Arco paid the state nearly $172.3 million Friday to settle most of the legal battle over the amount the oil company owes in state income taxes for 1978 through 1981, the state Revenue Department announced. Los Angeles-based Arco and the department resolved 14 major issues in the case, department spokesman Royce Weller said in a news release. The issues involve the amount of taxable income from the production of oil and natural gas from Prudhoe Bay and Cook Inlet, allowable tax deductions for exploration, development and operation of the oil and gas fields, and disagreement over the company's pipeline income, Weller said. Arco and the state agreed to pursue litigation of two remaining issues involving a potential tax liability of $57.3 million, Weller said. Those issues involve the amount of interest the company can deduct in computing taxable income as an owner of the TransAlaska Pipeline System, and a dispute over how federal entitlement regulations are to be applied under the state's oil and gas corporate income tax, Weller said. Arco's 1988 profits will not be affected by the settlement because the company's financial reserves are sufficient to cover the issues in dispute, the news release said. Gov. Steve Cowper was briefed on terms of the settlement and approved it, Weller said. William E. Wade Jr., president of Arco Alaska Inc., said the settlement avoided a costly and protracted legal fight. ``The agreement reached with the state of Alaska is a reasonable resolution of complex and difficult issues,'' Wade said. Alaska Attorney General Grace Berg Schaible said the state decided to pursue litigation on the other issues because they involve legal precedents that will affect the entire petroleum industry. ``To the extent the remaining litigation falls in the test-case category, this settlement today marks the end of a long tax dispute,'' she said. ``This settlement reflects a reasonble assessment of what we would have recovered and serves the best interests of the state.'' State Revenue Commissioner Hugh Malone termed the settlement ``just and fair.''
