Tuesday, December 10, 2013

REPOST: Oil severance tax advocates are primed for battle

San Francisco launches an effort to get companies to pay for crude produced in California. Read more in this LosAngelesTimes article.

 Oil wells
Image Source: latimes.com

SACRAMENTO — California is the only major oil-producing state that does not tax the goo as it's pumped from the ground. And that seems bizarre.

After all, aren't we a high-tax state? That's what the antitax crowd keeps reminding us. And it's true for most taxes. California has the highest personal income and sales taxes. We're near the top on corporation and fuel taxes. Roughly in the middle on property and tobacco. Second lowest on wine.

Overall, we're ranked fourth in combined state and local tax burden, according to the nonpartisan Tax Foundation.

But on oil? Texas and Alaska — bastions of conservatism — both tax production. And we essentially don't.

Well, it's not quite that simple.

California doesn't have a specific tax on oil severance — or extraction or depletion, choose your word. But there are other levies oil companies do pay: corporation, sales and property (underground reserves). Also fees, to fund state regulation.

Their property taxes are limited by Proposition 13, although protecting oil reserves from the county assessor is probably not what voters had in mind when they approved the landmark measure back in 1978. Most property taxes on underground oil are collected by Kern County, the state's biggest oil patch.

All these taxes total around $6 billion annually, says Tupper Hull, spokesman for the Western States Petroleum Assn.

But those pushing for an oil severance tax cite legislative research showing that all levies combined add up to $4.22 per barrel in California. In Texas, they're nearly triple that at $14.33. A 10% severance tax would elevate oil company levies in California to Texas' level.

"We are an extreme outlier giving a huge tax break to some of the richest companies in the world," says Tom Steyer, a San Francisco hedge-fund billionaire who launched a crusade last week to collect more oil taxes. "It's a giant tax loophole for incredibly rich corporations."

In California, those companies are primarily Chevron, Occidental, ExxonMobil and Shell. Steyer says that foursome earned nearly $20 billion in profits last quarter alone.

As for their taxes amounting to only $4.22 per barrel, industry spokesman Hull says: "We have no idea how those numbers were developed." He contends the actual figure is many times that.

But there's no argument about this: California doesn't tax oil extraction, and every other significant petroleum state does.

California is the fourth-largest oil producer behind Texas, Alaska and North Dakota.

The fact that oil companies have always gotten off relatively easy here is a tribute to their muscle in Sacramento.

The Legislature passed a 9.9% extraction tax in 2009, but then-Gov. Arnold Schwarzenegger squashed it.

Last spring, state Sen. Noreen Evans (D-Santa Rosa) introduced an extraction tax bill that's still buried in a committee. It would impose a 9.5% per-barrel tax, raising an estimated $1.5 billion annually, 90% of it for higher education and the rest for parks and a disaster fund.

Evans says she plans to turn her bill into a statewide ballot measure for next November. That would require a difficult two-thirds legislative vote.

"Oil is a natural resource owned by all California," she asserts. "By not taxing it, we're giving the oil industry a huge subsidy at the expense of educating our children."

Copyright © 2013, Los Angeles Times

But it being an election year, legislators will be particularly skittish about voting to raise a tax of any kind, even if they're punting the final decision to voters. And Gov. Jerry Brown has informed lawmakers he wants to avoid all controversy while seeking reelection. Placing an oil tax on the ballot, however, could boost Democratic voter turnout in an otherwise yawner election. Steyer's strategy team hopes to organize college students to lobby the Legislature for an oil tax, with much of the new revenue committed to reducing tuition.

And that grass-roots effort could turn out young voters in November if there's a ballot measure. That could help Democratic candidates but wouldn't guarantee passage of the extraction tax. Even if Steyer — a clean-energy advocate and previously successful initiative warrior — donated tens of millions to the campaign, as he surely would, the oil industry would ante up even more. It spent $95 million in 2006 to defeat a ballot measure that would have imposed a 6% severance tax.

The industry spiel is easy to predict: It'd argue that the tax would be passed onto motorists at the pump — even if that is improbable, according to a Rand Corp. study.

"Companies sell for whatever the world price is, for whatever they can get," Steyer says. "That argument is extremely thin gruel. Good grief."

But, says Hull, "any economist will tell you that when higher taxes are imposed on a commodity like oil, production will be shifted to lower tax places. Companies have choices about where to make investments in the global arena. And California could lose jobs."

If the companies want to tap into California's large oil reserves, however, they can't do it in North Dakota. An oil field can't be moved out of state like some assembly plant.

Resisting pressure from environmentalists, the Legislature and governor last year refused to place a moratorium on fracking — an aggressive and controversial oil drilling method — and decided to regulate it instead. That's when Democrats missed the boat. They should have demanded that the industry pay a severance tax on the newly fracked oil. And it probably would have accepted that deal.

Dr. Ali Ghalambor is the author of the “Well Productivity Handbook,” explains in detail the
various components of the oil industry. Follow this Twitter page for more updates.

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