04/07/2026
Analysis: The “Novel” Tax Democrat Senators Packed into AK LNG Bill Burdens Small Businesses, Chills Investment
By Natalie Spaulding
One of the major issues driving debate on HB 381— the Alaska LNG gasline bill— is the Senate’s obsession with passing a tax on “pass-through” entities. Although legislators have frequently referred to this tax as “closing the S-corp loophole,” the current iteration of the tax would apply to any “pass-through entity,” which would include sole proprietorships, partnerships, and LLCs that earn oil and gas-related income in Alaska. The bill would effectively institute a new State income tax on primarily small businesses in the oil and gas industry.
The structure of an S-corp is not a “loophole,” but a way for small businesses to avoid double taxation. A corporation may only be taxed as an S-corp if there are fewer than 100 shareholders, making the structure best for small to medium, local businesses. Rather than pay a corporate income tax, the tax “passes through” to the shareholders, who pay federal income tax on profits when they file their individual taxes. Because Alaska does not impose a State income tax on individuals, shareholders who make profits under an S-corp structure do not pay taxes to the state. This is not a loophole; this is a well-established business structure that strengthens and encourages small to medium businesses.
However, Democrat legislators have been working overtime to dismantle the S-corp structure that protects small-to-medium Alaskan businesses and instead force a particular sector of those businesses to pay an arbitrary State income tax.
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