantly higher than the Lower 48.
📍 The Scope
Applies to "Qualified Capital Expenditures" (QCE). It creates a distinction between "Middle Earth" (Cook Inlet) and the North Slope, offering different incentives based on the maturity of the basin.
Guidance & Revenue Rulings
Directives from the Alaska Department of Revenue (DOR) on applying the law.
According to the DOR Oil and Gas Audit Division, a QCE must meet three strict criteria:
- Incurred for exploration, development, or production of oil or gas.
- Located within the state of Alaska (geographically ring-fenced).
- Must be a direct cost (overhead and indirect administrative costs are frequently disallowed during audits).
Credits under 43.55.023 interact with the lease expenditures. If a well is drilled across a lease boundary, the expenditure must be allocated based on the bottom-hole location or a predetermined unit agreement. The DOR emphasizes that Seismic Data credits have different transferability rules compared to tangible well credits.
Companies with no tax liability can sell their AS 43.55.023 credits to other producers. The state maintains a Tax Credit Certificate registry. However, recent legislative changes (HB 111, SB 21) have shifted the focus to "per-barrel" credits, making the 023 credits a legacy instrument for many new developments, though valid for carry-forward.
The Claim Cycle
Incur Cost
Expenditure made within tax year.
File Return
Submit Form 600 series to DOR.
Audit
DOR verifies QCE eligibility.
Certificate
Credit issued for use or sale.
Interactive Example: The Calculation
Simulate a credit calculation based on the region and activity type. This demonstrates how the law applies to a fictitious entity, "Aurora Exploration Inc."
Input Parameters
Estimated Tax Credit
Regulatory Note:
Seismic data in Cook Inlet often attracts higher incentives to encourage new basin modeling.
Fiscal Impact & Trends
Analysis of credit claims and expenditure types over the last fiscal cycle.
Expenditure Breakdown
Breakdown of QCE by activity type (Simulated Aggregate Data).
Historical Credit Utilization
Trend of credits claimed vs. credits redeemed ($ Millions).
Alaska Statute 43.55.023: Historical Capital Expenditure Credit and Management of Vested Tax Assets
Alaska Statute 43.55.023 authorized tax credits for specific qualified capital expenditures (QCE) incurred by oil and gas producers and explorers. While often conceptually linked to R&D incentives, this statute provided a 10% credit used exclusively to offset liability under the Alaska Oil and Gas Production Tax (AS 43.55.011(e)).1
This statute, encompassing incentives for certain exploration and development expenditures, has largely sunsetted, with key generating subsections repealed or expired.3 However, AS 43.55.023 remains highly relevant today as the defining legal framework for the utilization, application, and administrative management of billions of dollars in vested, carried-forward credit balances earned by producers prior to the applicable repeal and expiration dates.1 The operational focus has shifted from generating new credits to ensuring compliant monetization of these legacy tax assets against current or future Oil and Gas Production Tax liabilities.2 This report examines the specific mechanics of the statute, distinguishes it from the general Alaska R&D credit, and details the rigorous administrative compliance mandated by the Alaska Department of Revenue (DOR).
II. The Statutory Framework: AS 43.55.023 and the Production Tax Regime
A. Historical Context: AS 43.55.023 within the ACES System
Alaska Statute 43.55.023 was a central component of the state’s fiscal structure governing the oil and gas industry, specifically under the Alaska’s Clear and Equitable Share (ACES) production tax regime, which was implemented in 2007.4 The statute allowed a producer or explorer to take a tax credit for a Qualified Capital Expenditure (QCE).1
Credit Rate and Application
The credit was calculated as 10 percent of the qualified capital expenditure (QCE).1 This credit was applied against the Oil and Gas Production Tax levied by AS 43.55.011(e).1
A critical feature of AS 43.55.023(a)(1) was the explicit provision that permitted a producer or explorer to take the 10% credit notwithstanding that the qualified capital expenditure might also be claimed as a deductible lease expenditure for purposes of calculating the production tax value of oil and gas under AS 43.55.160(a).1 This provision allowed for a simultaneous reduction of the taxable base through deduction and a reduction of the final tax liability through the credit—a powerful stacked financial benefit intended to encourage investment by countering the substantial operational costs and high risks of large-scale Alaskan development. This stacked benefit was permitted only if the expenditure was not claimed under the alternative exploration credits found in former AS 43.20.043 or AS 43.55.025.1
B. Defining Qualified Capital Expenditures (QCE) and Limitations
The utilization of the credit under AS 43.55.023 was constrained by both the nature of the expenditure and strict temporal and geographic limitations.
