The oil tax still in the ground
Why does Governor Newsom want to kill it?
by Hank Muddman
It is no secret California has the highest gasoline tax in the United States. The tax at the pump consists of an onerous 57.9 cents per gallon excise tax and a 2.25% sales tax. If you drive a diesel vehicle (such as EVERY tractor-trailer rig delivering EVERYTHING), you get hammered with a 13% sales tax on top of a 44.1 cent excise tax.
But the tax fun doesn’t end there. Nearly all California counties and cities have their own sales taxes. Some, like Alameda county, have multiple taxes so that if you gas-up in the City of Alameda (which has its own 0.5 percent tax) you will pay an additional 3.5% on top of the state taxes.
Mercifully, Trinity County, the poorest county in California, has no additional sales tax. However, the next two poorest counties, Imperial and Siskiyou, do have them. Los Angeles County, which has an additional 2.25 percent tax per gallon, actually has a law forbidding sales taxes from exceeding 10.25 percent, so its cities can’t just pile on taxes. So kind of them.
These district “sales and use” taxes are not so obvious to the guy at the pump, who tends to blame the oil companies for the additional price burn. These taxes are directly paid by the consumer. But your gasoline was taxed long before you ever filled up and ate that corn dog that gave you the runs. In fact, it was taxed while it was still in the ground and taxed again when it came up as crude oil (or natural gas) to fund CalGEM (California Geologic Energy Management); that little tax is $1.01 per barrel or 10,000 cubic feet of gas. CalGEM raked in $134 million with this tax last year, all before it ever went to a refinery. But the other tax, the one on oil and gas still in the ground, is the gift that keeps on giving.
Oil and gas companies sometimes, but not always, own the land from which they produce. Like any California taxpayer, they must pay property taxes, which is limited to 1% by the famous Proposition 13. In any case, some one owns the land and ALL of them pay property tax.
BUT “property” ain’t just land and buildings, folks. To California, as well as most states in this union, oil in the ground is a taxable asset. That means that if a company has the insouciance to declare a “proven” barrel (or volume of natural gas) is in the ground, California gets at least 1 percent. Counties ALWAYS levy additional taxes on top of that 1 percent. Any mining operation is subject to such a tax.
But these so-called ad valorem taxes are special because the counties get to keep it for themselves. This, of course, has vexed Sacramento for years.
How much money do oil companies pay counties each year in such taxes? Statewide, it is hard to calculate since I am lazy. But it is easy to apply the 1 percent MINIMUM to the recorded proven oil and gas reserves from the Energy Information Agency. In 2021, oil and gas companies declared 1.7 billion barrels of proven crude oil and 1.12 trillion cubic feet of gas. California crude oil’s average price was about $70 per barrel in 2023 and natural gas was well over $10 per MCF (1000 cubic feet); I will use $10 because that is easy. That is a $112 million tax on gas and a $1.2 billion tax on oil STILL IN THE GROUND. And this is every single year. Add to that all the other property taxes, remembering that counties always levy their own taxes beyond the 1%. And brothers and sisters, you can bet your bippy they do.
How much do these taxes benefit counties and cities in California?
A 2021 study showed that in Kern County, the total property tax (including the ad valorem on oil and gas) valuations by the oil and gas industry was $15 billion of the total county assessment of $102 billion. The study estimated the total property tax haul was $335 million of the $925 million in total taxes from the oil and gas industry. All that just for Kern County.
A 2017 study by the Los Angeles County Economic Development Corporation estimated that the oil and gas industry generates $152 billion in economic output and $21 billion in state a local taxes $7 billion of which was property taxes alone. Not bad for oil and gas that is STILL IN THE GROUND.
Given that so much job-producing money is just sitting there, one would think Governor Newsom would be reticent to damage this revenue stream to California’s counties and citizens.
Newsom isn’t bothered at all. Why? Because the county he wants to hurt most is Republican dominated Kern County, which produces 71 percent of California’s oil and 78 percent of its natural gas. Thus Kern gets the lion’s share of the tax revenue to include all that economic activity and high salaries paid to the roughnecks. Money like that buys a lot of lawyers and lobbyists to befuddle Newsom’s renewable wet-dreams.
Kern County is the bastion of California’s Republican party. Kern’s outspoken lawmakers and stalwart populace have long been the Yoohoo on Newsom’s wine bar, the Vienna sausages on his charcuterie board and the wadded-up football jersey unbalancing the spin cycle of his French Laundry. If Newsom can impoverish Kern County, ruin its finances, chase away capital, increase its unemployment and misery, he will further his unstated, but obvious goal of a one-party state. Is it climate change alone that he demonizes a lucrative industry with autocratic fury?
More to come.
Keep turning to the right!
Sources:
The Economic Contribution of the Oil and Gas Industry in Kern County January 2021
DISTRICT SALES AND USE TAX RATES: CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION
Oil and Gas Assessment Rate per Fiscal Year (rate per equivalent BBL or 10 MCF of Gas)