Proposed California Oil and Gas Tax Legislation
California, the nation’s fourth largest producer of oil, is currently the only oil producing state without a tax on the extraction of oil from within its borders. Despite a struggling economy, lawmakers in the state are considering a bill that would add such a tax in order to fund educational programs within the state.
By a 5-2 vote, the Senate Governance and Finance Committee approved a measure to add California State Senate Bill 1017 to the ballot. This bill proposes the following:
- An oil and gas severance tax imposed for the privilege of extracting oil or gas in California at the rate of 9.5% of the average price per barrel of California oil or 3.5% of the average price per unit of gas.
- The tax imposed would be in addition to any other taxes imposed by law, including, without limitation, any ad valorem taxes imposed by the state, or any political subdivision of the state, or any local business license taxes that may be incurred for the privilege of severing oil or gas from the earth or water or doing business in that locality.
- Each operator shall prepare and file with a government run board, a return once a month with payment for the tax due for that period.
- All taxes collected shall be deposited into the California Higher Education Fund, a fund used to support the hiring of teachers and expand the availability of low cost higher education to the citizens of the state.
Public Support of the Bill
A poll commissioned by the Liberal Super PAC NextGen Climate Action indicates that the majority of Californians support such a bill. A poll of likely voters conducted in April showed that 64% support an oil extraction fee, while 75% of those same voters supported the bill upon learning that California is the only state which does not have such a tax.
Even though a severance is not currently in place, the oil companies operating in California are nevertheless subject to some of the highest corporate and sales taxes in the country. As a result, the citizens of California are burdened by some of the highest gasoline prices due to such taxation. It is safe to assume that a severance tax would only increase such costs to the consumer.
Opponents of the bill fear that this legislation is unduly burdensome and will hamper oil and gas development. Such legislation would likely stymie the same growth in the industry that is responsible for providing a significant amount of jobs within the state. Aimed at helping its citizen’s get out of a cycle of poverty, this legislation would likely have the harshest effect on some of California’s poorest regions, including the San Joaquin Valley, which already suffers from incredibly high unemployment rates.
Effect on Higher Education
The stated goal of the bill is to fund the underperforming public education system in the state. Currently, California is tied with Mississippi for the highest unemployment rate in the nation and it is ranked 47 out of 50 states in quality of education. The text of the bill, authored by State Senator Noreen Evans, claims that for every dollar a government invests in higher education, a $4.50 return on this investment is realized.
These problems notwithstanding, the shortcomings in these areas does not appear to be tied to the revenue generating wing of the California State Government. For the past seven years, taxes have risen by $7 billion and schools have received $10 billion of new funding alone. At a time when unemployment is among the highest in the country, taxing and further burdening a major industry within the state does not appear to be a prudent move to keep California competitive as an energy producer going forward.
1. Zaremberg, Allan. “California Oil Extraction Tax a Bad Idea.”SFGate. N.p., 11 Mar. 2014. Web. 15 May 2014.
2. Richman, Josh. “Poll: Californians Want Oil-extraction Tax, County Control over Fracking.”MercuryNews.com. N.p., 7 May 2014. Web. 15 May 2014.
3. (Sen. Bill No. 1017 (2013-2014 Reg. Sess.)
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