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If Tax Plan Passes, Study Claims Oil, Gas Industry Faces 137% Hike

July 29, 2008

By Gargi Chakrabarty

A state tax on the oil and gas industry would jump a dramatic 137 percent if voters in November approve a ballot measure supported by Gov. Bill Ritter, according to a study paid for by the industry.

The measure calls for eliminating an ad valorem tax credit that allows energy companies to significantly cut their state severance tax. If passed, it would raise roughly $321 million a year – with the bulk of the money going to college scholarships.

Supporters of the measure say Colorado has one of the lowest effective tax rates in the region, and eliminating the tax credit would make the oil and gas industry pay a fairer share of taxes.

“Coloradans are learning that they pay this unique $300 million subsidy, and these guys don’t like that,” said George Merritt, spokesman for the A Smarter Colorado campaign. “They throw this funny math against the wall to distract us from the simple question: Can we afford to pay oil and gas companies $1 billion over the next four years?”

But oil and gas industry officials complain the measure would more than double their severance tax burden. Colorado would become the No. 2 highest taxation state, behind only No. 1 Wyoming among the nation’s top nine oil- and gas-producing states, up from its current rank, according the study by Jose Luis Alberro, a director at consulting firm LECG LLC. Colorado currently ranks No. 3 for oil and No. 4 for gas taxation.

Higher taxation means higher costs of production, and that could lead to higher oil and gas prices for customers, said Stan Dempsey of the Colorado Petroleum Association, which paid $50,000 for the study released Monday.

“Any time costs are up for any type of business, the effective higher price will be passed on to consumers,” Dempsey said. He didn’t say how much prices would go up; neither did the study.

The oil and gas industry, which is raising millions of dollars for its campaign, will focus on themes such as higher gasoline prices and utility bills to fight the measure.

Last week, findings by the Sonoran Institute in Tucson and the Consumer Federation of America reiterated that the measure would not affect consumer prices.

Claims that they would “are misinformed and misleading,” said Mark Cooper of the Consumer Federation of America. “Since oil and gas companies continue to enjoy record profits, there is no economic reason why they can or should target price increases to Colorado consumers.”

INFOBOX 1

A national survey shows gas prices have dropped a fraction below the $4 mark.

The average price of regular gasoline at self-serve stations was $3.996 a gallon Friday. Midgrade was $4.13 a gallon and premium went for $4.24. That’s according to the Lundberg Survey of 7,000 gas stations nationwide, released Sunday.

Prices are at their lowest level since May 16 and are an average of 11.7 cents less per gallon than two weeks ago.

Still, the survey showed the average U.S. price for gas is $1.11 higher than it was a year ago.

In Colorado, the average on Monday was $3.987 for a gallon of regular unleaded gas, and in Denver the average was $3.93, according to AAA.

INFOBOX 2

By the numbers

$321 million: Amount Colorado expects to raise in severance tax revenues if the ballot initiative passes. Most would go to college scholarships.

137 percent: Increase in the severance tax the oil and gas industry would have to pay, a study paid for by the industry says.

Originally published by Gargi Chakrabarty, Rocky Mountain News.

(c) 2008 Rocky Mountain News. Provided by ProQuest Information and Learning. All rights Reserved.




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