Exploration Data Submission Mandate
For QCEs related to geological or geophysical (G&G) exploration or the drilling of an exploration well, the ability to take the credit was conditional upon fulfilling a public resource objective.1 The producer or explorer was required to satisfy two mandates: (1) agree, in writing, to the applicable provisions of AS 43.55.025(f)(2); and (2) submit to the Department of Natural Resources (DNR) all data that would be required under that section.1 This mandated data sharing ensured the state acquired valuable subsurface technical information in exchange for the provided tax relief, establishing a rigorous requirement for project-specific documentation that remains relevant during audits of legacy credits.
Geographic and Temporal Restrictions (Sunset Clauses)
The statute included strict geographic and temporal restrictions, which reflect targeted state policy decisions regarding regional development priorities:
- North Slope: Credits for QCEs north of 68 degrees North latitude could only be taken if the expenditure was incurred before January 1, 2014.1
- Cook Inlet: Credits for QCEs in the Cook Inlet sedimentary basin could only be taken if the expenditure was incurred before January 1, 2018.1
The earlier sunset for the North Slope credit compared to the Cook Inlet credit reflects a differentiated policy approach. The earlier expiration date for the North Slope, a mature basin, suggests a legislative focus on maximizing the immediate realization of large capital investments made there. Conversely, the longer window provided for the Cook Inlet basin demonstrates a targeted effort to sustain investment in that specific, smaller basin over a longer period, recognizing the need for continuous encouragement due to differing economic readiness and logistical challenges compared to the major North Slope infrastructure.
C. The Repeal and Current Status: Focus on Legacy Credits
The framework of AS 43.55.023 has been substantially curtailed by subsequent legislative action. Key credit-generating provisions, including subsections (a) and (l), were repealed, applying to expenditures incurred on or after July 1, 2017.3 Subsection (b) was also repealed effective January 1, 2018.2
Consequently, the statute’s primary function has shifted from stimulating new investment to regulating the administrative and financial management of existing, vested credit balances. The remaining operative clauses, notably subsection (c), dictate the strict rules for how these legacy assets must be utilized, applied, and carried forward against current or prior-year production tax liabilities.1
Table 1: AS 43.55.023 Sunset Dates and Current Relevance
| Target Area | QCE Must Be Incurred Before | Statutory Source | Current Implication |
| North Slope (N of 68°) | January 1, 2014 | AS 43.55.023(a)(3)(A) 2 | Focus entirely on utilization and carryforward of vested credits. |
| Cook Inlet Basin | January 1, 2018 | AS 43.55.023(a)(3)(B) 2 | Focus entirely on utilization and carryforward of vested credits. |
| General QCEs | July 1, 2017 (Effective Repeal) | SLA 2017, Ch. 3 SSSLA 3 | No new credits earned under key subsections after this date. |
III. Contextual Analysis: Distinguishing AS 43.55.023 from Alaska’s General R&D Tax Credit
It is essential to distinguish between the oil and gas capital expenditure credit (AS 43.55.023) and the general Alaska R&D tax credit, as they operate under separate statutory regimes and address different tax liabilities.
A. The General Alaska R&D Tax Credit (Federal-Based)
The general Alaska R&D tax credit is a broader state incentive designed to encourage innovation across all sectors, basing its eligibility and calculation on the federal structure.6 Eligibility is contingent upon qualifying for the federal R&D tax credit (IRC § 41 QREs).6 The state credit is calculated as 18% of the allowed federal R&D tax credit.6
For claiming this incentive, the company must file Alaska Form 6390 – Alaska Federal-based Credits.7 This credit is typically used to offset the Corporate Income Tax (CIT) liability, and sometimes the Alaska Alternative Minimum Tax (AMT).7 Furthermore, while the taxpayer must operate in Alaska, the qualified research activities themselves need only be conducted within the United States, not necessarily within Alaska.7
B. The Critical Non-Duplication Rule and Credit Exclusivity
The two credits target distinct taxes: AS 43.55.023 offsets the Production Tax, while the general R&D credit offsets the Corporate Income Tax. This separation highlights the legislative intent to keep the oil and gas fiscal regime distinct from general corporate tax policy.
