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The Revenue Study Commission charged with reviewing the effectiveness of Louisiana’s many tax breaks, turns its attention on Friday to sales tax exemptions related to energy, which make up roughly half of the 44 sales tax expenditures up for review.

Oilfield operators, natural gas suppliers and rig owners will be listening for what lawmakers have to say about a handful of tax breaks that affect their livelihoods. “We’ll be there to answer questions and provide a statement,” said Don Briggs, president of the Louisiana Oil and Gas Association. “But I’m not expecting the commission to get into too much detail.”

Noticeably absent from the list – for now, as Briggs expects it to be discussed eventually – is horizontally drilled wells, which can escape severance taxes for up to two years as part of Louisiana’s investment incentive program.

During the spring of last year, officials from the Legislative Fiscal Office told lawmakers they might want to take a closer look at altering the incentive. By December, reports showed that severance tax collections were down some $128 million.

According to the Department of Revenue’s tax exemption budget for the most recently completed fiscal year, the horizontal well incentive is projected to cost the state $254 million next year from natural gas suspensions.

Briggs and others argue that any kind of repeal would be shortsighted because all related investments – jobs, contracting with service companies, local taxes and more – would be forfeited as well if companies decide to drill elsewhere.

The exemption, which was created in 1992 in part to help Louisiana compete with Texas, helped encourage investment in the Haynesville Shale area and went largely ignored during times of high gas prices.

But times have changed. As for a compromise, like a trigger that would lift the incentive when prices are high, Briggs said he doesn’t see the necessity. “Gas prices are low and they’re going to be low for a while,” he said. “To get to the point that gas prices would be so high we wouldn’t need the incentive is several years away.”

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A little known refund can help save you money. It’s the Louisiana Alternative Fuel Tax Credit, a credit that can return 10% of your car’s cost to your wallet. You only have to buy a car that runs on something besides gasoline.

The state recently clarified the rules to point out what qualifies. Hebert’s Town and Country President Mark Herbert says his dealership is working to better inform customers about the tax credit. He says several cars qualify for the credit, so customers don’t need to look too hard for a deal. Herbert points out that flex-fuel vehicles, which can use regular gasoline, are on the list.

“You can run regular fuel, but it is capable of running on E85, which we’re able to produce in the United States a lot cheaper,” he said. That makes paying for E85 fuel cheaper but at another cost.

“It’s a lower price at the pump, but your fuel economy isn’t as good as with regular fuel,” Herbert said.

Tax Manager Patrick Caraway says he and other tax preparers are contacting their clients to let them know about the savings and how to get them.

“You claim the credit on the return for the year on which you purchased the vehicle,” Caraway said.

To claim a car already purchased ask your tax preparer about amending an old return.

“So, for instance if you bought a vehicle on June 15, 2010, you would file an amended Louisiana tax return for the 2010 tax year and claim the credit on that return,” Caraway said.

If your car is more than $30,000, you can only be refunded $3,000. Louisiana’s Alternative Fuel Tax Credit doesn’t just cover flex-fuel vehicles. Those that run on or have been modified to use CNG qualify, as well as certain diesel vehicles.

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By Melinda Deslatte,

BATON ROUGE, La. (WTW) — Rising oil prices haven’t been enough to save Louisiana’s budget, as a generous state tax break siphons off millions of dollars in severance tax revenue that would have been levied on energy projects around the state.

The state’s recent budget deficit was tied in part to worse-than-expected tax income from oil and gas production in the state.

The development is problematic for the governor and lawmakers, who praise the worth of tax breaks and love the powerful oil and gas industry, but who are watching hundreds of millions slip away from an exemption that seems to be more bountiful to the industry than they expected and that appears to be cutting into state oil and gas income elsewhere.

The state has been refunding millions tied to a tax break for wells that use horizontal drilling, about $250 million refunded since 2009 — $28 million in October and $20 million in November of this year alone. Most of that activity has been in natural gas production in the Haynesville Shale in northwestern Louisiana.

Greg Albrecht, the chief economist for the Legislative Fiscal Office, says the tax exemption appears to be encouraging production in areas where companies won’t have to pay the state severance tax and depleting gas exploration in areas where taxes would normally be paid, resulting in net losses of direct mineral revenue to the state.

“There’s a diversion of activity, and it’s getting bigger as the months go by,” Albrecht said.

The drilling technique used in the Haynesville Shale and in other similar wells involves a quick depletion, so most of the production ends up being exempt from state severance taxes before the exemption expires, even though the mineral being taken from the ground is a public resource.

“They actually seem to be encouraged to produce less of the taxable gas,” Albrecht said.

