Ala. Lawmakers Kill Natural Gas Tax Hike

"I know some legislators want to expand gambling and believe that by creating a budget crisis they can justify it. But the people don't want an expansion of gambling, so I don't know where the Legislature will turn to fix the problem created by the committee's vote today," he said in a statement.

Riley's bill came amid a legal battle between Exxon Mobil and the Riley administration over what expenses Exxon Mobil can deduct before paying taxes on the value of the natural gas it produces along the coast.

State revenue officials said that if Exxon Mobil prevails and an administrative law judge has already ruled in the oil company's favor it could get more than $40 million in tax refunds. Refunds for all oil companies could total more than $100 million, they said.

Rep. Gerald Allen, R-Cottondale, voted against the bill and said it wouldn't settle the existing legal battle for past tax years.

Administration officials said it would generate money the state might need for any court-ordered refunds, and it would end the dispute for future years.

"It takes away all the accounting schemes and unusual approaches that have been used to devalue our gas at the well head to nothing," state Revenue Commissioner Tim Russell said.

Russell, the former mayor of Foley in Baldwin County, said coastal residents agreed to have natural gas drilling rigs along their coast in the early 1980s because they felt the taxes and royalties paid by the oil companies would help the whole state. Oil companies ought to fairly compensate the state for that, he said.

Coastal states that allow natural gas drilling in state-owned waters take different approaches to taxes. Louisiana uses a volume-based tax, while Mississippi and Texas use a value-based tax, Peeler said.