Folsom Takes It to the People
ExxonMobil has underpaid Alabama for royalties due on natural gas wells in the Gulf of Mexico. The courts ruled that Exxon should pay $11.9 billion to Alabama, then lowered the figure to $3.6 billion, now we’re all the way down to “around $122 million.” With the state’s chronic budget problems, the legislature has long been eyeing the money like a trust fund baby counting the days until her 18th birthday, even as the money shrinks like Alabama’s drought-stricken lakes. (There’s a little background here.)
Related to this… Lt. Gov. Jim Folsom wants the legislature to change the oil and gas severance tax that ExxonMobil pays the state of Alabama “from a value based system to a volume based system. That way Exxon will have to pay the same way you do — based on what they pump.”
Associated Press has the story this evening:
Lt. Gov. Jim Folsom Jr. said the state’s loss of nearly all the $3.6 billion court judgment against Exxon Mobil demonstrates a need for the Legislature to rewrite Alabama’s tax on oil and natural gas production.
“Alabama is blessed with wonderful natural resources, but we must require powerful corporations to pay a fair price if they are going to take advantage of our natural resources — like our oil and gas,” Folsom said Wednesday.
Folsom raised the tax issue in what he called a letter “to the people of Alabama” and in an interview with The Associated Press.
Here is the full text of Jim Folsom’s letter “to the people of Alabama:”
To the people of Alabama:
If something is not done, the recent decision by the Alabama Supreme Court siding with Exxon and reversing an Alabama jury’s multi-billion-dollar verdict will have devastating consequences on the people of Alabama. Only the Court’s Chief Justice sided with the people in the case against Exxon that was brought because Exxon was not paying the full royalties they owed for oil and gas they purchased from Alabama wells in the Gulf of Mexico.
In 2003, after a lengthy trial, an Alabama jury said Exxon owed the state $102 million in additional royalties, plus interest, for gas Exxon had pumped from Mobile Bay. The jury also imposed punitive damages of almost $12 billion dollars, which the trial court judge reduced to $3.5 billion. Then, the Supreme Court reversed even that.
The taxes Exxon pays – or should have paid – go to the General Fund, which funds agencies like Medicaid, Public Safety and Corrections, and countless other agencies of state government that touch the lives of Alabamians every day. This Court’s decision will have a devastating impact on funding for nursing home care, health care, and prescription drugs for thousands of Alabamians, as well as additional state troopers and other steps to keep our state safe.
The crux of the case against Exxon was that they were manipulating their costs of producing oil and gas from Alabama reserves with questionable expenses. Behavior like this is wrong.
Alabama is blessed with wonderful natural resources, but we must require powerful corporations to pay a fair price if they are going to take advantage of our natural resources – like our oil and gas. Those resources cannot readily be replaced. If they are going to be utilized, the state must benefit from their use.
I will be urging both houses of the legislature to look at changing the oil and gas severance tax from a value based system to a volume based system. That way Exxon will have to pay the same way you do — based on what they pump.
You, the people of Alabama, pay your fair share of taxes, whether it is income taxes, sales taxes, property taxes, or gasoline taxes you pay each time you fill up your tanks with gasoline that currently costs way too much. You pay Exxon over $3 a gallon, and they pay little or nothing in taxes, while they report record setting profits. You struggle to make ends meet while Exxon paid their former CEO $51.5 million a year – over $6,000 per hour!
I am against any tax increases on the hardworking people of Alabama. To keep this promise in light of this year’s projected shortfalls in our state budgets, it is clear to me that Exxon must pay more. How much is fair for Exxon? That question should be answered by your representatives in the legislature. But by the end of this session we will know what Exxon’s fair share is. And more importantly, Exxon will know.
I believe this is a fight worth fighting. Please contact your local legislators and ask them to join me in seeing that Alabama is treated fairly.
Sincerely,
Jim Folsom, Jr.
Lieutenant Governor
Related Articles:
What color crayon do you think Folsom used to pen his letter?
Comment by Will — January 17, 2008 @ 12:46 am
So in summary…
Exxon is being required to fully reimburse Alabama. Alabama was banking on a “jackpot justice” like punitive award and neglected to tend to the General Fund. The courts stripped the punitive award, leaving Alabama only what it was owed and what is Folsom’s reaction? Punish the company. Nice.
As for the “they pay little or nothing in taxes, while they report record setting profits” crap. ExxonMobil made a profit of just under $40 billion last year. The paid income taxes of just under $30 billion. That hardly seems like nothing to me.