Even with an increase in oil prices bumping up some projections, income estimates for mineral revenue were cut $51 million in the most recent forecast for the current 2011-12 fiscal year that ends June 30. That contributed to a $251 million deficit that Gov. Bobby Jindal and lawmakers closed with a mix of cuts and revenue adjustments this month.

Defenders of the tax exemption say it creates billions of dollars in economic activity and investment in the state that create tax dollars in other ways.

The Louisiana Oil and Gas Association said the Haynesville Shale has supported over 100,000 jobs that pump hundreds of millions of tax revenue into state and local coffers. The organization said that Haynesville is one of the most expensive shales to drill and has one of the lowest return rates and that the tax break encourages continued drilling activity.

Dan Juneau, president of the Louisiana Association of Business and Industry, said Albrecht didn’t give the entire story when he described the severance tax drop.

Juneau blamed the production drop on so-called “legacy lawsuits,” which involve fields that were drilled years ago by major oil companies with since-discarded technology that often left behind environmental messes. Through the years, as the companies left the state, the leases were assumed by other companies that had to take on liability for the cleanups.

“By drilling in other states or on previously undeveloped leases in shale zones, there is less likelihood of operators being hit with these prohibitively expensive lawsuits,” Juneau wrote in his weekly column.

However, Albrecht notes the dip in production in state-taxed areas — based on data from the Louisiana Department of Natural Resources — corresponds to the Haynesville Shale exploration.

The Haynesville find came along in 2007, and there’s been an 88 percent increase in total gas production since then. There’s also been a 28 percent drop in gas production outside of the shale since then, Albrecht said. Legacy lawsuits have been around for a much longer time.

“It would be an amazing coincidence that all of a sudden something else could be causing it,” Albrecht said last week. “The timing is pretty obvious.”

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WASHINGTON, DC, Sept. 13

By Nick Snow
Washington Editor

US President Barack Obama pledged to make the wealthiest American businesses and individuals pay higher taxes as he sent his proposed legislation to Congress on Sept. 12.

The package included $50 billion of tax increases aimed at the oil and gas industry that the White House has included in its past few federal budget requests.

“This legislation is fully paid for,” Obama said in a letter accompanying his proposals. “The legislation includes specific offsets to close corporate tax loopholes and asks the wealthiest Americans to pay their fair share that more than cover the cost of the jobs measures.”

The American Petroleum Institute and the National Petrochemical and Refiners Association both expressed disappointment.

The legislation’s Subtitle D, called “Repeal Oil Subsidies”, proposed ending the deduction for intangible drilling and development costs for wells, the tertiary injectants deduction, percentage depletion, the enhanced oil recovery credit, the marginal well production credit, and the oil and gas working interest exception to passive activity rules.

It also proposed not allowing the oil and gas industry to take the federal tax code’s Section 199 manufacturing deduction, and moving the allowable amortization period for geological and geophysical expenditures back to seven years.

US oil and gas companies with overseas operations also would be affected by Subtitle E, “Dual Capacity Taxpayers,” and its two provisions modifying foreign tax credit rules and creating a separate basket treatment for taxes paid on foreign oil and gas income. All of the proposed increases affecting oil and gas would be effective after Dec. 31, 2012.

Industry reacts

“The administration is not just turning its back on oil and gas jobs,” API President Jack N. Gerard said. “It is proposing more taxes on an industry doing one of the best jobs of creating them while also delivering more than $86 million a day in revenue to the government.”

NPRA President Charles T. Drevna said the oil and gas industry represents “some of the biggest taxpayers and biggest employers in America.”

Drevna said industry is not seeking preferential tax treatment but rather wants equal treatment with other companies that get deductions for business expenses.

“The best way to get more tax revenues from energy companies and enable us to hire more American workers is to remove roadblocks preventing us from producing and manufacturing more,” Drevna said.

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By Robert R. Jones III
Special to The Advocate

ABBEVILLE — The Vermilion Parish Police Jury passed a resolution Monday opposing a move by the Louisiana Oil and Gas Association and Louisiana Mid–Continent Oil and Gas Association to try to have the state reduce the value of subsurface oil and gas equipment.

The move was taken at the recommendation of Parish Tax Assessor Kathy Broussard, who said the move would hurt the parish financially.

“I am here to ask you to help our parish,” she said. “This proposition by LOGA and LMOGA that would exempt all subsurface equipment from taxation would cost the parish $5 million annually.”

The move passed without discussion or opposition. Jurors Dane Hebert, Mark Poche and Ronald Darby were absent.

