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Oil firms' taxes spur arguments
By Rick Jurgens
CONTRA COSTA TIMES
Governments vigorously tax oil companies for the same reason
legendary criminal Willie Sutton robbed banks: "Because
that's where the money is."
Take the owners of the five East Bay refineries. As a group,
Chevron, Shell, ConocoPhillips, Valero and Tesoro posted
2005 profits of more than $58 billion, as soaring fuel
prices boosted their total sales to $859 billion.
A portion of that money went to finance the operations of
governments. The five companies paid $41 billion in income
taxes in the United States and other nations during 2005,
according to company financial filings.
Those companies also handed over to governments $112 billion
in other taxes -- mostly sales and excise taxes. Jonathan
Williams, an economist with the pro-business Tax Foundation,
said that the oil companies "are bearing a very substantial
load, not only in dollar terms but percentage terms as
well."
But with so much money at stake, oil company taxation is a
frequent source of controversy -- even at the local level.
For example, four East Bay refinery owners -- Chevron,
Shell, ConocoPhillips and Valero -- are currently battling
with local officials over millions of dollars in property
tax liabilities. The refiners seek a cut of as much $39
million from their $66 million annual property tax tabs in
Contra Costa and Solano counties.
With profits mounting, some lawmakers and oil company
critics think that oil companies can and should pay more.
"Even the president has said the country is addicted to
oil," said Tyson Slocum, a researcher with Public Citizen, a
Washington, D.C.-based consumer advocacy organization.
Dealing with that addiction will require spending on
conservation, research and development of new fuels, and
mass transit, he says.
Since energy crises in the 1970s highlighted America's
dependence on oil imports and vulnerability to price spikes,
tax policy has also become an arena for competition between
proponents of competing energy strategies. A recent study by
the Library of Congress' Congressional Research Service
observed that energy taxes reflected the politics of
competing political, economic, bureaucratic and academic
interest groups. Energy tax policy "does not generally, if
ever, adhere to the principles of economic, or public
finance, theory," the study found.
That all adds up to a recipe for tax rules that even leave
experts scratching their heads. "Energy taxation is one of
the most complicated areas of tax policy," said Williams,
the Tax Foundation economist.
Historically, lawmakers have often sought to use energy tax
policy to encourage companies to find and produce more oil
and gas. But sometimes the results have startled the
policymakers.
Recently, legislators from both sides of the aisle have
reacted with outrage to reports that oil companies could
pocket more than $76 billion that would normally have been
paid as royalties for natural gas extracted from federal
property. That windfall can be traced back to a law passed
in 1995 that sought to encourage development of natural gas
resources during a period of low energy prices. It suspended
royalty collections on wells drilled in deep coastal waters.
After the law was passed, the U.S. Interior Department
signed contracts that allowed companies to keep the
royalties only so long as energy prices remained below
certain ceilings. However, soaring prices and contracts
signed in 1998 and 1999 that inexplicably omitted the
ceilings have boosted the value of the incentives. Existing
arrangements will divert $17 billion from the treasury, and
a pending lawsuit that challenges the price ceilings in all
the contracts could cost another $59 billion, the Government
Accountability Office recently estimated.
As that example shows, oil companies have demonstrated the
political clout and accounting expertise to more than hold
their own in the energy policy arena. Yet these days,
consumer frustration with high fuel prices and anger at
mounting oil company wealth have prompted politicians to
take on the oil giants.
The U.S. government taxes the profits of oil companies at
the same rate as other corporations: 35 percent. Some state
and local governments also tax income, as do foreign
governments in countries where multinational firms like
Chevron, Shell and ConocoPhillips operate.
Critics think a greater portion of oil company profits
should be tapped to finance those efforts. "We're not
talking about ending the ability of the companies to be
profitable," said Slocum of Public Citizen. "We're just
asking them to contribute a bigger share to making these
investments."
