taxes

Deep horizontal drilling for oil and gas is enormously expensive. The fracking process to release oil and gas from the shale reached by those deep wells is enormously controversial. But when one of those wells comes in, it’s enormously profitable.

“I know for a fact that companies absolutely want to drill those wells because we have that incentive,” Louisiana Oil and Gas Association president Don Briggs says of Louisiana’s severance tax exemption for deep horizontal wells. Passed by the legislature in 1994, it seemed like a good idea at the time, as it was encouraging new technology.

It was the first of many meetings on Tuesday for the Sales Tax Streamlining and Modernization Commission, led by Representative Julie Stokes. 

Have you noticed you don’t see “inventory reduction” sales regularly, like you used to? That’s because of Louisiana’s business inventory tax credit, put in place in the 1990s.

“It certainly has been no reason for companies to deplete their inventories at the end of the year,” state Sen. Robert Adley observes.

Businesses still do count their inventory, and pay local taxes on their stock on hand. But when they file their corporate income tax returns with the state, Louisiana reimburses the companies for every penny they paid in inventory tax—even if the amount exceeds the other state taxes the business owes.

Should Louisiana repeal its 20-year-old severance tax exemption for horizontal wells? LSU economist Jim Richardson believes the time for that particular economic incentive has passed.

“In 1994, nobody knew how to do horizontal drilling. Today, everybody knows how to do horizontal drilling,” Richardson says of the tax break implemented to encourage what was then a new technology.

Louisiana Mid-Continent Oil and Gas Association president Chris John says the severance tax exemption for fracking wells keeps Louisiana in the shale production game.

At the state capitol, it seems like everybody is talking about Grover.

No, not Sesame Street’s Grover. They’re talking about Grover Norquist, the Washington, D.C. lobbyist and founder of ATR — Americans for Tax Reform.

State Sen. Robert Adley is not a fan.

“That ATR bunch we’re havin’ to live with? I just found out who they are,” Adley announced at a recent meeting.

Anticipating the coming fiscal year’s massive shortfall, Louisiana’s legislature commissioned a comprehensive analysis of the state’s entire tax structure. That report was delivered Tuesday.

“Do we have the right tax structure for 2015 and on?” LSU economist Jim Richardson said was the main question being considered. “It’s a tax structure we put in place in 1973.”