In a telephone interview after Monday’s meeting, however, LOGA President Don Briggs said the move was not designed to hurt parishes financially.

He said years ago, the equipment had value when drill pipe and other equipment could be pulled out of a well and resold, but that is no longer the case.

The equipment is now often left in place because of environmental concerns and costs, offering no further value to oil and gas companies, Briggs said.

“According to the constitution of Louisiana, the value of subsurface equipment is what a buyer is willing to pay for it,” Briggs said. “Today, it has no value and it is no longer an asset but a liability.”

He said the equipment has traditionally been assessed at about 40 percent, but LOGA and LMOGA is only asking for a gradual reduction of that value over time to ease the tax burden.

“We’d like to see gradual reduction over time, say about 3 percent next year,” Briggs said. “Currently, we are paying $40 million to $50 million in taxes annually (as an industry) and the equipment has no value. We do not want to hurt parish tax rolls by doing away with the taxes, we are only looking to reduce them over time.”

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Published: Thursday, July 14, 2011, 11:50 PM

By Bruce Alpert, Times-Picayune

In seeking alternatives to the Republican proposal to reduce the deficit solely with cuts in federal spending, Democrats are targeting three sections of the tax code that provide the oil industry with benefits worth $21 billion over the next 10 years.

The details of the Democratic plans have been largely lost in the emotional debate about whether taxes on the wealthy and on profitable corporations should be raised as part of a deficit reduction plan Republicans are demanding before they’ll agree to raise the current $14.3 trillion debt limit.

Senate Democrats say their plan, which was blocked by a coalition of Republicans and oil-state Democrats but has been resurrected in the deficit reduction negotiations, would target only the big oil companies that are extremely profitable.

The Democrats’ package would repeal a domestic manufacturing deduction, worth more than $12 billion; a deduction for taxes paid to foreign governments, worth about $6 billion; and a provision that allows companies to deduct intangible drilling and development costs, worth $2 billion. On the foreign taxes, Democrats said much of the money constitutes royalty payments for oil and aren’t really taxes.

Though Republicans say that tax increases are off the table for revenue production, Democrats say that some increases or elimination of loopholes are needed so the brunt of deficit reduction doesn’t fall on the middle class and poor.

“If we’re going to put this on the backs of middle-class working families who spend more of their disposable income, then I don’t know how we’re going to drive this economy,” Sen. Robert Menendez, D-N.J., said during a Senate Banking Committee hearing Thursday. “Wouldn’t you think that it’s fair to consider a shared sacrifice that is spread across the board to try to solve this debt ceiling question and the debt questions that confront the nation?”

Sen. Mary Landrieu, D-La., who helped sink the Democratic taxing plan for the oil and gas industry in May, said the oil industry shouldn’t be targeted in any deficit-reduction plan.

The taxes proposed by Senate Democrats would be limited to the big five oil companies: Exxon Mobil, Shell, Chevron, BP and Conoco Philips. But Landrieu said the impact would also hit smaller independent producers because many drilling projects are done in partnerships between the Big Five and smaller companies.

Landrieu went on Fox News just after the Senate debate ended in May, when Democrats couldn’t get the 60 votes to end a filibuster, to argue that she was right to join Republicans in opposing the measure.

“Now when we reform the tax code, which we most certainly need to do, then we need to throw all of that on the table and consider it,” Landrieu said, referring to tax subsidies for a wide range of businesses. “But to pick them out, an industry that employs 9.2 million people in America, I thought was the wrong thing to do.”

Rep. Steve Scalise, R-Jefferson, said, “Higher taxes on American energy will lead directly to higher prices at the pump and will force thousands more jobs out of our country while making us more dependent on Middle Eastern oil.”

Two recent studies paint conflicting pictures on the impact of higher oil and gas industry taxes.

According to a study by Bloomberg Government, if Congress were to adopt the original plan submitted by President Barack Obama in February — eliminating $42 billion in tax breaks for the oil industry — the result would be a 4 percent reduction in wells drilled.

But eliminating tax breaks just for the Big Five oil companies, as Senate Democrats propose, would have a negligible effect, Bloomberg said.

The study concluded that the five majors would likely maintain U.S. drilling at current levels, paying for the tax increases by shifting money from share repurchases or dividends.

A separate report this week by Louisiana State University economist Joseph Mason for the American Energy Alliance, an industry advocacy group, concluded that repealing tax deductions for the oil industry would end up costing the government more than it would raise because of the reduced production sure to result.

“The net fiscal effect — a loss of $53.5 billion in tax revenues — suggests that the policy proposals exacerbate, rather than alleviate, the federal deficit,” Mason said.

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