Comment by Brian — January 17, 2008 @ 4:10 am
Brian-
Surely you are not saying Exxon paid $30 billion to Alabama? Not when they are seeeking not only the relief recently ordered by the Supreme Court, but a huge refund on other taxes that will actually mean the state pays them more than they paid? And the Supreme Court did more than strip off the punitive award. They also slashed the compensatory award that TWO juries had awarded. And all because Exxon was able to convince them that deductions the company had claimed from taxes due Alabama under the lease were actually a part of the cost of producing that gas. The jury felt the deductions were not proper. It seems that what Folsom is proposing is more of a flat tax - a percentage of the volume pumped, with no deductions. Kind of like some of the Republican candidates for President are proposing for income taxes. But it would keep a company from manipulating deductions (which may not have happened here, at leat according to the Supreme Court) and result in a simpler and more predictable calculation.
Comment by Paine — January 17, 2008 @ 8:12 am
About time Folsom did something to raise his profile. Not so sure picking a fight with the state Supreme Court but others have used fights with the courts to advantage.
Big problem with his proposal is that companies can reduce taxes by not pumping as much and when the fields play out, the revenue drops too.
Also wonder if a new tax or increased tax will be imposed on the natural resources of coal and timber.
Comment by walt moffett — January 17, 2008 @ 9:55 am
So Brian,
Are you arguing in favor of the present tax code that can still result in “jackpot justice” therefore making those evil Trial Lawyers even richer?
Comment by bhmhomeboy — January 17, 2008 @ 2:09 pm
My thoughts (too verbose for a comment).
Comment by Brian — January 18, 2008 @ 6:10 am
Your thoughts to verbose for me to fully comprehend, but it appears as if you are the big corporations, the present tax code and the trail lawyers.
Comment by bhmhomeboy — January 19, 2008 @ 1:56 pm
Corrections to previous post:
Your thoughts are to verbose for me to fully comprend, but it appears as if you are for the big corporations, the present tax code and the trail lawyers who will benfit from “jackpot justice”,
Comment by bhmhomeboy — January 19, 2008 @ 2:01 pm
No, I’m for the present tax rate. Folsom is proposing to increase taxes under the guise of tax simplification.
The size of the corporation has nothing to do with the matter. Should Exxon, or any other company, be punished for having the nerve to be large? And in the end consumers pay corporate taxes through higher prices.
Comment by Brian — January 19, 2008 @ 2:02 pm
To my knowledge Exxon/Mobile wasn’t being punished for being large. They were found guilty by a jury and the Alabama Supreme Court overturned the verdict. So it’s not like Exxon/Mobile was found guilty of being large. They were found guilty of breaking the law.
Lt. Governor Folsoms’ plan to simplify the tax code is not a “guise” to increase taxes for the average citizen.
Comment by bhmhomeboy@aol.com — January 19, 2008 @ 11:32 pm
How is this a “guise to raise taxes” on the Alabama taxpayers?
Related to this… Lt. Gov. Jim Folsom wants the legislature to change the oil and gas severance tax that ExxonMobil pays the state of Alabama “from a value based system to a volume based system. That way Exxon will have to pay the same way you do — based on what they pump.”
Comment by bhmhomeboy@aol.com — January 19, 2008 @ 11:34 pm
PPS and last word:
WE the people are already paying high gas prices.
Comment by bhmhomeboy@aol.com — January 19, 2008 @ 11:37 pm
The highest court in our state threw out the punitive award, which indicates that they did not find grounds for punishing Exxon. What basis does Folsom have for effectively instituting a punitive tax increase?
And whether or not you recognize it, Folsom is using Exxon’s size against them by pointing out their “record setting profits.” Lot’s of companies make record profits all the time. I believe the company I work for recorded record profits last year, but that will never make the papers because we are quite small relative to Exxon. Large as it may be, Exxon is a dwarf in the global oil business and must be large to be competitive. With large companies comes large revenues and (hopefully) large profits. But the actual dollar amount is meaningless - it is profit margin that counts. For all the talk about Exxon’s “record profits” their profit margin is only about 10%, while 20-30% is quite common in some industries. When Folsom and other politicians speak of Exxon’s record profits they are attempting to win over the financially ignorant. I guess he hooked you.
(Aside, we should be applauding the fact that an American based company that hires lots of our citizens can be so successful, not demagoguing their “record profits” and concluding that they should bear a greater tax burden as a direct result of their success.)
And taxes on businesses are costs of business - costs that are reflected in higher prices for consumers, i.e. consumers effectively pay corporate taxes. This isn’t some “trickle down economics” notion. Two Democrat presidential candidates (Obama and Richardson) explicitly admitted during a recent debate that business taxes are borne by consumers.
