The oil and natural gas industry provides tax support for state, federal and local governments at rates higher than any other sector of the economy. From 2006 to 2011, the oil and natural gas industry paid an effective tax rate of 44.3 percent, higher than any other industry.
The U.S. oil and natural gas industry does not receive “subsidized” payments from the government to produce oil and gas. Many provisions in the tax code allow companies to recover their costs. Oil and gas companies are eligible for these deductions, which are similar to, if not the same as, deductions available to many other industries. But tax deductions should not be confused with subsidies.
In addition to the public revenues generated by the petroleum industry, the industry generates enormous amounts of economic activity and job creation.
Oil Severance Tax
Oil producers in California have repeatedly faced attempts to raise taxes on energy production. These efforts are often based on the mistaken belief that production of oil and natural gas in California is not taxed.
In addition to a small severance tax that supports the state’s regulatory program, oil and natural gas companies pay a variety of other taxes that are not collected in other oil producing states. California’s corporate income tax, personal income tax and sales taxes are among the highest in the nation.
In contrast, Alaska, another major oil producing state, has no personal income tax or sales tax. Texas, the nation’s largest oil producing state, does not have a corporate or personal income tax.
And California’s gasoline and diesel taxes combined are the highest in the nation.
Another major source of government revenue is the property tax. In California, oil producing properties are assessed for tax purposes based on the present value of oil in the ground. That means California taxes oil whether its produced or not.
Voters and the Legislature have repeatedly been asked to impose an oil severance tax on California energy production. After fully evaluating the impacts of such a tax, those proposals have been rejected.
For more information on the oil and natural gas industry’s tax payments, please visit http://www.api.org/policy-and-issues/taxes.