The Assembly Revenue and Taxation Committee approved bills January 11 that would create a 12.5 percent oil severance tax (AB 656, Torrico) despite testimony from workers who said the tax could put them out of a job at a time when California's unemployment rate is 12.3 percent.
The oil tax bill was approved on a party-line vote of 5-2, with Democrats in support.
Supporters of the tax – including labor unions and the union-affiliated California Tax Reform Association – repeated their claim that the tax is a matter of "fairness," because "California is the only oil-producing state without a severance tax."
Opponents pointed out that even without a severance tax, California's taxes on oil producers are on par with other states, and that a severance tax would make California the highest taxing state on oil production, by a large margin. They pointed to a study by former legislative analyst William Hamm that found a 9.9 percent severance tax would result in the loss of nearly 10,000 jobs in this state.
Several hundred opponents packed the hearing room and a nearby hallway. They included a number of oil industry workers who said their working-class jobs could be lost if the tax is approved. Ron Jacobs, co-owner of an oilfield services company that employs 57 full-time workers and 13 temporary employees, told the committee that the bill would put many of the jobs – and possibly the entire company – at risk. Fred Holmes, a small oil producer in Taft, said he would be forced to lay off 10 employees and would invest future money in lower-tax states where opportunities are "far superior."
Cal-Tax Vice President and General Counsel Michele Pielsticker also testified against the bill. Representatives from the CalChamber, the California Manufacturers and Technology Association, the Hispanic Chambers of Commerce and other groups also voiced their opposition to the tax, noting that it would increase the cost of gas at the pump, and would lead to less production in California and more dependence on foreign oil.
Mr. Calderon said the 12.5 percent tax rate would be "pretty extraordinary," and suggested that Assemblyman Alberto Torrico amend the bill down to a 6 percent tax that would be "more in line with how we tax other entities." Mr. Torrico said he was "not prepared" to talk about reducing the rate.
After a discussion over the rate, Mr. Calderon predicted that the bill will not get the required two-thirds vote needed to pass the Assembly, so the point is moot. "The real truth here – this bill is going nowhere," he said. Mr. Torrico agreed that "today it's not possible" to get the needed 54 votes.
Mr. Torrico is currently running for the Democratic nomination for attorney general, as is Assemblyman Pedro Nava, who also has introduced an oil severance tax bill.
Mr. Torrico's bill now goes to the Assembly Appropriations Committee.
Cal-TaxReports, January 19, 2010
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