(May 13, 2011) A California Chamber of Commerce-opposed bill that will result in higher fuel costs, lost jobs and greater dependence on imported oil is awaiting a vote in the California Assembly.
AB 1326 (Furutani; D-South Los Angeles County) creates a targeted tax on the oil and natural gas industry in order to fund the California Higher Education Endowment Corporation, thereby discouraging oil production in this state which may lead to the loss of more jobs. CalChamber has identified AB 1326 as a “job killer” bill. The complete “job killer” bill list will be released in the coming weeks.
CalChamber understands these are difficult times for the state budget, but California consumers are facing tough times too. California is still in the grip of a prolonged economic recession, the worst since the 1930s. Millions of people have lost their jobs and their homes. CalChamber believes this is not the time to create further burdens on families through AB 1326.
Oil Severance Tax Study
The costs associated with AB 1326 would be over and above the state’s already-high tax burden on oil production and transportation fuels. In fact, according to respected economists, California oil resources are already among the most heavily taxed in the country. This new severance tax would make California’s combined taxes on oil production one of the highest in the nation.
California oil producers would pay significantly more tax than in other major oil-producing states if California adopted a 9.9 percent oil severance tax, according to a study by LECG, a global expert services and consulting firm. AB 1326 is proposing a 12.5 percent oil severance tax.
The LECG study, “Comparison of Oil Tax Burden in the Ten Largest Oil-Producing States,” gives readers a sense of how oil companies are taxed in California relative to their counterparts in other states by comparing the total tax burdens the 10 major producing states impose.
The study examined a proposed 9.9 percent oil severance tax, more than 50 percent higher in California than the rates imposed by the other nine states analyzed. The study concluded that if the proposed oil severance tax were enacted, California would become the state with the heaviest tax burden on oil producers.
Given that California’s sales tax and corporate income tax rates are the highest of the states considered, on a total tax collection basis, California falls in the middle, the study found. The size of the proposed oil severance tax, however, would push the tax burden on oil producers in California well above that in other states, the study concluded.
CalChamber Position
The CalChamber opposes tax increases that single out a specific industry or profession to shoulder billions of dollars of permanent tax burden. These industry-specific taxes kill good jobs and harm industries unique to California.
A new tax on oil production in California ultimately will make California oil more expensive than that produced in foreign countries and will harm the state’s competitiveness. It won’t change the amount of oil used in California, but will likely result in the loss of high quality jobs in the industry, as well as increased imports to the state.
Action Needed
AB 1326 is scheduled to be considered by the Assembly Revenue and Taxation Committee on May 16. Contact your Assembly representatives and urge them to oppose AB 1326.
Staff Contact: Jennifer Barrera