I was really surprised when I learned that a House Committee had killed Gov. Riley’s original bill that would have doubled the state taxes paid by oil companies for natural gas wells along the Alabama coast. The House Government Appropriations Committee, with most of the Republicans on the committee joining Democrats, voted 11-4 against the bill. The powerful lobbyists for the oil companies were out in force against this bill and because of their influence were able to carry the day. This bill would have changed the state severance tax on natural gas wells along the coast from a value-based tax to a volume-based tax. It would have raised the amount oil companies pay annually from $40 million to $80 million. As expected, the strongest opposition came from none other than ExxonMobil. When you consider the sad shape the general fund budget is in at present and the fact that this giant oil company makes over $44 billion a year in profits, it makes me wonder how anybody could have voted against this bill.
Fortunately, the battle between Gov. Riley and ExxonMobil has now turned in the state’s favor. At least, it appears that is the case. The same legislative committee approved another version of the Governor’s bill on April 3rd and sent it to the full House for consideration. The committee’s reversal took place after the Riley Administration agreed to change the tax proposal from a permanent tax to a temporary tax surcharge. Revenue Commissioner Tim Russell says the legislation would ensure that oil companies pay the amount of taxes to the state that they agreed to pay when Alabama allowed drilling along its coast.
It should be noted that Gov. Riley and ExxonMobil are engaged in a legal dispute over what expenses the oil company could deduct before paying state taxes on the value of the natural gas it gets from wells along the Alabama coast. State revenue officials said that if ExxonMobil prevails – and an administrative law judge has already ruled against the state – the company would get $41 million in immediate refunds. Refunds for all companies covering all years could push the total refunds to as much as $200 million.
Unfortunately, the new bill, which the committee approved, keeps the current value-based tax. It reduces the tax rate from 10% to 8% and eliminates some expenses that oil companies deduct before paying the taxes. Legislative fiscal experts say it would produce the same $40 million annually the state now receives. But the bill also levies a temporary 6% tax on gross proceeds that would stay in place until the state collected enough money to cover all the refunds at stake in the current legal dispute with ExxonMobil. The legislation must win approval in the House and Senate and be signed by the Governor before taking effect. Thus far, the bill hasn’t made it on the special order calendar and that’s rather difficult to understand. It’s too important a matter for it to be put on the back-burner and die a slow, but painful death.
I believe that a volume-based tax would be the proper way to resolve this matter. The original bill would have effectively kept the oil companies from playing games with the deductions they take. For example, in the past ExxonMobil has deducted a company trip to a gambling casino in Mississippi as well as some other weird deductions. That couldn’t happen if the tax was based on volume. Hopefully, the legislators will be able to withstand the lobbying efforts by ExxonMobil and look out for the people’s interest in this battle.
Source: Associated Press
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