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California (Again) Considering Oil, Gas Severance Tax

With a history of past rejection, the California legislature may again consider a 10% oil and natural gas severance tax, similar to what exists in many other producing states, according to state Sen. Bob Wieckowski, who authored Senate Bill (SB) 246.

The bill, introduced last week, could generate up to $900 million of annual revenue for the state, Wieckowski said.

"We have been an oil and gas producing state for more than 100 years, and we have never imposed a tax on the extraction of fossil fuels," said the Northern California Democrat, who represents the East Bay near San Francisco. "If we continue the status quo over the next decade, we will deny our residents billions of dollars in revenue from oil companies that other states have collected year after year."

Under the Oil Industry Levy Act, 10% of the average price/bbl of oil or 10% of the average unit of natural gas would be taxed. Collected revenue would be deposited in the state general fund.

Western States Petroleum Association President Catherine Reheis-Boyd called the proposal an "unnecessary tax" that would harm the state's economy at a time when elected officials are touting a large budget surplus. “California voters have already rejected this bad idea,” she said, referring to a 2006 ballot measure. Voters “understand it would increase costs, devastate jobs, local services and compromise our state's sustainable energy future.”

She said the state’s energy industry pays about $42 billion in federal, state and local taxes.

The bill would require a two-thirds majority to pass the legislature. Democrats control two-thirds of both houses.

California Independent Petroleum Association CEO Rock Zierman called SB 246 "recycled from more than a dozen failed past attempts" and based on a "myth about tax equity." Ultimately, he said, the proposed tax would be passed on to consumers and hurt working families.

Other states have similar taxes, calculated either on the value of the oil produced, volume produced, or some combination of those.

Since 1990, at least seven severance tax bills have been proposed, Wieckowski spokesperson Jeff Barbosa said.

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