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Home My WebLink AboutMINUTES - 03131984 - X.12 X. TO. BOARD OF SUPERVISORS FROM: Supervisor Tom Torlakson Contra Costa DATE: March 12, 19811 Co-11 It�t / SUBJECT: AB 3 OIL SEVERANCE TAX SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION Informational : Attached is a packet of information on the oil severence tax bill , AB 3 by Assemblyman Tom Bates. This bill would generate about $390 million Of new revenue that would return to the people so there could be an impact on tax relief. The Board has previously taken positions in favor of an oil severence tax and I feel we should support this one. Recommended Action: Refer to the County Administrator the information on AB 3 for a report and recommendation. CONTINUED ON ATTACHMENT: X YES SIGNATURE: RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE(S): ACTION OF BOARD ON -/' /L'c / 1 ) 9 Y APPROVED AS RECOMMENDED OTHER VOTE OF SUPERVISORS 1 HEREBY CERTIFY THAT THIS IS A TRUE UNANIMOUS (ABSENT AND CORRECT COPY OF AN ACTION TAKEN AYES: NOES: AND ENTERED ON THE MINUTES OF THE BOARD ABSENT: ABSTA 1 N: OF SUPERV I SO—RSS ON THE DATE SHOWN. 0 0/0�.s C� cc: County Administrator ATTESTED / /L GZ u�� , 9 Z 7 J.R. OLSSON, COUNTY CLERK AND EX OFFICIO CLERK OF THE BOARD M382/7-83 BY �X�J ACL/C� ��t� d� DEPUTY SACRAMENTO ADDRESS COMMITTEES STATE CAPITOL CRIMINAL LAW AND SACRAMENTOSS 14 y6��' P 6■.�■ PUBLICSAFETY (0161445 7554 N �/►• ` �1 V . ATURµRESOURCES DISTRICT OFFICE / WAYS AND MEANS 1616 WALNUT STREET (�ttlifIIrnitt .Pgittltt#urP KEL 709 JJ 15)540 311'6 •E THOMAS H. BATES MEMBER OF THE ASSEMBLY TWELFTH DISTRICT CHAIR STANDING COMMITTEE ON HUMAN SERVICES TO: INTERESTED PARTIES FROM: TOM BATES RE : INFORMATION ON AB 3--OIL SEVERANCE TAX/I"COME TAX RELIEF II I . Description of AB 3 A. Summary . AB 3 , as passed by the Assembly and amended on January 26 , provides for a 6% severance tax on the gross value of oil produced at the wellhead in California . AB 3 also enacts across-the-board personal income tax relief which totals $400 million , by indexing the brackets , increasing the standard deduction , and increasing the personal credit. The severance tax would raise approximately $400 million in a full year of operation , while the income tax reductions would provide an equivalent amount of tax relief. As a result of providing equal amounts of new revenues and tax reductions , the bill requires a majority vote of each house of the legislature for passage . B. Severance Tax AB 3 enacts a 6% tax on the gross value of oil at the wellhead . The severance tax generates revenue by requiring a 6% tax payment based on the posted price in the field times' the number of barrels produced. For ever $25 barrel of crude oil , the state ' s taxpayers would collect $1 . 50 ($2.5 x 6% = $1 . 50) . AB 3 also includes : --exemptions for 100 barrels per day of oil (first 36 , 500 barrels per year) . This exemption removes all but 125 of the state ' s 600 oil producers , while still taxing over 95% of the oil produced . --provision for full reimbursement of counties which experience" property tax losses as a result of imposition of the severance tax. This minor tax loss may result from lowered property tax assessments as the result of the interaction between the severance tax and the property tax . 00016J D --full provision for collections , auditing, penalties , and other administrative requirements . On a total eligible state production base totalling about $7 . 4 billion , the revenue return , minus reimbursements , exemptions , and other minor losses , comes to about $390 million. C . Income tax relief Income tax relief will begin in January , 1985 , and will result from the following ; 1 . 38 increase (indexing) in the income tax. brackets This measure will move the tax brackets up. by 38 to counteract the effects of inflation . while California ' s income tax is supposed to be indexed in full , the effect of the indexing initiative written by Howard Jarvis and passed by the voters in June of 1982 was to lower the brackets and give the taxpayers a 1 . 