By Don G. Briggs, President – LOGA (Louisiana Oil & Gas Association)

The Louisiana Legislature has consistently voted down proposals to increase oil and gas taxes, beginning back when the First Use Tax was originally proposed and passed by then-state Rep. Billy Tauzin in 1978. Once the First Use Tax was declared unconstitutional by the U. S. Supreme Court, proponents of new oil and gas taxes were recharged by then-Governor Dave Treen who, in 1982, used his executive and political muscle to promote CWEL, Coastal Wetlands Environmental Levy, as a way to tax oil and gas traversing the Louisiana coastline from the Outer Continental Shelf (OCS) or from foreign countries. These two tax measures were the genesis of what is now called a processing tax.

Throughout all these many years, passionate speeches have echoed through the chambers and committees of Louisiana’s Senate and House of Representatives, as well as the Governor’s Mansion, declaring it only right for the state of Louisiana to tax non-taxed foreign and OCS oil crossing its boarders. Why not? The answer to that question has been obvious to our Legislature for many years. It’s not the hyped influence of oil and gas lobbyists with their perceived power, because it’s certain that the Louisiana Legislature would have passed a tax on foreign oil if it could.

First, it’s important to note that, before Louisiana could possibly levy a tax on oil coming into the state from the OCS and foreign countries, there would be barrage of legal, constitutional, and technical challenges that would have to be dealt with. For our purposes, let’s simply assume the legal and constitutional challenges had been dealt with and the state of Louisiana could levy a $4 billion tax (just picking a number) on oil coming into the state.

In our hypothetical case, Louisiana oil refineries are now faced with a barrel of oil with a new incremental cost $4 billion dollars attached to it. Do you think the refineries are going to absorb the $4 billion dollars? If you do, then I have a snow cone stand at the North Pole I would like to sell you. Suppose a new tax or incremental cost were to be levied on any other Louisiana products such as timber, cotton or sugar cane. Would that additional cost not be passed on to the consumer? Yes, it would.

In our case, the Louisiana refineries would send a portion of the new $4 billion cost directly to Louisiana consumers at the gasoline pump. Notice, I said Louisiana consumers, because out-of-state consumers will not pay for Louisiana taxes. The cost will be borne only by Louisiana consumers. It is certain that Louisiana consumers and businesses, as well as our manufacturing community would pay higher energy prices, certainly not what our devastated economy needs for recovery.

Any part of the $4 billion that wasn’t passed on to the consumer at the gas pump would be pushed back to Louisiana’s oil producers. Our in-state producers would be paid less per barrel for their crude.

The indirect impact of the new processing tax would look like this: Refineries would divert their refinery expansions to refineries outside Louisiana. We would lose the economic impact of hundreds of millions of dollars being spent in the state. Exploration companies would invest their drilling dollars in other regions, because the return on investment is greater with higher spot oil prices. Again, Louisiana would loose the economic impact of drilling dollars being spent in Louisiana.

So when you get to the bottom line, a processing tax on oil coming into Louisiana would be costly to Louisiana consumers. This is one of those times, you have to hand it to the Louisiana Legislature for defeating the processing tax for the past 25 years.

Don Briggs is president of the Louisiana Oil and Gas Association. His column appears in The Advertiser twice a month on Mondays.