BILL ANALYSIS                                                                                                                                                                                                    Ó




                        SENATE GOVERNANCE & FINANCE COMMITTEE
                              Senator Lois Wolk, Chair
          

          BILL NO:  SB 241                      HEARING:  5/1/13
          AUTHOR:  Evans                        FISCAL:  Yes
          VERSION:  4/24/13                     TAX LEVY:  No
          CONSULTANT:  Miller                   

                                OIL SEVERENCE TAX LAW
          

          Imposes a 9.5% tax on oil and a to be determined percentage tax  
          on natural gas for the privilege of extracting oil and natural  
          gas in this state.


                              Background and Existing Law  
           Taxes and fees  Existing law imposes various taxes, fees and  
          assessments on oil and natural gas.  None of these are an "oil  
          severance tax" or a tax on extraction.  Existing taxes and  
          exceptions include:  
          

                 Regulatory Assessment  .  The Division of Oil, Gas, and  
               Geothermal Resources of the Department of Conservation  
               (DOC) imposes a fee on each barrel of oil and each 10,000  
               cubic feet of natural gas produced.  Producers of oil and  
               gas are required to pay the fee, which is currently at a  
               rate of $0.1062988 per barrel or 10,000 cubic feet of  
               natural gas. The fees are assessed for purposes of  
               financing the regulatory work of the division.  

                  Oil Spill Prevention and Administration Fee  .  Existing  
               law also imposes an Oil Spill Prevention and Administration  
               Fee of $0.05 per barrel on crude oil when it is received at  
               a marine terminal from within the state.  The fee is also  
               imposed on operators of pipelines transporting oil in the  
               state across, under, or through marine waters.  This fee is  
               administered by BOE and deposited into the Oil Spill  
               Prevention and Administration Fund.  

                  Oil Spill Response Fee  .  The BOE also collects an oil  
               spill response fee paid by specified marine terminal  
               operators, pipeline operators and refiners in an amount not  
               exceeding $0.25 per barrel of petroleum product or crude  









          SB 241 -- 4/24/13 -- PageB

               oil.  The fees are deposited into the Oil Spill Response  
               Trust Fund, which is capped at $50 million, at which point  
               collection ceases; the fund is currently at its maximum  
               level.  

                  Property tax  : Existing state law assesses the value of  
               the property and the "proven reserves" as real property at  
               the time of purchase (plus 2% annual growth in value).  The  
               property is taxed at the 1% Proposition 13 protected rate.   
               According to Proposition 13, the land is only reassessed  
               upon change of ownership and property improvement.  

                  Corporate tax  .  Oil companies are taxed at the state  
               corporate tax rate of 8.84% of profits or net income.

                  Percent Depletion Allowance:  Under state and federal  
               law, taxpayers may deduct up to 100% (oil and gas) of the  
               net income for resource depletion such as oil extraction.   
               California conforms to federal law to encourage taxpayers  
               to explore and develop oil, gas and other mineral  
               resources.  

                  Enhance oil recovery costs:  Certain independent oil  
               producers are allowed a nonrefundable credit equal to 5% of  
               the qualified enhanced oil recovery costs for projects  
               located in California with restrictions on barrel prices  
               ($48 in 2010).  The credit hasn't been available since 2005  
               because oil prices have been too high.  

                  Sales and Use Tax  .  Only the local portion of the sales  
               and use tax is collected on gasoline (2.5% of the overall  
               state rate plus up to 2% of locally imposed taxes).  The  
               "gas tax swap" essentially traded the sales tax on gasoline  
               for the excise tax (see below). The BOE must increase or  
               decrease the excise tax annually to match what the sales  
               tax would have been.  As of July 1, 2011 until July 1,  
               2015, the state and local sales and use tax rate for diesel  
               fuel is 5.38%.  

                  Excise Taxes  .  Existing law imposes a $0.18 per gallon  
               excise tax on each gallon of gasoline sold in the state of  
               California.  In addition, state law, known as the "gas tax  
               swap," imposes an additional excise tax on gasoline that  
               adjusts annually to equal the amount of state sales tax  









          SB 241 -- 4/24/13 -- PageC

               that the state would charge on gasoline sales if they were  
               subject to the sales tax.  Currently, the total excise tax  
               paid on a gallon of gasoline is $0.36 per gallon, and on  
               July 1 of this year it will be $0.39.5.  Existing law also  
               imposes a use fuel tax at a rate of $0.09 per gallon on  
               blended fuels, such as ethanol, which are those that are  
               not more than 15% gasoline in content.  The use fuel tax is  
               collected at the point of retail sale.  Federal law imposes  
               an additional per gallon tax on gasoline and diesel fuel of  
               $0.18.4 and $0.24.4, respectively.

                  Royalty payments  .  State law assesses royalty payments  
               between 16-50% for deposit into the State Lands Commission  
               for oil extraction on state lands. 

