Ending tax holiday could raise revenue, cost jobs

HELENA - Oil and gas industry lobbyists showed up in numbers on Thursday to oppose a bill that would repeal the oil and gas tax holiday in Montana.

Senate Bill 258, sponsored by Sen. Christine Kaufmann, D-Helena (pictured), would charge production companies higher interest rates for wells drilled after Dec. 31, 2007, if the price of oil goes over $80 a barrel.

Currently, companies have a 12 to 18-month tax holiday depending on the type of well. Kaufmann said the companies can afford to pay a higher tax rate and the holiday only takes money away from Montana.

"To say that this industry needs to be on a perpetual holiday, an eternal holiday, is going too far," Kaufmann told the Senate Taxation Committee. She said the $80 trigger would give drilling companies a break if times get tough but then would ensure they pay their share when times are good.

Bob Decker of the Policy Institute in Helena said the current tax system for oil and gas companies is similar to the tax breaks the copper companies in Butte and Anaconda received 100 years ago. Instead of a "copper collar" on taxes, Decker said, there is now a "carbon collar."

Decker also called the 1999 Legislature's decision to enact the tax holiday the most costly, significant and mistaken policy in Montana. The 1999 session gave oil and gas companies the tax holiday because prices were falling and the companies were struggling. SB 258 supporters said the holiday cost Montana around $500 million in lost taxes between 2003 and 2007, when the industry was booming.

"What about when times aren't tough? Where is the return favor from the oil industry?" Decker said.

But oil and gas companies who opposed the bill said they have contributed to the state when oil prices were up. "When oil prices were high we did return the favor - we invested in Montana, and we provided jobs," said Steve Galt of the Montana Petroleum Association.

Much of the opposition stressed the tax-break incentive's importance when companies consider investing in Montana. They said it would be a mistake to deter business and told lawmakers that, if the tax comes back full force, Montana would probably lose investments.

"This bill will reduce jobs, and this bill will ultimately lower investment in the state," said Jon Brumley, CEO of Encore Acquisition. "It does not take many jobs to deplete an oil field. But it takes a lot of jobs to grow one."

Brumley also said it would be a mistake to tax companies when oil prices are high, because that is when exploration and investment happens. If Montana restores this tax, it will discourage be unattractive to ventures.

However, Kaufmann said the tax incentive only plays a small role in a company's investment decision. She said Wyoming has a higher interest rate than Montana, but they have seen a dramatic increase in oil production despite the rate.

"I think we have more evidence that it is, at most, a small factor in the economics of oil and gas wells," Kaufmann said.

The governor's office also supported the bill, with hopes that money earned from the interest could go towards funding education.

- by CNS correspondent Molly Priddy