An oily loop-hole

THE ISSUE

Gov. Bob Riley is appealing to Democrats in an effort to pass a bill that would double a tax oil companies pay for offshore drilling to replace revenue he says would devastate finances if left unrepaired.

Strange days. Republican Gov. Bob Riley is trying to rally support among House Democrats to pass a tax bill on oil companies.

Riley proposed doubling the $40 million severance tax on ExxonMobil's natural gas operations in the Gulf of Mexico to replace tax revenue he says the company could withhold from the state as part of a legal dispute with the administration. Without the additional money, the governor says state finances would take a devastating hit in a year already plagued with revenue shortfalls.

Riley has been in a legal dispute with ExxonMobil for more than a year, and has not fared well in the courts. A clause in the current tax code could allow ExxonMobil and other oil companies to claim pre-tax deductions that exceed the amount of taxes they owe. Earlier, the administration won a jury award of $11.9 billion in a royalties dispute, but the state Supreme Court reduced the award to $122 million last year. An administrative law judge ruled in favor of ExxonMobile in the expense deduction dispute, which means the state could owe the oil company $41 million in immediate refunds. Refunds for all companies from years past could bring the total refunds to as much as $200 million, based on a variety of estimates.

So, what the state has here is not so much a fairness issue as a tax code problem. It appears the severance tax code is poorly written; otherwise, ExxonMobil would not be able to claim more in pre-tax expense deductions than it owes in taxes. Once again, Alabama's tax code is failing the people.

Riley describes the problem as a loop-hole that has allowed ExxonMobil, the largest driller of natural gas in the Alabama Gulf, and other companies to avoid their obligations to the state. Loop-hole or not, it's clear the governor and the Legislature have a significant problem on their hands and only five working days left in the legislative session to find a temporary solution.

Some House Democrats appear willing to work with the governor, though the deep partisan divide on Goat Hill doesn't bode well for anyone except ExxonMobil. Riley is still negotiating with the oil company for a compromise. The only good coming from this situation, so far, is that the lines of communication amongst all parties appear to be at least partially open.

Situations like this should be adding fuel to the need for a rewritten tax code. Sadly, there is no talk coming from Montgomery about the underlying problem.

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