Taxing the Oil & Gas Industry to its Knees

March 1, 2019 By Joel Fox 5 Comments

Oil Well PumpA one-two punch is being aimed at California’s oil and gas industry and that just may be fine with anti-fossil fuel crusaders but it could have an immediate disruptive effect on the California economy.

Between proposals to raise the oil severance tax and property taxes, California’s oil and gas producing companies face a double whammy that could threaten their businesses. While supporters of these tax increases may applaud the idea that oil production is cut back, they may not be so joyous if the double attack undercuts the state’s economy.

Senator Bob Wieckowski introduced a 10% oil and natural gas severance tax bill, SB 246, arguing that California producers should pay for the right to sever oil and gas from the ground such as is imposed by other oil producing states. Yet, many of those states do not levy ad valorum property taxes on the oil that sits in the ground as California does.

If the oil severance tax is not enough to threaten the industry, the split roll property tax initiative destined for the November 2020 ballot would levy another hit on many producers’ land and improvements.

California oil production has already fallen off dramatically over the last few decades. California oil production dropped from 394 million barrels in 1985 to 173 million in 2017.

Imagine what two tax increases would mean to the industry over a short period. The quest for renewable energy is moving forward but if the tax hit over the next couple of years reduces oil and gas production how does the state’s economy function to full capacity?

Despite being one of the top oil producing states, California already imports a large portion of its oil. That is because California is the second largest consumer of petroleum products in the nation and the largest consumer of motor gasoline and jet fuel.

Much of the imported oil comes from foreign countries but California receives a good portion of its oil from Alaska, one of those states with a severance tax but no property tax on the oil in the ground.

If a severance tax is passed in the Golden State, ironically, through the price of gasoline, consumers will be paying both the California severance tax and a portion of the Alaska severance tax as well.

A decade ago, Governor Schwarzenegger proposed a 9.9% oil severance tax to help rescue the state budget during the Great Recession. At the time, a study indicated such an increase would make California the number one state in oil production taxes, doubling what the companies paid and shelling out 40% more in oil production taxes than the next highest state.

Oil companies in the Golden State pay corporate income taxes, property taxes and sales taxes on their business. Not all oil producing states assess all these taxes, nor are the tax rates the same as high income, high sales and high corporate tax California.

Two years ago, the Los Angeles Economic Development Corporation issued a report  on the economic impact of the California oil and gas industry. The report found “the industry’s direct output of more than $111 billion generates more than $148  billion in direct economic activity, contributing 2.7 percent of the state’s GDP and supporting 368,100 total jobs in 2015, or 1.6 percent of California’s employment. Additionally, the oil and gas industry generates $26.4 billion in state and local tax revenues and $28.5 billion in sales and excise taxes.”

What happens to government coffers if production is reduced dramatically?

While the goal of some environmentalist might be satisfied with reduced production, it is doubtful the state’s economy could withstand the shock.

 is editor and co-publisher of Fox and Hounds Daily.

This was article was originally published by Fox and Hounds Daily

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Split Roll Tax Proposal Bad for Jobs and the Economy

December 19, 2017 By Teresa Casazza 2 Comments

property taxThe California League of Women Voters and other advocates of a split-roll property tax system filed an initiative December 15 that would increase property taxes on California employers by an estimated $11.4 billion per year.

A tax increase of this size will lead to higher consumer prices for goods and services we use every day. In addition to dramatically increasing the cost of living, this misguided measure would drive employers out of California, taking middle-class jobs and future career opportunities with them.

The measure is targeted specifically at California-based employers, and thus would make the Golden State less competitive with other states for jobs and investments. It would add a new section to the California Constitution that would, beginning with the 2020-21 budget year, require commercial and industrial property to be frequently reassessed at full market value.

Proposition 13, approved overwhelmingly by voters in 1978, established an acquisition-value assessment system for the property tax, setting the property tax rate at a maximum of 1 percent, and limiting the amount a taxpayer’s assessed value can increase to 2 percent annually. Under Proposition 13, property also is reassessed when new construction occurs.

Before passage of Proposition 13, taxpayers paid property tax based on county assessors’ opinion of value. Proposition 13 removed subjective opinions and guesswork from the property tax system.

Voters rejected a split-roll measure on the same ballot as Proposition 13, and have rejected several subsequent split-roll proposals.

Since passage of Proposition 13, opponents have claimed that business property receives an unfair benefit from the law. However, state data shows that at the time of Proposition 13’s passage, business properties paid approximately 58 percent of the total property tax burden, while today they pay approximately 62 percent of the property tax burden.

The Legislative Analyst’s Office studied this issue and reported last year:

“Residential, commercial, and industrial properties appear to be turning over at relatively similar rates. … (T)he rate of turnover for residential (including homeowners and rented residential properties) and commercial and industrial properties across the state is relatively similar in recent years. … Comparing the frequency of reassessment across property types in Los Angeles County … suggests that residential properties are not reassessed – and therefore do not turn over –more frequently than commercial and industrial properties. In addition, in San Diego County a typical commercial and industrial property was last reassessed ten years ago, compared to 14 years ago for residential property. This suggests residential properties turnover slightly less often, which increases the tax benefits to these properties.”

 is president of the California Taxpayers’ Association.

This article was originally published by Fox and Hounds Daily

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Prop. 13 Revolution — A Far Cry From Reality

May 29, 2017 By Joel Fox 6 Comments

property tax“Voters May Reconsider Prop 13,” reads part of the headline on the press release about the new Hoover Institution Golden State Poll. However, read the poll and you’ll see we are nowhere near a Proposition 13 revolution.

