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News | Stuck in Neutral: Legislative panel stalls on changing tax breaks for oil and gas companies

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After six months of meetings, numerous speakers and hundreds of pages of research and reports, the Utah Tax Review Commission (TRC) finally came to a decision about the generous tax breaks the state gives oil and gas companies. Their decision: The answer will have to wait until 2010. n

The issue before the commission, first reported in “Jacked!” in the Nov. 6 issue of City Weekly, was whether the state should keep giving oil and gas companies the same tax breaks it did when oil was only $13 a barrel—some 10 years ago. That subsidy has meant an extra $200 million to oil and gas companies in just the last two years—even while gasoline prices hit record highs this past summer.

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The commission heard two reports from a paid, third-party consultant who argued that a bump in the generous 3-to-5 percent severance tax rate on the industries would have little impact on their decision to invest in Utah while bringing more revenue to the state. Still, the commission could not make up its mind in time to offer a recommendation to the legislative interim Tax and Revenue Committee. By missing that deadline, any bill to change the tax breaks for Utah’s oil and gas companies likely won’t see the light of day until at least 2010.

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Lee Peacock, lobbyist and president of the Utah Petroleum Association, can breathe a sigh of relief.

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“Obviously we didn’t want to see any significant changes to the severance tax,” he says. “We feel it’s an appropriate amount.”

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Peacock says the tumult of the last six months is evidence enough of why government should not rush to change the tax structure on an industry tied to a volatile economy. Since the TRC began meeting last summer on the issue, the price of oil has gone from an astronomical $147 a barrel in July to currently slipping below $57 a barrel. Reporting at the recent commission meeting, Peacock said the black-wax variety of oil common in the Uintah Basin is priced about $45 a barrel.

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“Economics have changed dramatically since we started talking about the severance taxes several months ago—with the price of crude now being less than half of what it was,” Peacock says. “That, with the continued economic uncertainty in the world, the slowdown for demand of oil—and who knows what a new presidential administration will mean for our industry,” Peacock says.

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Tax commission member Lawrence Barusch was among some on the panel caught off guard at the Nov. 13 meeting when the decision was made to put the issue to bed with no recommendation either way on the tax rate. “It’s an interesting question as to why,” Barusch says. “Especially since there is going to be a major deficit next year.”

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Sen. Wayne Niederhauser, R-Sandy, sits on the commission and moved to pass on the issue. He says the consultant’s presentation—including data that a higher tax rate for the industry would not cause the negative impact lobbyists have claimed for years—failed to change his mind about the severance-tax issue.

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“[Increased severance tax] is going to increase the cost of doing business here,” Niederhauser says. “That means less employment taxes, less property taxes. Is an increase in severance taxes going to make up for that? I don’t know if we can necessarily know that.”

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Either way, Niederhauser says the issue is unlikely to make it as a bill in the upcoming 2009 legislative session. The TRC won’t be able to recommend anything for the legislative interim meeting; they were still waiting to hear a final presentation from Questar. Niederhauser says that while the TRC’s findings could be presented to a standing committee in the session, they still will likely have missed out on fronting a bill to change the tax structure for Utah’s oil and gas companies.

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Rep. Roz McGee, D-Salt Lake City, is disappointed that, after all the work the TRC has done, any more movement will be delayed for two years. McGee, who will not be returning to the Legislature this session hopes the issue is not forgotten.

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“As we go into this period of economic downturn of who knows how long, I think it incumbent on the Legislature to look carefully at all sources of revenue to meet current needs and future needs,” McGee says.

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