And like I said in my post, the switch to a volume based system (like we pay) shouldn’t be made without careful consideration. That pricing method yields less revenue for Alabama than a value based system if prices keep rising.
Also, I linked to an article in my response where the state was found guilty of under refunding money related to oil taxes. I guess by Folsom’s logic the state should implement some punitive measure against itself.
Comment by Brian — January 20, 2008 @ 7:22 am
Brian-
I do find it interesting that you link that article. First, the matter is still to be decided by a trial court, much less an appellate level court. Second, it certainly cuts against your argument that Exxon has already paid Alabama fairly. Not only were the compensatory damages that an Alabama jury awarded for Exxon’s alleged actions cut by more than half, but, now Exxon, in an amended tax return, not only disputes the State’s claim that Exxon underpaid, but claims even bigger refunds than the company claimed on its original return. Maybe we should be asking why they don’t want to bear a fair share of the tax burden rather than you asking why we aren’t grateful to them for taking our prescious natural resources off our hands. I am sure no other company would be willing to take them.
Comment by Paine — January 20, 2008 @ 12:18 pm
What you have to understand about the payment of royalty (for state owned minerals) and severance tax is the calculations of what is owed is too complex to be completely accurate in the short period of time after production that it is due. Oil and gas severance taxpayers send in an estimated payment (usually too much) and file a revised return once all the information necessary to calculate the actual tax is available.
The severance tax case being discussed covers 7 years of tax payments. So, the refund(correction)annualized is small. There have been several severance tax cases go before the Alabama Supreme Court over the years. The state has never won a case…even when Democrats controlled the court.
Another item to consider. The state owns the natural gas in the offshore area. The state does not own the natural gas, oil or other minerals onshore. The state might have a few pockets of minerals here and there, but it is not significant at all. Small independent companies do most of the exploration onshore.
Who owns these minerals? Citizens, families and businesses own these minerals. It is a property right just like an acre of dirt is. These folks lease the minerals to companies who have the money to pay for drilling the wells. More often than not, the well is not commercially viable. If the well is good the mineral owner will receive royalty (provided for in a private contract)after expenses, which include the payment of taxes like severance.
So, jacking up severance taxes by any manner (value or volume) will take money out of the pockets of the mineral owners. By the way, the royalty income (which already has had taxes taken out) is also subject to income taxes.
Most large oil and gas producing states use a value system. Most of them have similar issues with working out the details of the taxable value of the product upon which the taxes are paid.
The best way to discourage domestic energy production at a time when we need it the most is to increase the cost of doing business in Alabama. Our state goes out of the way to throw money at manufactures to get them to locate here and invest billions in building their plants. The oil and gas industry has invested billions as well, but all some state leaders want is to beat up on them.
When you jack up severance taxes (by volume or value) you hit hundreds of independent producers and tens of thousands of Alabama citizens at the same time you take out your vengeance on Exxon.
Comment by Therm — January 21, 2008 @ 4:05 pm
Brian and Therm must own stock in Exxon/Mobile.
Comment by bhmhomeboy@aol.com — January 21, 2008 @ 4:49 pm
I wish I directly owned shares of Exxon. But a huge swatch of the country does indirectly own Exxon stock through mutual funds in 401ks. If you have any mutual fund investments I encourage you to see how many of them own Exxon (or another large, evil oil company) shares.
My argument is based on principle, though, not what investments I may or may not have.
Comment by Brian — January 21, 2008 @ 5:03 pm
Bhmhomeboy..I own no oil and gas company stock. As Brian says lots of folks do, including pension funds and they too would be impacted by revenge taxes.
I since you cannot respond with a factual, logical argument you respond with an ad hominem attack.
Comment by Therm — January 21, 2008 @ 7:11 pm
What ad hominem attack? I was just speculating as to your motives and why you two seem to care more about Exxon/Mobile that you do the welfare of the citizens of the state of Alabama.
Comment by bhmhomeboy@aol.com — January 21, 2008 @ 10:48 pm
There you go again bhmmomeboy, another attack.
Comment by Therm — January 22, 2008 @ 5:28 am
I’ll give you a hand bhamhomeboy. Therm is suggesting that you should deal with our arguments on their actual merits without concern for our motives. For example, you didn’t hear either of us accuse you of being a water boy for Folsom. That would be crass.
Comment by Brian — January 22, 2008 @ 5:57 am
Folsom can carry his own water and thank goodness he’s ready, willing and able to do so.
Comment by bhmhomeboy — January 22, 2008 @ 12:40 pm