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Alabama looks at higher natural gas tax ExxonMobil says it’s a punitive measure, nothing more than ‘disguised massive tax increase,’ but revenue commissioner says legislation will guarantee oil companies pay taxes they agreed to pay when Alabama allowed coastal drilling Phillip Rawls Associated Press Writer
A tax battle between Alabama’s Republican governor and the nation’s biggest oil company swung in the governor’s favor April 3 when a legislative committee approved higher taxes on natural gas wells drilled along the Alabama coast.
The House Government Appropriations Committee passed the administration-backed tax measure on a lopsided voice vote. The vote came one week after ExxonMobil persuaded the committee to reject an earlier tax proposal by Gov. Bob Riley.
The committee’s reversal occurred after the administration agreed to change the tax proposal from a permanent tax to a temporary tax surcharge. The bill now goes to the House for consideration.
“It’s a punitive measure. It’s nothing more than a disguised massive tax increase,” said Dan Seckers, a tax attorney for ExxonMobil.
Riley’s state revenue commissioner, Tim Russell, said the legislation would make sure oil companies paid the amount of taxes they agreed to pay when Alabama allowed drilling along its coast.
Dispute over royalty payments The tax battle involves the same natural gas wells that were in dispute in the legal battle the governor and ExxonMobil had over royalty payments due the state. A Montgomery jury originally returned an $11.9 billion verdict in favor of the state, but that was cut to $122 million when the Alabama Supreme Court finished with the case last year.
Before the legislative session started in February, Riley’s administration and ExxonMobil got into a legal dispute over what expenses the oil company could deduct before paying state taxes on the value of the natural gas it gets from wells along the Alabama coast.
State revenue officials said that if ExxonMobil prevails — and an administrative law judge has already ruled in the oil company’s favor — it could get $41 million in immediate refunds. Refunds for all companies covering all years could push the total refunds to between $100 million to $200 million, depending on who’s doing the estimating.
ExxonMobil is the biggest producer along the Alabama coast, handling about three-fourths of the natural gas.
Riley initially proposed changing Alabama’s tax from a value-based tax to a volume-based tax that would double the amount of taxes paid by oil companies annually from $40 million to $80 million. That bill, which levied a permanent tax, got killed by the House committee in late March.
Riley came back with another bill, which the committee revised and approved April 3, that keeps the current value-based tax. It reduces the tax rate from 10 percent to 8 percent and eliminates some expenses that oil companies deduct before paying the taxes. Legislative fiscal experts said it would produce the same $40 million annually the state gets now.
Tax would make up refunds But the bill also levies a temporary 6 percent tax on gross proceeds that would stay in place until the state collected enough money to cover all the refunds at stake in the legal dispute with Exxon Mobil. In no case could the temporary tax go beyond six years.
Legislative fiscal experts said the temporary tax would generate another $40 million annually. ExxonMobil officials said it would be much more and would make Alabama’s taxes the highest by far on the Gulf Coast.
Russell said the legislation would make sure the state is not hurt by any refunds to oil companies. But he said the administration is willing to back off the temporary tax if ExxonMobil will give up on seeking refunds.
“If those claims are dropped, the surcharge is dropped,” Russell said.
Seckers said the legislation sends a chilling message to anyone doing business in Alabama: “Don’t take a case to court. We’ll make you pay if you do.”
The tax legislation must win approval in the House and Senate and be signed by the governor before taking effect.
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