Senators Warned About Rendell's Oil Tax
Tuesday March 27, 5:32 pm ET
By Marc Levy, Associated Press Writer
Senators Warned About Impact of Rendell's Oil Tax in Pa.
HARRISBURG, Pa. (AP) -- During a state Senate hearing Tuesday on Gov. Ed Rendell's proposed new tax on oil companies, senators were warned that the tax could have an economic impact that reached far beyond oil giants.
The gross profits tax apparently would apply to 274 businesses that have a stake in fuel sold in Pennsylvania, whether through exploration, production, refining or delivery -- not just giants like Exxon Mobil or ConocoPhillips.
That did not go over well with some Republicans on the Transportation Committee, who said they felt the Democratic governor has advertised the tax as a way to tap into the gushing profits of Big Oil.
"We have a major problem in that it was being sold as a tax on the big oil companies and conglomerates, et cetera," said Sen. Roger Madigan, the Bradford County Republican who chairs the committee. "But it may hit ... Pennsylvania producers or distributors."
In addition, the tax could apply to the profits that companies reap from other lines of business, not just oil, the Revenue Department acknowledged after the hearing. That scenario will depend on how a company is structured, said department spokesman Steve Kniley.
The tax is designed to go into effect Jan. 1, 2008, although legislation for it has not been introduced.
Even if it becomes law, some legislators say it is legally questionable whether the state can prevent oil companies from passing the extra cost down to consumers, as Rendell has pledged to do.
In search of millions of dollars to prop up the state's ailing mass transit agencies, Rendell first proposed the new tax two months ago.
To make it politically palatable, Rendell has accused big oil companies of raking up "mind-boggling" profits and said it is time for them to pay their fair share for a public transit system that is in crisis. He also has said that many oil companies avoid paying the state's tax on net income.
Rendell's acting revenue secretary, Tom Wolf, defended the proposed tax and said constitutionally, the state cannot tax just a few big oil companies. So Rendell chose an entire sector as defined by the Internal Revenue Service, he said.
Out of that sector, 274 companies benefit from the sale of vehicle fuel, heating oil and propane in Pennsylvania, whether they drill for it, refine it or deliver it. In all, those companies are projected to rack up $346 billion in gross profits in 2007, Wolf said.
Company shareholders, not consumers, would bear the cost of the $830 million that the 6.17 percent tax would raise, Wolf said. Companies that stop supplying fuel in Pennsylvania to avoid the tax would be replaced quickly, he said.
"We don't see in a competitive marketplace ... that this would drown out competition or keep people from wanting to compete in a state so rich with consumers," Wolf said.
But oil industry representatives who testified after Wolf said the dividends of oil companies also benefit shareholders in Pennsylvania, such as the state's major retirement systems. They also sought to dispel the notion that Big Oil is gouging consumers, saying oil companies are no more profitable than the rest of the nation's manufacturing sector.
Even if Big Oil's profits are seen as ripe for taxing, the state's distributors argue theirs should not be.
Some of those businesses are small distributors who operate on a razor-thin profit margins in rural areas, said John Kulik, a lobbyist for the Pennsylvania Petroleum Marketers & Convenience Store Association.
"Distributors will go out of business," Kulik testified. "That in itself will have an effect on price." |
