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Windfall Profits Tax

Senate Defeats Three Windfall Profits Tax Amendments

Ending a week of high attention on the oil and natural gas industry, the Senate defeated three windfall profits tax amendments and an intangible drilling costs amendment on its way to passing its tax budget reconciliation bill. This week's Senate actions are the first skirmishes in what may be an ongoing battle throughout the next year. In this process, the Independent Petroleum Association of America (IPAA) has been actively opposing windfall profits tax amendments and other adverse tax changes while emphasizing the role of independents in producing domestic oil and natural gas.

Each of the votes occurred challenging a parliamentary ruling that the amendments were non-germane to the reconciliation bill. Therefore, a 60 vote majority was needed to pass the amendments.

The first windfall profits tax vote defeated an amendment by Sen. Byron Dorgan (D-ND). His amendment would have imposed an excise tax on crude oil sold above a price of $40 per barrel. It would have applied to integrated companies and could have been offset by domestic energy related investments. The amendment failed by a vote of 35 to 64.

The second windfall profits tax vote defeated an amendment by Sen. Jack Reed (D-RI). His amendment would have imposed a tax on taxable income over the prior year's taxable income in an amount equal to a specified allocation to the Low Income Home Energy Assistance Program (LIHEAP). The tax would have applied to integrated oil companies producing crude oil in excess of 500,000 barrels per day worldwide. This translates to the five major oil companies that testified before the combined Energy and Natural Resources Committee and Commerce, Science and Technology Committee last week. The amendment failed by a vote of 50 to 48.

The third windfall profits tax vote defeated an amendment by Sen. Charles Schumer (D-NY). His amendment was similarly imposed on taxable income but it covered a broader scope of companies ‚ all integrated oil companies and independent producers and refiners with annual gross receipts of $100,000,000. The amendment failed by a vote of 33-65.

The Senate also defeated an amendment by Sen. Diane Feinstein (D-CA) that would have prohibit expensing of intangible drilling costs for integrated oil companies producing crude oil in excess of 500,000 barrels per day worldwide. The amendment failed by a vote of 48 to 51.

These amendments reflected a serious Congressional reaction to high energy prices affecting their constituents and high profits by oil companies. It was intensified by the Senate hearings last week with the major oil companies followed by reports that the executives of the companies had misled the committees regarding contacts they had made to President Bush's Energy Task Force in 2001. It led to the inclusion in the tax budget reconciliation bill as it was reported by the Finance Committee of a repeal of the 24-month amortization of geological and geophysical expenditures passed in the Energy Policy Act for integrated oil companies producing crude oil in excess of 500,000 barrels per day worldwide. Other provisions in the Finance Committee reported bill imposed additional tax burdens on integrated oil companies.

Three aspects of these actions are significant. First, high energy prices and high industry profits are drawing intense attention in Congress. Second, most of the hostility is focused on the largest integrated oil companies. Third, there is a distinction being drawn ‚ so far ‚ between independent producers and integrated companies.

We will keep you posted.