Most importantly, the statute enforces exclusivity among the oil and gas incentives. A producer claiming the QCE credit under AS 43.55.023 must legally certify that the expenditure is not also being claimed under the alternative exploration credit defined under AS 43.55.025.1 This mandate forces the producer to make an economic decision, selecting the most advantageous tax benefit pathway for specific capital expenditures.
The administrative code provides a mechanism to manage the inherent regulatory risk in this choice. Regulation 15 AAC 55.345(c) permits a producer who applies for the often higher-value AS 43.55.025 alternative credit to simultaneously file a contingent claim for the QCE tax credit under AS 43.55.023(a).9 By allowing this conditional filing, the DOR ensures that if the expenditure is later disqualified from the alternative credit program due to technical or timing deficiencies, the producer has preserved the right to claim the 10% credit under AS 43.55.023, preventing the complete loss of the tax asset.
Table 2: Distinction Between Key Alaska Tax Incentives
| Feature | AS 43.55.023 (Capital Expenditure Credit) | Alaska General R&D Tax Credit |
| Underlying Statute | AS 43.55 (Oil and Gas Production Tax) 1 | Based on federal IRC § 41 6 |
| Calculation Basis | 10% of qualified capital expenditure (QCE) 1 | 18% of the federal R&D tax credit generated 6 |
| Target Sector | Oil and Gas Producers/Explorers (Targeted Sector) | All businesses conducting qualified research (General Industry) 6 |
| Tax Liability Offset | Production Tax (AS 43.55.011(e)) 2 | Corporate Income Tax (CIT); potentially AMT 7 |
| Filing Form | Included in AS 43.55.030 statement 9 | Alaska Form 6390 (Alaska Federal-based Credits) 7 |
IV. State Revenue Office Guidance: Compliance under 15 AAC 55.345
The utilization of tax credits under AS 43.55.023 is strictly governed by the detailed regulations of the Alaska Department of Revenue (DOR), primarily articulated in 15 AAC 55.345. This section outlines the authoritative guidance on implementation and necessary substantiation.
A. Administrative Claim Procedures and Deadlines
To apply a credit under AS 43.55.023, the producer must file a claim as part of the statement described in AS 43.55.030(a) no later than March 31 of the year following the calendar year for which the tax was levied.9
The DOR requires extensive, granular detail to substantiate the claim.9 This required level of financial and technical transparency demands rigorous internal compliance and accounting systems. Required information includes:
- A detailed accounting of the expenditures, summarized by type, and specifying the month and calendar year incurred.9
- Identification of the property, lease, or land where the activities occurred, along with the identification of the operator if the producer is not the operator.9
- A list of any partners or entities sharing costs, detailing their respective shares in the venture.9
- The applicant’s most recent audited financial statements, including the auditor’s opinion and notes related to any contingent liabilities.9
- For exploration-related work, documentation demonstrating written agreements and submission of all required data to the Department of Natural Resources (DNR).5
- Disclosure of any unresolved notices of violations, liens, or notices of assessment related to oil or gas activity in the state.9
B. Mandatory Producer Certification and Data Retention
A key part of the compliance process is the mandatory certification outlined in 15 AAC 55.345(a)(6). For a claim under AS 43.55.023(a), the producer must certify that the tax credit has not been and is not being taken for the same expenditure under either the lease expenditure credit (AS 43.55.023(l)) or the alternative exploration tax credit (AS 43.55.025).9 This certification legally locks in the tax treatment election.
The regulations impose a substantial requirement for perpetual record retention. Producers must retain and make available to the DOR upon request all financial and technical source records supporting the credit.9 For credits related to exploration work, this specifically includes specialized documentation such as drill rig logs, daily drilling logs, and activity logs.9 The demand for this level of detail years after the expenditure was incurred elevates the cost of compliance, functioning as an administrative barrier that ensures only sophisticated, large-scale professional operators can successfully sustain and realize the value of these long-term credit assets through the audit process.
