State’s proposed Big Oil taxes panned

HARRISBURG — To Gov. Ed Rendell, it could be a golden goose: a state tax on oil company profits that could not, by law, affect the price of gas at the pump.

Wisconsin Gov. Jim Doyle is floating a similar idea for tapping into an industry whose top five companies last year rang up more than $100 billion in profits.

The only problem: Tax lawyers and accountants say a tax with a pass-through prohibition would never work because the price of gas is dictated by a broad range of variables.

“How are they going to know whether somebody who labels some increase in cost as transportation, or as crude, or as refining, is in fact passing on a tax? You tell me,” said Walter Hellerstein, a professor of taxation at the University of Georgia Law School in Athens.

The oil industry has been a political target before, going through the wringer during previous energy crunches. Companies sued several states in the 1980s over attempts to impose taxes on the industry and, in some cases, prevent the cost from being passed down to consumers.

The courts ultimately found that federal price controls pre-empted anti-pass-through laws on oil and gas. Those price controls have since expired, and today Hellerstein and other tax experts contacted by The Associated Press said they did not know of any pass-through bans in force anywhere, at the state or federal level.

To hear Rendell tell it, the tax is about more than just finding money; it’s about getting Big Oil to pay its fair share of public transportation subsidies. He aims to raise $830 million a year, based on a proposed 6.17 percent tax on oil company gross profits attributable to Pennsylvania.

Doyle is proposing a 2.5 percent tax on oil company gross receipts from sales in Wisconsin to generate $270 million over two years for highways and other transportation needs.

Both governors would impose criminal penalties on violators. But neither of their state legislatures has signed off on the idea.

Rolf Hanson of the Associated Petroleum Industries of Pennsylvania, a division of the Washington, D.C.-based American Petroleum Institute, said the top 29 oil and gas companies paid $28.5 billion in federal, state and local income taxes in 2005, and paid $47.2 billion more in excise taxes on oil and gas transactions.

The pass-through prohibition would hurt the industry’s ability to meet demand and deliver benefits to shareholders — the same people as the consumers who Rendell and Doyle say they are trying to shield, Hanson said.

Pennsylvania received more than $1.2 billion from taxes on liquid fuel sales and oil company income in the 2005-06 fiscal year, according to the state Revenue Department.

Legal experts say they believe the proposed laws would pass constitutional muster. The bigger question, they say, is whether they would be effective.

Richard D. Pomp, a professor of law at the University of Connecticut who directed the New York Tax Study Commission in the 1980s, said an anti-pass-through provision is naive — though it might produce one benefit.

Wisconsin and Pennsylvania may not be able to prevent the cost of the tax from trickling down to consumers, but their proposed laws could intimidate some oil companies into absorbing a price increase they otherwise would pass on, he said.