Frequently Asked Questions PDF Print E-mail
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Tuesday, 22 September 2009 14:39

Questions and Answers

1) Is this plan legal?

A complete legal research has not been done. But, I have 25 years of tax experience and have given this to tax attorneys for review. We believe this would be legal based upon our education, training and experience. But all state legislatures pass bills annually which are challenged and go to the US Supreme Court to be overturned. These laws hope to get the Supreme Court to overturn its own decision of years ago. But as stated above and below, even if it is overturned in the Supreme Court, the national impact would be worth the cost.

2) Is this plan constitutional?

The US Constitution in the Commerce Clause limits the taxes which a state can tax to non-residents if it unfairly taxes non-residents over residents. In “Complete Auto Transit, Inc. v Brady, 430US274 (1977)”, the US Supreme Court set a 4 part test for the validity of a state tax. These tests are:

a) it is applied to an activity with substantial connection (nexus) to the State; With thousands of miles of pipelines running through Louisiana, with pumping stations and employees, these pipeline companies have a substantial connection to Louisiana. Also, this taxes the pipeline, not the oil or gas, which is located in Louisiana.

b) it is fairly apportioned; Property taxes, and probably excise taxes, would not have to be apportioned. (Since this taxes the volume of all oil and gas, this is apportioned based upon the volume of oil or gas, domestic or foreign pumped through the gas line.) Additionally, property Taxes on Rental Buildings is already calculated on the bases of rents collected, not an appraised or cost value. Consequently, it should not be a legal stretch to calculate the value of a pipeline or refinery based upon the volume of product it produces or which flows through it. Additionally, when one pipeline company goes to Wall Street to purchase another pipeline company, the value of the company is determined by the volume going through the pipeline, not by the cost to place the pipeline. But since this taxes all pipelines the same no matter what the destination of the oil is, it is fairly apportioned as required in Complete Auto Transit v Brady. (See Commonwealth Edison v Montana US Supreme Court Docket No. 80-581, July 2, 1981 , 453 U.S. 609) Commonwealth Edison v Montana also states, that taxing energy doesn’t violate the Minerals Land Leasing act of 1920 with amendments (even if it reduced federal royalties) nor does it frustrate federal energy policy as long as it is fairly apportioned.

c) It does not discriminate against interstate commerce; The state may not impose greater burdens on out of state businesses than it imposes on equivalent in-state businesses. This plan does not discriminate against interstate commerce. This plan taxes the pipeline based upon all Oil and Gas volume, domestic and imported, unlike other plans which only taxes imported oil or gas.

d) it is fairly related to the services provided by the taxing state. For 50 years Louisiana has relied upon the Corps of Engineers and the Federal Government to maintain the coast line, levees and barrier islands. Due to lack of Federal Funding, design and maintenance of the coast line, barrier islands and levees has been inadequate over the past 20 years. Louisiana has stated to congress the need for at least $250 billion dollars or more to restore the barrier islands, coast line and levees. Consequently, the rate of the tax for 1 or 2 years should not be unconstitutional. Once the tax rate is reduced, it should remain constitutional. Louisiana will still have to continue to engineer and maintain the levees, coastline and barrier islands. Louisiana also has to provide roads to these pipelines, hospitals, police and fire protection for these companies and their employees.

3) What happens if this law is challenged?

Once the law is passed, the monthly collection of the tax begins. If the law is challenged by a pipeline company, refinery or another state or the federal government, the contested tax is still collected and placed into escrow while the case is pending. Consequently the political consequences of the law would be felt immediately through out the nation. {See Federal Injunction Act (28 U.S.C. Sec. 1341) Louisiana has a similar statute}. Additionally, if the law is challenged and overturned by the US Supreme Court, the result would be political suicide. All the money paid under protest into the trust account would not be refunded to the consumer, but to the oil and gas companies, who are making record profits. To have the Supreme Court to tell the nation to return to the Oil Companies 350 to 450 billion dollars, would not set well with anyone in the nation.

4) Does the Louisiana Constitution limit this plan?

