4th Quarter, 2009
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4th Quarter, 2009 |
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Energy Industry Impacts State Economies
By William Mueldener, Tax PrincipalAn important aspect of the energy industry that may be forgotten by those proposing to eliminate historic tax benefits encouraging oil and gas development, is the number of jobs the industry supports. One recent study reveals that the industry contributes to the U.S. economy as both a purchaser of U.S. goods and services, and as an employer, supporting more than nine million jobs. The economic impact of the industry reaches every state and the District of Columbia, while supplying more than 60% of the nation’s total energy demands and more than 99% of the fuel used by U.S. motorists in cars and trucks. Additionally, it is anticipated that 900 of the next 1,000 U.S. electric power plants are projected to use natural gas. With the downturn in oil and natural gas prices over the past several years, we are observing the impact on various state economies. For example, a recent news article stated that "the housing market in Grand Junction, Colorado is in reverse." The number of oil and gas industry jobs lost continues to bury the housing market in cities like Grand Junction, which look to the industry for economic support. Unfortunately, state and local governments and taxing agencies are slow to react to the ebbs and flows of the prices. In fact, over the past few years, states began aggressively looking at the energy industry to shore up lagging state budgets. The states saw the continued strength in the energy economy as the life preserver which would pull the state away from impending deficits. To increase revenue, states began the process of adjusting fees and taxes. These changes have only compounded the problem as companies have been reluctant to resume the volume of activity previously held in certain states. States have increased their reliance on revenue from the energy industry while de-incentivizing companies from continuing to focus domestically on drilling activity. The process to reverse the adjustments to the state taxing regimes faces great uncertainty due to the state’s reluctance to give up on any revenue source as many have fallen into the deficient that they aggressively tried to avoid. A Wall Street Journal report highlighted the effect lower prices have had on a number of states. In Texas, revenue from gas production taxes has fallen 43% from just one year ago, costing the state more than $1 billion in lost revenue. Similarly, in New Mexico, the state legislature is having difficulty closing a $433 million budget gap. In Oklahoma and Colorado, the state and local governments are furloughing employees and cutting school budgets. Similar results are reported in Wyoming and Louisiana. Other articles in this newsletter:
Budget Aims to Repeal Tax Incentives for Oil & Gas Producers Hydraulic Fracturing Exemption at Risk Additional Federal Developments |
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William has over 15 years of state tax and incentive consulting experience and is the Director of State and Local Tax, and a Tax Principal in the Denver office of HEIN & ASSOCIATES LLP. He provides state and local tax consulting services to both national and international companies in the energy industry, specializing in state income/franchise tax, sales/use tax, transactional/excise taxes, and incentives. He also assists clients with merger and acquisition due diligence, sales/use tax refund studies, state tax planning and organizational restructuring, credit studies, incentive negotiation, and state audit controversy consulting.