2% increase in taxes , despite an inflation rate of 3 .8% . (The initiative used an index which measured from June 182-June ' 83 , during which time the consumer price index dropped, in spite of the increase which took place during the calendar year) . This section would overcome the Jarvis-induced hidden tax increase of 1 . 28 , and would provide positive indexing at all levels . The effect of this reduction is across-the-board , since it lowers the marginal tax rate on all levels of income , and moves all brackets up proportionately. Tax relief : $210 million 2 . Increase in the standard deduction from $1510 single/$3020 joint , head of household , to $2000 single/$4000 joint , head of household. The increase in the size of the standard deduction affects those taxpayers who do not itemize deductions , and would increase the number of taxpayers who would benefit from taking the standard deduction instead of itemizing. The effect of thi's change , in combination with the others , is to increase the income level at which taxpayers pay no state income tax (zero bracket amount) from $5 , 000 single/10 , 000 joint to nearly $6000 single/12 , 000 joint , and would provide tax relief for all those who take this deduction . Tax relief = 5120 million 3 . Increase in the personal credit from $40 single/$80 Joint , head of household , by S5 per person to $45 single/$90 joint , head of household . The personal credit is a flat amount taken by each individual . This S5/$10 increase in the credit would provide equal across-the-board relief, with a stronger proportional effect. at " the lower levels of income . As noted above , in combination with the other changes , this increase would eliminate all tax liability at the lowest levels . Tax relief = $ 70 million 2 - 0001TJ II . Questions and Answers on AB 3 . Since the severance tax was first introduced in 1961 , extensive hearings and a great deal of material have discussed and analyzed the severance tax. There have been a number of committee hearings in both houses on various severance taxi proposals , extended Interim Hearings of the Assembly Revenue and Taxation Committee , hearings of a special Senate subcommittee on oil taxation , and a report to the Brown Administration done by the Energy Commission . In addition to the committee analyses , two extensive studies have been done, one which was published as a book by the Rand Corporation in 1982 at the request of the Assembly (Effects of a Severance Tax on Oil Produced in California , Rand , 1982) , and another done by the Legislative Analyst ' s office , which updated a 1981 study done by the Assembly Office of Research. In addition , 11 major oil companies commissioned a study which was a critique of the Rand and Legislative Analyst study. 1 1 . what is the oil severance tax? An oil severance tax is a tax on the gross value of crude o31 at the wellhead , as it is "severed" from the grbund. The 69 oil severance tax in AB 3 would mean that for each barrel of oil produced for which the posted price in the field is $25 per barrel , the state would collect $1 . 50 ( $25 x 66 = $1 . 50) . The accounting and collection of a severance tax is administratively simple , since both production quantities and prices are known and are easy to audit . In fact , California already has a nominal charge at the wellhead which pays for the administrative operations of the state ' s Division of Oil and Gas. 2 . Do other states have oil severance taxes? California is the fourth largest oil-producing state and is the only oil-producing state which does not have an oil severance tax . Many oil-producing states have been collecting severance taxes for over 50 years , and many increased their severance tax rates during the 1970 ' s in response to ` rapidly rising oil prices. Up until 1983 , Kansas was the only other state without a severance tax , but it enacted one in 19830 at a rate of 88 . Severance taxes have long been accepted by producers and political leaders in those states , and are a basic part of the tax system of energy-producing states . The current rates for other states are : Alaska , 12 . 258 , Montana 5 . 58 , Oklahoma 7 . 16 , Louisiana 12 . 5% , Texas 4 .66 , North Dakota 11 . 58 , New Mexico 86 . 3 . How does California compare with other states in total taxes on crude oil? Do our other taxes on oil make up for the lack of a severance tax? 4 - I i I -- 000-171