NO. Article 14 section 24.1 of the 1924 Louisiana Constitution prohibited using an excise tax, privilege tax or property tax on oil or gas. When the current Louisiana Constitution was enacted in 1974, this restriction was lifted. State Property tax was eliminated in 1973. Then with the enactment of the 1974 new constitution property tax was not included. If this passed as a property tax the Louisiana Constitution may have to be changed. Since the Louisiana Constitution defines what a property tax can be, whether by the state, parish or city. If passed as an excise tax the Louisiana Constitution may have to be changed. Since the Louisiana Constitution does not allow taxing something just because oil or gas is present. But since all gases and liquids would be taxed not just oil or gas, this should not be a problem. An alternative could be to tax all pipelines in the state. Then give exemptions for pipelines which carry water, sewage, electricity, data or other specific products.

5) Why hasn’t this been done before?

As stated above, the 1924 Louisiana Constitution prohibited such a tax. Since this prohibition was lifted a tax on oil or gas was previously passed. But, this tax was declared unconstitutional by the US Supreme Court since it exempted Louisiana Domestic Production or Use. Also, we have not previously had the great need for cash to fix the Hurricane damages and repair for the future. (When Betsy and Camille hit in the late 60's the congressional delegations for Louisiana and Mississippi had a lot of clout in Congress. Now our delegation is mainly juniors in the congress with little seniority). Finally, we have always left levee and barrier island maintenance up to the Federal Government. In the mid-1980's the federal government decided this was too expensive and began reducing the amount spent on levee’s and islands annually. Now Louisiana will have to beg to get it fixed, or pay for this neglect.

6) I heard the oil industry say on the Garland Robinette show in a debate with Public Service Commissioner Foster Cambell and the oil association, that if a tax like this was passed, they would pass the cost on to Louisiana only. Can this be true?

NO. According to the Mid-Continent Oil and Gas Association, Louisiana consumes 2% of the oil and gas produced through Louisiana. Since over 25% of the oil and gas consumed in the United States flows through pipelines in Louisiana, the US would have to reduce consumption by at least 20% or the tax would have to be passed on to all consumers If the Oil & Gas companies does not pay the $33 Billion per month in Taxes, then Louisiana has the right to seize the pipeline and sell it at auction for the taxes due. Once the pipeline is seized for taxes, the pipelines would have to be turned off, while waiting the auction. Consequently, the pipeline company would have to pass the cost on to all consumers.

7) To place a tax on oil and gas will drive the oil and gas industry out of the state?

THERE IS NO CHANCE OF THIS. First, the 80% of the major pipelines coming from the Gulf of Mexico flow into Louisiana, into over 45,000 miles of pipelines in Louisiana. To reroute all the volume in these pipelines to other pipelines would be impossible. Then to contract with land owners, get all the permitting and lay new pipelines would take at least 10 years if not 20 years. Finally, if the pipeline industry tried to start getting permits in Texas or Mississippi to reroute the oil and gas to avoid the Louisiana Tax, wouldn’t the Texas or Mississippi Legislatures pass a similar tax? If Louisiana can tax the pipeline and generate Billions of Dollars to Louisiana, don’t you think Texas, Mississippi or Alabama would want to add a few Billion Dollars to their state treasuries.

8) President Bush in his state of the Union speech stated the US had to reduce it’s dependence on oil & gas. How can this be accomplished?

This plan increases the price of oil and gas, thus it reduces the consumption of oil and natural gas nation wide.

9) Does natural gas have enough processing and services to warrant this degree of taxation?

YES. Natural gas comes out of the earth as condensate. Then in the pumping and transportation process, the condensate is turn to natural gas. Consequently, the gas is pumped through a Louisiana Pipeline and processed in Louisiana pumping stations to make it gas to go to other states. Additionally, coastline and barrier island losses effect the continual operations of these pumping stations.

10) How accurate are these volume and tax estimates?

These estimates are between 20% and 30% low. The estimates are based upon public information mainly from the US Minerals Management Service for 2001 or 2004. Consequently, these numbers are low because the numbers are based mainly on the Gulf of Mexico Production, LOOP and 2 LNG Terminal Super Ports. Additionally, there are 10 major refineries per the Times Picayune Article quoted. While the US Department of Energy website states, there are 10 major and 9 minor refineries in Louisiana. Also, the Times Picayune Article states production from these 10 refineries are 25 billion gallons per year. Yet the US Department of Energy website states Louisiana refineries produce 42 billion gallons per year. Consequently, I am confident the taxes produced by this plan would be at least 20% higher than stated above, if not 30% higher.

Last Updated on Tuesday, 22 September 2009 14:58