Table 3: Alaska DOR Filing Requirements for AS 43.55.023 Credits (15 AAC 55.345)
| Requirement/Action | Deadline/Condition | Key Documentation | Source |
| File Credit Claim | No later than March 31 of the following year | Statement described in AS 43.55.030(a) 9 | 15 AAC 55.345(a) 9 |
| Mandatory Certification | Must accompany claim | Certification of non-duplication (AS 43.55.023(l) or AS 43.55.025) 9 | 15 AAC 55.345(a)(6) 9 |
| Technical Compliance | Prior to credit usage | Written agreements and data submission to DNR 5 | 15 AAC 55.345(a)(5) 9 |
| Supporting Records | Retained for audit | Financial records, audited statements, technical source records (e.g., drill logs) | 15 AAC 55.345(b) 9 |
| Contingent Claim | If alternative credit (AS 43.55.025) applied for | Conditional filing protecting AS 43.55.023 right 9 | 15 AAC 55.345(c) 9 |
V. Credit Utilization and Strategic Financial Management
A. Application and Carryforward Rules
The Zero-Limit Rule
The most significant constraint on the credit’s application is the zero-limit rule: AS 43.55.023(c)(1) states that the credit may not be used to reduce a person’s tax liability under AS 43.55.011(e) for any calendar year below zero.1 This prevents the credit from automatically generating a current-year refund through offset alone.
Indefinite Carryforward and Retroactive Use
Unused portions of the credit are not forfeited; AS 43.55.023(c)(2) allows them to be carried forward and applied in a later calendar year.1 Since the statute does not impose a temporal limit on this carryforward, these credits operate as non-expiring deferred tax assets. This feature is crucial for managing the lengthy development cycles inherent in the oil and gas industry, where substantial capital expenditures are incurred years before meaningful taxable income is generated.10 The indefinite carryforward stabilizes the project’s financial modeling by guaranteeing future tax relief once production commences.
Furthermore, the credit possesses a valuable retroactive application power. It may be used, regardless of when it was earned, to satisfy prior-year tax, interest, penalty, fee, or other related charges stemming from the Production Tax chapter.1 This is a key provision during audits, allowing producers to mitigate prior-period liabilities using existing credit balances.
B. Transferability and Liquidity (AS 43.55.028)
Historically, liquidity was provided through transferability and the potential for a state-backed purchase. A person entitled to the credit could apply to the DOR for a transferable tax credit certificate (AS 43.55.023(d)).2 Once certified, this asset could be traded, allowing companies without production liability (e.g., pure explorers) to sell the credit to companies with significant tax obligations.10
The state established the Oil and Gas Tax Credit Fund (AS 43.55.028) to purchase these certificates, providing a crucial cash-out option, especially beneficial for independent companies seeking to finance ongoing operations.11 However, the program’s utility was significantly curtailed by subsequent legislation. AS 43.55.028 now explicitly states that the fund may not be used to purchase a tax credit certificate for a credit earned under this chapter for activity occurring on or after July 1, 2017.3 This cutoff date effectively eliminated the state-guaranteed cash liquidity option for credits generated by new QCEs, dramatically reducing the fungibility and immediate capital-raising potential associated with post-2017 exploration expenditures.
VI. Practical Example: Utilizing a Vested Cook Inlet QCE Credit
This detailed scenario illustrates the mechanics of calculation, application, and carryforward accounting for a vested credit asset.
A. Scenario Details and Initial Calculation
Entity Profile: Cook Inlet Frontier Corp (CIFC).
Qualified Capital Expenditure (QCE): In 2017, CIFC incurred $60,000,000 in QCEs for exploration and drilling in the Cook Inlet Basin, satisfying the requirement that the expenditure be incurred before the January 1, 2018, sunset date.2 CIFC completed all DNR data submission requirements.5
Initial Vested Credit (AS 43.55.023(a)(1)):
The credit rate is 10% of the QCE:
$$60,000,000 \times 0.10 = \$6,000,000 \text{ Total Vested QCE Credit}$$
Prior Utilization: Assume CIFC has utilized $500,000 of the vested credit in previous years.
Current Carryforward Balance (as of Jan 1, 2024):
$$\$6,000,000 – \$500,000 = \$5,500,000 \text{ Remaining Carryforward Balance}$$
B. Utilization in Current Tax Year (2024)
CIFC achieves commercial production in 2024, generating a significant tax liability.
