Gas tax rise gains Capitol support
Posted on Thursday, January 24, 2008
URL: http://www.nwanews.com/adg/News/214632/
Several legislative leaders said Wednesday that they’ll likely support a rise in the severance tax levied on natural gas producers.
They say that’ll be the case provided that Gov. Mike Beebe can reach a deal with the industry on an increase that doesn’t make Arkansas’ severance-tax burden much greater than that of surrounding states.
Sen. Bob Johnson, D-Bigelow, said he remains opposed to an increase and state officials shouldn’t rush into a special session to avoid the potential of an initiated act passing in November that would raise the tax more than the industry wants.
Johnson, who is to be Senate president pro tempore when the Legislature meets next year, predicted voters would reject the initiated act if it gets on the general election ballot.
But Johnson left his options open to possibly agreeing to a compromise tax increase if an agreement is reached by Beebe and the industry.
Beebe last week floated the idea of calling a special session. He says he continues to talk to industry officials and, if progress is made, would shop the increase to legislators.
There were signs Wednesday that not all of the major natural gas production companies are in sync.
Mark Raines, spokesman for Chesapeake Energy Corp. of Oklahoma City., said industry officials “are really close” to reaching agreement on a severance tax increase.
“I think we’ll have something we’ll be able to go to the governor with soon,” he said.
But John Thaeler, senior vice president of SEECO Inc., a subsidiary of Houston-based Southwestern Energy Co., said, “I am not aware that we are close to a consensus.” He added, however, that they are trying.
Stephens Production Co. President William Walker declined to comment when asked about discussions among industry representatives about the severance tax. Stephens Production, a natural gas business based in Fort Smith, is owned by SH Corp., the parent company of the Stephens family businesses. SH Corp. is owned by Warren Stephens and his cousins W. R. “Witt” Stephens and Elizabeth Stephens Campbell.
The current severance tax on natural gas in Arkansas brings in about $ 600, 000 a year.
Beebe wants to make Arkansas’ tax roughly equal to what is levied in Texas and Oklahoma. He said that will yield at least $ 50 million a year, with the potential for more than $ 100 million a year. But he has said he wants to take into account the total tax structure of each state.
The matter has become more timely because of increased drilling in the Fayetteville Shale deposits of Arkansas.
There are 150 production companies that have permits to pay the natural gas severance tax, the state Department of Finance and Administration said Wednesday. Of those, 132 have actually paid the tax.
The tax is paid by companies that harvest the natural gas from the ground, not the driller or the landowner or the mineral rights owner. It is not paid by natural gas utilities.
State Revenue Commissioner Tim Leathers said that typically mineral rights owners receive royalties of one-eighth interest in revenue from the gas. Their share of the tax is the same but it is turned over to the state by the production companies.
Currently, the state’s severance tax on natural gas is threetenths of 1 cent per 1, 000 cubic feet of natural gas. That was set in the 1950 s, and since it’s based on volume, the tax rate doesn’t take into account the inflation to the price of gas since that time.
A proposed initiated act would raise the tax to 7 percent on the purchase price. It was filed with the attorney general’s office last week by former Little Rock lawyer Sheffield Nelson, who is a former natural gas utility executive and a former Republican gubernatorial nominee.
Nelson didn’t immediately return a message Wednesday.
Senate President Pro Tempore Jack Critcher, D-Batesville, said he didn’t want a special session to raise taxes but it would be better to do so legislatively than for Nelson’s proposal to win passage.
Industry officials have said Nelson’s proposal doesn’t include exemptions needed for higherrisk drilling, such as is done in the case of the Fayetteville Shale exploration. Oklahoma’s tax is at the level sought by Nelson but includes such exemptions.
Sen. Jim Hill, D-Nashville, chairman of the Revenue and Taxation Committee, said his “gut” tells him to expect a special session and industry to come up with an agreement.
“For several years now I have suggested to some of them that it probably needs to come up,” Hill said. “It needs to be more than it is. It’s embarrassing low.”
But Hill said Nelson’s proposal was too high.
House Speaker Benny Petrus, D-Stuttgart, said he could support an increase.
“It depends what type of severance tax they’re talking about for an increase,” Petrus said. “I probably could support one [if it is ] competitive with other states. It hasn’t been increased since not since 1957, so it is probably due for an increase. It’ll be interesting to see what they’ve got in mind.”
Rep. Robbie Wills, D-Conway, who is to be speaker of the House for the 2009 session, said he’d also prefer to see the tax raised legislatively and could support an increase, especially to fund highways.
Beebe has proposed using the extra revenue for highways. Nelson wants to use part of the money for higher education.
Beebe contends the tax would be passed onto consumers in other states because that’s where most of Arkansas’ natural gas is consumed.
But Johnson contends the increase would be passed on to the Arkansas consumer in some way.
“The middle-class and working-class families will pay for it,” Johnson said. “They’re going to pay for it on everything they buy. Get ready for your electric bills to go up. It takes natural gas to run those electric generator plants. It is outrageous to say the natural gas production companies are going to pay for it.”