January 7, 2009
At a time when the oil and gas industry was enjoying record profits, producers got a break under Texas’ new business tax, according to a draft report from a tax advisory committee headed by the state comptroller.
Oil and gas producers paid nearly $411 million last year under the new tax, down from nearly $489 million in 2007. The industry also separately pays state levies including severance taxes, which skyrocketed with higher oil prices.
Most other industries ended up paying more last year than in 2007 under the business tax expansion, according to a draft of the Business Tax Advisory Committee’s report to the Legislature, due to be released within days.
The business tax expansion was approved in 2006 to bring in extra dollars to help subsidize local school property tax rate relief and to eliminate loopholes that allowed some businesses to avoid the tax by the way they organized.
The state’s leading oil and gas industry trade group disputed the notion that it had gotten a tax break because other taxes it paid last year, including severance taxes, rose due to record-high gas prices.
“Texas remains very dependent on oil and gas to pay the bills,” said Ben Sebree with the Texas Oil & Gas Association. He said the industry supported the business tax rewrite because it thought the tax should be broadened to cover businesses other than those that are capital-intensive.
Sebree said he expects the business tax payments will go “way up” this year based on 2008 revenue. Each year’s business tax tab is based on the previous year’s business activity.
The receipts studied for the report, which were not complete, yielded $1.36 billion more to the state than the nearly $3 billion collected under the old tax in 2007. Of 27 business categories listed in the report, the only ones that paid a smaller dollar amount under the new tax were oil and gas, agriculture, wholesale trade and rail transportation.
The rest paid more. Among the largest percentage increases was the telecommunications industry, whose tab rose 298 percent from $24.5 million to $97.6 million. The figures compiled by the state comptroller’s office also indicated that despite reports from small businesses that they are being hammered, small businesses weren’t hit harder than others by the tax changes.
More than 85 percent of the new tax was paid by firms with more than $10 million in gross receipts under the new business tax, compared to more than 81 percent under the previous tax, according to the report.
Sen. Kirk Watson, D-Austin, a member of the advisory committee, said that’s not where the subject ends.
“It doesn’t answer one of the big questions, which is why is it that we have so many in our small-business community who are telling us how concerned they are that it’s impacting them in an unfair way … The anecdotal hardship issues are too widespread and too sincere to be ignored,” he said.
The findings on which industries pay the tax aren’t a surprise, though they may fuel critics, say those familiar with the tax.
“All of that is consistent with the stated goal of trying to move the tax base away from goods-producing industries and more toward services,” said Dale Craymer, chief economist of the Texas Taxpayers and Research Association. “I think the numbers are going to show that the Legislature accomplished that.
“The purpose of the reform overall wasn’t to help the oil and gas industry as much as it was to try to make the tax more reflect a modern economy,” he said.
Because the new tax doesn’t take into account profit, Craymer noted that the flip side for oil and gas producers is that they likely will end up paying more in unprofitable years than under the old tax.
Sen. Leticia Van de Putte — who opposed the way the business tax was expanded — said the figures highlight the new levy’s problems.
“It’s not a surprise. I think every member of the Legislature knew that oil and gas got a sweet deal,” said Van de Putte, D-San Antonio, who hadn’t reviewed the report. “It hurts the very jobs we’re going after … I would say the public should be outraged that we got it backwards.”
House Ways and Means Committee Chairman Jim Keffer, R-Eastland, said it’s no surprise that there would be some relief for the oil and gas industry as other sectors of the economy were brought into the tax base. He said the Legislature will study the numbers to make sure that no industry is bearing too heavy a burden, but he doesn’t see any need for a major overhaul of the new tax.
“I think it’s good policy,” he said.