Rendell bid to tax oil profits draws industry, GOP critics
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HARRISBURG -- Lou D'Amico of Wexford was not happy Tuesday when he heard that Gov. Ed Rendell wants to slap an 8 percent tax on the gross profits of Pennsylvania oil companies.
Mr. D'Amico heads the Pennsylvania Independent Oil and Gas Association, consisting of 850 energy firms and drillers, including 300 oil companies, most of them smaller, "mom and pop" firms that, he insisted, can't afford to pay 8 percent of their profits to the state.
"We're not talking about Exxon Mobil here," he said in a phone interview. "These are small operations. If you're a politician like Ed Rendell, you use terms like Big Oil because it stirs up the populace. That's politics.
"But I don't represent the major oil companies. The governor is certainly aware of the impact on small companies. Even a 1 percent tax would hurt them."
Mr. Rendell's call for an oil company profits tax is part of his plan to generate $1 billion for fixing state roads, bridges and mass transit. He also wants the Legislature to raise fees for driver's licenses, motor vehicle registrations and other permits.
Also assailing the oil company tax Tuesday was Rolf Hanson, executive director of the Associated Petroleum Industries of Pennsylvania, based in Harrisburg.
He said his group represented all kinds of different firms, many of them with a small bottom line that would be hurt if they had to give the state 8 percent off the top. These firms include companies involved in oil exploration, drilling, refining, distribution or sales.
"He's just plugging an idea he first proposed in early 2007. It wasn't palatable to legislators back then, and it won't be any more attractive now," said Mr. Hanson, who added that he didn't think the oil company profits tax, as outlined by the governor, would even be legal.
Mr. Rendell on Tuesday repeated his contention that the Legislature could pass a tax on oil company profits and then prohibit companies from passing the tax along to motorists in the form of higher gasoline prices.
But Mr. Hanson argued that doing so would violate the interstate commerce clause in the U.S. Constitution.
"There is no other state in the country that has a tax like" the Rendell proposal, said Mr. Hanson, adding that the reason is that it's impossible to legally ban companies from passing along their higher costs to motorists.
He said an 8 percent profits tax would raise the retail price of gasoline in Pennsylvania by 8 or 9 cents per gallon, something that wouldn't make consumers or voters happy if the Legislature approved it.
He said that if Pennsylvania tried to outlaw the pass-through of higher gasoline prices, oil companies would just raise the price of gas in other states, where consumers would have to pay more because of actions taken in Pennsylvania. He contended that would be a violation of interstate commerce.
Mr. Hanson said oil companies would go to court if the Legislature approved a law banning a pass-through of gasoline prices.
"We don't believe that you can prevent companies from passing the tax through [to consumers], or some other state would have done it by now," Mr. Hanson said.
Mr. Rendell disagreed, claiming it would be legal to bar companies from raising prices and saying he'd welcome a court challenge on the issue.
"Let's get this issue in front of a Pennsylvania judge," he said. "I'm optimistic about how that judge would rule."
Oil companies currently pay $35 million a year in taxes under the state's Corporate Net Income Tax, which has many loopholes, Mr. Rendell said, adding that they would pay an estimated $576 million a year in taxes with an oil profits tax. He said megafirms such as Exxon and Shell often try to hide behind the image of small "mom and pop" companies while they rake in huge profits.
He said he'd be willing to amend his proposal by excluding smaller companies from the tax -- ones whose profits fall below a certain dollar amount.
Erik Arneson, spokesman for Senate Republicans, also had doubts about whether it was constitutional to prevent oil companies from passing on the tax to consumers. When Mr. Rendell last proposed an oil profits tax in 2007, Senate Republicans got a legal opinion from the firm of Drinker Biddle.
Senate President Pro Tem Joe Scarnati said this opinion "indicates, with a high degree of certainty, that the pass-through prohibition -- which is the foundation of Gov. Rendell's plan to tax the gross profits of all oil companies -- is unconstitutional."
He added that according to the law firm, "The anti-pass-through language is unworkable and, more importantly, unconstitutional under the commerce clause and other sections of the U.S. Constitution."
Mr. Rendell's plan to raise $1 billion for transportation would start out in the state House, where doubts have already been expressed about his desire to raise $434 million through higher motor vehicle license and registration fees, as well as $576 million more from the oil profits tax. But the state Senate, controlled by Republicans, would be very unlikely to vote for it.
First Published August 25, 2010 12:00 am