Politicians have responded with proposals to tax so-called
windfall profits. During the current session of Congress,
nine members of the House and five senators have filed a
total of 16 bills that would impose temporary or permanent
windfall profits taxes on oil or gas producers.
So far, none has made much headway in the
Republican-controlled Congress. But there is more than one
way to sock it to an oil giant. Tax legislation now awaiting
action by a House-Senate conference committee includes a
change in inventory accounting rules that would add $4.3
billion to the tax tab of some large oil companies. However,
the measure's sponsor, Sen. Chuck Grassley, R-Iowa, the
chairman of the Senate Finance Committee, has acknowledged
that opposition in the House makes it unlikely that the
provision will be written into law this year.
States also seek ways to take a bite out of oil company
windfalls. In California, Assemblyman Johan Klehs,
D-Hayward, has led the charge to target oil companies for
additional taxation. In January, the Assembly defeated, in a
43-28 vote, his proposal for a temporary 2.5 percent tax on
windfall profits of oil producers and refiners. That bill
defined as a windfall any profits that exceeded average
profits over the five previous years -- if those excess
profits grew more quickly than fuel sales.
The tax would have raised $140 million in the current fiscal
year, and smaller amounts in the two succeeding years,
according to the state Franchise Tax Board. Passage would
have required a two-thirds vote and the governor's
signature.
Not easily discouraged, Klehs quickly introduced a new
windfall profits bill. This one, a surtax on all profits
above $10 million, would raise an estimated $120 million in
its first year, and $190 million two years out, according to
Rebecca Marcus, a spokeswoman for Klehs. This month, in a
move that lowered the vote required for passage to a simple
majority, Klehs amended his bill to allocate the revenue to
subsidize prescription drugs for low- and moderate-income
seniors, Marcus said. A hearing on the bill is set for April
24.
Some countries and states have sought to tie taxes to the
production and sale of crude oil and gas. At least 27 states
collect so-called severance taxes on oil producers,
including Texas with 2003 revenue of $1.5 billion and Alaska
with $1.1 billion in revenue, according to the Independent
Petroleum Association of America, a trade group for oil well
owners and operators.
Although California is the nation's third-largest producer
of oil, it has no severance tax. And although the state did
collect $214 million in property taxes from oil producers in
2003, that trailed the severance tax revenue of $481 million
in Louisiana, $572 million in New Mexico and $601 million in
Oklahoma -- each a state that produced less than half
California's volume of oil.
A ballot initiative currently being circulated for
signatures would impose a tax ranging from 1.5 percent to 6
percent on the gross value of oil produced in California.
The tax would be applied to oil from all but the smallest
wells, about 165 million barrels annually, and the revenue,
which the Legislative Analysts' Office estimates would range
from $200 million to $380 million annually, would be spent
on alternative energy research and development.
Oil companies and anti-tax groups have denounced the
initiative and argued that it would increase the cost of
fuel. Backers have responded by releasing poll results
showing public support for higher taxes on oil companies and
more investment in alternative energy.
Rick Jurgens covers energy and business. Reach him at
925-943-8088 or at
rjurgens@cctimes.com.
2005 taxes of companies that own local refineries (in
millions of dollars)
Item (in million dollars) Chevron ConocoPhillips Shell
Valero Tesoro Total
Revenue 198,200 183,364 379,008 82,162 16,581 859,315
Net income 14,099 13,529 26,261 3,590 507 57,986
Income taxes 11,098 9,907 17,999 1,697 324 41,025
Excise, sales and other non-income taxes 20,782 18,356
72,277 807 139 112,361
Chevron's 2005 taxes (in millions of dollars)
Revenue 198,200
Net income 14,099
Income taxes 11,098
US federal 2,026
US state & local 409
International 8,663
Non-income taxes 20,782
Excise 8,719
US 4,521
International 4,198
Import duties and other levies 10,547
US 8
International 10,466
Property 927
US 392
International 535
Production 461
US 323
International 138
Payroll 201
US 149
International 52 |
