Business News

Gimme A Break

by Jeremy Alford

Oil and gas tax exemptions largely escape legislative scrutiny this year.
Wednesday, Oct. 31, 2012
By Jeremy Alford

While the Revenue Study Commission might give way to some minor reforms in terms of Louisiana's tax code, substantive changes and repeals aren't expected to emerge from its ongoing hearings. This applies especially to the oil and gas industry, whose Capitol backers have been able to present compelling arguments to lawmakers since the commission began meeting in late July.

The commission was created during this year's regular session and is charged with reviewing the effectiveness of Louisiana's many tax breaks. For example, during a September meeting, the commission assessed roughly 22 sales tax expenditures related to energy.

Few of the incentives and exemptions stirred the interest or ire of lawmakers. Most involved with the process have so far referred to the hearings as a learning exercise. There are so many tax breaks on the books that Don Briggs, president of the Louisiana Oil and Gas Association, said he's "not expecting the commission to get into too much detail" regarding those being utilized by industry.

That's good news for boosters of horizontal drilling, which under certain circumstances can escape severance taxes as part of Louisiana's investment incentive program. During the spring of last year, officials from the Legislative Fiscal Office told lawmakers they might want to take a closer look at altering the incentive.

Photo by Peter Piazza

By December, reports showed that severance tax collections were down some $128 million. According to the Department of Revenue's tax exemption budget for the most recently completed fiscal year, the horizontal well incentive is projected to cost the state $254 million next year from natural gas suspensions.

Briggs and others argued that any kind of repeal would be shortsighted because all related investments - jobs, contracting with service companies, local taxes and more - would be forfeited as well if companies decide to drill elsewhere. The exemption, which was created in 1992 in part to help Louisiana compete with Texas, helped encourage investment in the Haynesville Shale area and went largely
ignored during times of high gas prices.

But times have changed. As for a compromise, like a trigger that would lift the incentive when prices are high, Briggs says he doesn't see the necessity. "Gas prices are low and they're going to be low for a while," he says. "To get to the point that gas prices would be so high we wouldn't need the incentive is several years away."

Considering Gov. Bobby Jindal's stance on repealing tax exemptions, which is that they equate to tax increases, and the defenses being mounted by business and industry, some serving on the revenue commission doubt there will be any groundbreaking recommendations to take up in next year's fiscal session.

Senate Revenue and Fiscal Affairs Chairman Neil Riser, R-Columbia, said the framework and timeline simply won't allow anything in-depth. "The resolution only calls for us to review non-performing tax expenditures," says Riser, vice chairman of the commission. "It's to the point."

But for a member of the commission to file his or her own legislation and embark on a rogue policy mission is another matter.

House Ways and Means Chairman Joel Robideaux, R-Lafayette, says the commission, which he likewise chairs, is also taking input from the public and making all research materials available at "We want to keep lines of communication open with the public by allowing access to all available information, and by allowing individuals the opportunity to contact us with comments, questions or concerns," he adds.

In part, some lawmakers view the commission as a training ground of sorts for how tax incentives work. For example, members learned this month there is a difference between tax exemptions and tax exclusions. The latter essentially calls for no record-keeping, requiring some guesswork as to the effectiveness. "And then there's another category, for things like the Internet sales tax, which is supposed to be self-reported," Riser says.

Sen. Dan Claitor, R-Baton Rouge, says he's more interested in the differences between credits, which cannot be considered in non-fiscal years, and rebates, which can. "I'm most likely going to bring legislation to change that," he says, making them both eligible for debate only during fiscal years.

Claitor also can envision more of an emphasis being placed on sunsets in the near future so that tax expenditures would have to be discussed by the bodies on a regular basis. "Due to term limits, institutional knowledge has been flushed out of the Legislature," he notes. "There are only a few people still around who can remember why a tax incentive was passed for horse racing or something else back in the 1970s. I guess some of them are dead, some of them are in prison and some are elsewhere."

Jindal has promised to make tax reform his top priority for the 2013 regular session, although his administration has yet to release a detailed plan. A report that was issued by his staff in September suggested the governor may favor eliminating certain exemptions and using the money saved to lower tax brackets for individuals.