An Old Story – Another Oil Tax Proposal

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Stop me if you’ve heard this story before — there is a proposal to tax oil coming out of the ground in California. Of course, you’ve heard that before – there have been oil severance tax bills introduced in the legislature every few years since the 1990s. One oil tax proposal even made it to the ballot via the initiative process, which the voters rejected.

Senator Noreen Evans, who announced a new oil severance tax plan yesterday, has introduced a bill on the subject three times herself: once when she was in the Assembly, last year’s SB 241, and now SB 1017.

Stop me if you’ve heard the argument put forth by the proponents of this tax: California is the only major oil producing state that does not levy an oil severance tax. Oil producing states Alaska and Texas are always referenced as levying the tax. You heard that, too. It is always the lead argument for supporters of an oil tax.

What you probably haven’t heard is that despite the fact that California doesn’t levy an oil severance tax, oil production is still highly taxed in the Golden State. Californians working in the oil business face property taxes on the value of the oil in the ground. Corporate, income and sales taxes are all high here.

But have you heard that Alaska has no sales tax? Have you heard that Texas has no income tax?

When Governor Arnold Schwarzenegger floated the idea of a 9.9% oil severance tax in 2009, a study was produced to show where the California oil industry stood in tax rankings with the other oil producing states. At the time, California ranked sixth right behind Texas and right ahead of Alaska. However, if the oil severance tax were added in California, then this state would be number one in oil production taxes by a wide margin.

Since that time California has increased its sales and income taxes, while the Alaska legislature has voted to cut its oil severance tax in hopes of encouraging more production and job growth.

Of course, the down side of an added oil severance tax is that production would be hindered, more oil would be imported, and jobs would likely be reduced, especially with the small oil production companies. The 2009 study projected a loss of nearly 10,000 jobs if the oil severance tax became law.

Even with Governor Jerry Brown recently discouraging the idea of creating a state oil severance tax we are forced to listen to this same, old story once again.

Let’s hope that the re-telling of the oil severance tax story has the same ending as the previous iterations.

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