2024 Production Tax Liability (AS 43.55.011(e)): $3,150,000 (gross liability).
Application of Credit: CIFC applies the vested credit balance to offset the 2024 liability. The utilization is limited by the amount of the tax due (the zero-limit rule).1
- Credit Applied in 2024: $3,150,000
- Final 2024 Tax Liability: $\$3,150,000 \text{ (Tax Due)} – \$3,150,000 \text{ (Credit Applied)} = \$0$
C. Carryforward Accounting and Compliance
2024 Remaining Carryforward Balance (AS 43.55.023(c)(2)):
$$\$5,500,000 \text{ (Initial Balance)} – \$3,150,000 \text{ (Used in 2024)} = \$2,350,000 \text{ Remaining Carryforward Credit}$$
Audit Implications: The realization of the remaining $2.35 million is contingent upon future production tax liability and, crucially, the long-term integrity of the audit defense. To utilize the credit, CIFC must have satisfied all 2018 filing requirements, including the mandatory certification under 15 AAC 55.345 that the original $60 million expenditure was not claimed under the alternative credit AS 43.55.025.9 Furthermore, CIFC must retain and be ready to produce the seven-year-old technical source records (G&G data and drilling logs) to support the original QCE claim if audited by the DOR.9 The continued existence of the indefinite carryforward means that the valuation of this tax asset is inseparable from the company’s internal document retention and audit preparedness systems.
VII. Conclusion: Strategic Management of Legacy Credit Assets
AS 43.55.023 stands as a significant statutory framework for managing valuable tax assets in the Alaskan oil and gas industry. Although the capacity to generate new credits under this statute has largely expired, the utilization of vested credit balances remains a core financial concern for producers.
The path to monetization of these legacy assets requires meticulous adherence to the administrative procedures of 15 AAC 55.345, focusing intensely on document retention, timely filing, and strict compliance with the non-duplication certification requirement. The indefinite carryforward feature provides critical long-term stability for project economics, transforming the credits into valuable deferred tax assets that can be applied to offset Production Tax liabilities (including associated penalties and interest) in future years.
However, the liquidity of these assets has been severely constrained by the 2017 legislative cutoff, which eliminated the state-guaranteed cash-out option for subsequent activity. Strategic financial modeling must, therefore, conservatively estimate the timeline for internal generation of sufficient production tax liability, recognizing that the long-term realization of these credit assets is perpetually dependent on maintaining a robust audit trail of technical and financial records related to expenditures dating back years or even decades. The management of AS 43.55.023 credits is thus a specialized function that requires expert navigation of complex regulatory and historical data requirements.
Are you eligible?
Why choose us?
Pass an Audit?
What is the R&D Tax Credit?
The Research & Experimentation Tax Credit (or R&D Tax Credit), is a general business tax credit under Internal Revenue Code section 41 for companies that incur research and development (R&D) costs in the United States. The credits are a tax incentive for performing qualified research in the United States, resulting in a credit to a tax return. For the first three years of R&D claims, 6% of the total qualified research expenses (QRE) form the gross credit. In the 4th year of claims and beyond, a base amount is calculated, and an adjusted expense line is multiplied times 14%. Click here to learn more.
Never miss a deadline again
Stay up to date on IRS processes
Discover R&D in your industry
R&D Tax Credit Preparation Services
Swanson Reed is one of the only companies in the United States to exclusively focus on R&D tax credit preparation. Swanson Reed provides state and federal R&D tax credit preparation and audit services to all 50 states.
If you have any questions or need further assistance, please call or email our CEO, Damian Smyth on (800) 986-4725.
Feel free to book a quick teleconference with one of our national R&D tax credit specialists at a time that is convenient for you.
R&D Tax Credit Audit Advisory Services
creditARMOR is a sophisticated R&D tax credit insurance and AI-driven risk management platform. It mitigates audit exposure by covering defense expenses, including CPA, tax attorney, and specialist consultant fees—delivering robust, compliant support for R&D credit claims. Click here for more information about R&D tax credit management and implementation.
Our Fees
Swanson Reed offers R&D tax credit preparation and audit services at our hourly rates of between $195 – $395 per hour. We are also able offer fixed fees and success fees in special circumstances. Learn more at https://www.swansonreed.com/about-us/research-tax-credit-consulting/our-fees/
Choose your state
