Ala. Lawmakers Kill Natural Gas Tax Hike

The House Government Appropriations Committee voted 4-11 for the bill. The defeat occurred when most of the Republicans on the committee joined Democrats in voting against the Republican governor's tax bill.

"Rather than vote to fund vital services, these committee members chose to line the pockets of big oil companies," Riley said.

Dean Peeler, executive director of the Alabama Petroleum Council, said the committee recognized the bill would have discouraged the oil industry from further investment in Alabama.

"You don't want to make the highest taxed state twice as high as it is now," he said.

The bill would have changed the state severance tax on natural gas wells along the coast from a value-based tax to a volume-based tax, and it would have raised the amount oil companies pay annually from $40 million to $80 million.

Most of the increase would have fallen on Exxon Mobil, which paid three-fourths of the taxes collected from coastal wells last year.

Rep. John Knight, the bill's sponsor and the committee chairman, said the General Fund budget "is in trouble" for the next fiscal year after the loss of the $40 million in new tax revenue, and he will try to come up with another way to generate money.

Knight, D-Montgomery, has not yet asked his committee to vote on that budget, which finances the non-education functions of government.

Riley suggested the outcome of his bill was the result of issues beyond the proper tax rate on natural gas wells.

"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.