The headline is based on a test of the “split roll” approach to property taxes in which commercial property would be assessed more frequently than residential property. When 1700 California adults were asked if they supported the split roll, 39% strongly or somewhat supported the concept, 33% strongly or somewhat opposed the idea.

Most political observers will tell you if an issue doesn’t garner around 60% in early polling it has little chance of passing especially when facing the gauntlet of a political campaign. The Hoover Institution’s finding of 39% means proponents of a split roll campaign have a huge mountain to climb — and they would be climbing it with opposition boulders rolling down the mountain at them.

A multi-million dollar opposition campaign would raise arguments those who responded to the poll were not advised of before replying to the poll question.

The idea that taxes levied on business would not somehow be passed on to consumers or would reduce jobs and effect the economy was not stated.

The information supplied to respondents argued that passing a split roll would lessen the need for more taxes on individuals, hardly a convincing argument when tax hungry lawmakers have their hands out on both the state and local levels.

Stating that business would pay more taxes and individuals would not — in other words, voters were asked if they were willing to raise taxes on someone else– is an argument that has proved effective in recent state tax increase campaigns. Yet, the split roll question still got only 39% support in the poll.

Looking closer at the results, those strongly supporting the split roll concept stood at 13%, strongly opposed was a larger 20%. There is room to move voters who were unsure or did not have strong convictions on the issue.

In an article in Hoover’s Eureka publication that accompanied the poll, it was argued that a key to reformers winning the day is to convince renters to support the split roll and vote. But a lot of that strategy would depend on how apartments are treated under a split roll tax. Are they residential property that will continue under Prop 13 protections or are they commercial property, which under a split roll would be reassessed every year with the tax increase passed on to tenants?

I suppose if you raise most issues you would find about a third of the voters willing to consider change. In fact, a Reuters/Ipsos poll a few months ago found one out of three Californians supported the Golden State seceding from the Union.

Neither a Calexit nor a Prop 13 revolution is close to reality.

Joel Fox is Editor of Fox & Hounds and President of the Small Business Action Committee

This piece was originally published by Fox and Hounds Daily

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Split Roll Debate Continues

March 8, 2015 By Joel Fox 3 Comments

While supporters of changing Proposition 13 to increase taxes on commercial property usually focus on raising the tax rate or frequently reassessing property, UCLA Law School professor Kirk Stark has a different idea – broaden the base of business property taxes by reassessing more often but at the same time lower tax rates on property and other business taxes. Stark made the proposal yesterday in Los Angeles at a panel discussion on the split roll that also featured Jon Coupal, president of the Howard Jarvis Taxpayers Association and Gina Rodriquez, Vice-President of the California Taxpayers Association. The event was sponsored by the Bisnow website, which covers people and projects in the commercial real estate business.

Stark suggested reassessing property on a regularly scheduled basis but lowering the 1% tax rate, eliminating property taxes on business equipment and reducing other business taxes. Stark said his goal was to harness the impulse to tweak Proposition 13 and gain sound tax policy rather than ratchet up the tax burden.

However, proponents of the split roll are after more money and lowering a series of other taxes doesn’t fit into the game plan. Nevertheless, Stark’s proposal in another in a line seeking changes to Proposition 13.

Cal-Tax’s Rodriquez argued there was no need to change any aspect of Proposition 13. She said there has been no shift of the property tax burden from commercial property to residential property, citing the fact that residential properties which claim the homeowners exemption saw property taxes increase by 6.8% since Prop. 13 passed compared to commercial property increasing 7.3% over the same period.

Rodriquez added that under Proposition 13 property tax is the most stable tax in the state and it produces growing revenue for local governments.

Jon Coupal from the Howard Jarvis Taxpayers Association agreed, pointing out that assessor officials around the state noted that because of the Proposition 13 tax system, which produces steady rising revenue even during difficult economic times because of the way it functions, counties were spared “horrible damage” during the Great Recession.

Coupal said California government is not starving for revenue, as tax increase proponents would have you believe. He said California has the highest income tax in the nation, the highest sales tax, the highest gas tax even before the inclusion of cap and trade fees and property taxes that are ranked in the top half of all states.

The issue of when a business property changes ownership triggering a reassessment of property under Proposition 13 received much attention during the discussion.

Stark complained that the Prop. 13 system allows legal entities to own commercial property making it difficult to determine a change in ownership. He mentioned the highly publicized case of a Santa Monica hotel purchased by computer entrepreneur Michael Dell, his wife and others without anyone getting 50-percent of the purchase denying a change of ownership reassessment which a court found legal.

Coupal told of a legislative bill authored by two Democrats last session aimed at reigning in abusive transactions under change of ownership statutes such as the Dell case. The bill failed, Coupal said, because public labor unions urged defeat of the bill as they want a full-blown split roll to change Prop. 13, not a corrective fix of the statutes.

Coupal argued there are no loopholes in Prop. 13 as critics charge. Proposition 13 calls for reassessment on change of ownership. The legislature wrote the rules on how that occurs, so legislative statutes are at the center of the change in ownership discussion, not the article put in the constitution by Prop. 13.

Originally published by Fox and Hounds Daily

Joel Fox is editor of Fox & Hounds and President of the Small Business Action Committee.

(Full disclosure, I am a member of Californians to Stop Higher Property Taxes)

Follow Joel Fox on Twitter @1JoelFox1

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