                  Local oil severance taxes  .  At least three jurisdictions  
               have imposed local oil severance taxes: Long Beach, Signal  
               Hill and Beverly Hills. 

                  Natural Gas Surcharge<1>  .  The Public Utilities  
               Commission (PUC) sets different natural gas surcharges  
               throughout the state that vary by location and provider.   
               The surcharge is applied to all consumption except natural  
               gas used to generate power for sale, resold to end users,  
               used for enhanced oil recovery, utilized in cogeneration  
               technology, or produced in California and transported on a  
               proprietary pipeline. 

           Oil Production  . California is the fourth largest producer of oil  
          in the country with 526,000 barrels of oil per day behind Texas  
          (2.22 million barrels of oil per day); North Dakota (769,000  
          barrels of oil per day) and Alaska (556,000 barrels of oil per  
          day).  

                                           

                                    Proposed Law  

           Taxing Authority  .  Senate Bill 241 creates the oil severance tax  
          law and imposes a tax on any operator for the privilege of  
          ---------------------------
           <1>

           Natural gas surcharge rates can be found at:  
           http://www.boe.ca.gov/pdf/boe500ng.pdf  








          SB 241 -- 4/24/13 -- PageD

          extracting oil or natural gas.  The bill sets the tax rates at  
          9.5% per barrel, based on an average price as determined by the  
          DOC for oil and does not specify a rate for natural gas but also  
          bases it on the estimates from the DOC.  The tax is administered  
          by the BOE with input on the price of oil and natural gas from  
          the DOC.

          SB 241 requires that on or before December 1st and June 1st of  
          each year, the DOC shall determine the average price per barrel  
          of California oil and the average price for natural gas for the  
          six-month period ending October 31st and April 30th,  
          respectively.  The DOC shall base its determination on  
          California's price for oil and gas as determined by the United  
          States Energy Information Administration's (EIA) First Purchase  
          Report for both oil and gas. 

          The definitions of many terms including "operator," "barrel of  
          oil," and "gas," are consistent with existing law.  The bill  
          also defines "stripper well" as a well that has been certified  
          by the DOC as incapable of producing more than 10 barrels of oil  
          per day.  Stripper wells are exempt to the extent that they  
          maintain their status with the DOC.

          Any operator that fails to comply with the provisions of this  
          tax is assessed an unspecified penalty by the BOE for each  
          instance the operator violates the section.

           Funding Authority  . SB 241 creates the California Higher  
          Education Fund and requires that all proceeds, less refunds and  
          costs of administration, be deposited into the fund as follows:
                 93%, in equal shares, to the Regents of the University  
               of California, the Trustees of the California State  
               University, and the Board of Governors of the California  
               Community Colleges
                 7% is dedicated to the Department of Parks and  
               Recreation for the maintenance and improvement of state  
               parks. 

           Other provisions  .  The bill provides that the taxes imposed by  
          this act are "General Fund proceeds of taxes" and must therefore  
          be dedicated to Proposition 98 (Section 8 of Article XVI of the  
          California Constitution). 











          SB 241 -- 4/24/13 -- PageE


          The severance tax would be in addition to any other taxes  
          imposed by law, including and without limitation, any ad valorem  
          taxes imposed by the state, or any political subdivision of the  
          state, or any local business license taxes that may be incurred  
          as a privilege of severing oil or gas from the earth or water or  
          doing business in that locality.

          SB 214 specifies that the taxes imposed by the law shall not be  
          passed through to consumers by way of higher prices and requires  
          the BOE to investigate any instance where operators may have  
          attempted to gouge consumers by using the tax to materially  
          raise the price of oil, natural gas or related products.  


                                 State Revenue Impact
           
          The LAO, in a letter to Senator Fuller dated April 15, 2013,  
          estimates that at 9.9%, an oil severance tax alone would  
          generate $1.5-$2 billion in new revenue.  The BOE estimate is  
          still pending for both the oil and gas provisions.

                                       Comments  

          1.   Purpose of the bill  .  According to the author: "California  
          has come a long way in easing its wall of debt during the past  
          two years.  However, our progress has come with many difficult  
          choices including cuts in funding for vital programs and  
          services.  After an election in which the majority of the voters  
          in California voted to raise their own taxes to fund education  
          and other crucial services, now is the time for our state to  
          join the rest of the other oil producing states and enact an oil  
          severance tax on big oil companies to help strengthen our  
          economy.  California is the only state of the top ten oil  
          producing states in the nation that does not charge a severance  
          tax on every barrel of oil taken from our state lands and sea  
          bed. 

          Oil producing states such as Alaska charge a 25% tax and the  
          state of Texas charges 4.75%.  Opponents of an oil severance tax  
          have claimed for years that the oil companies will pass any  
          taxes on to consumers, but that is not the case.  According to a  
          study by the Rand Corporation, which investigated the impacts of  
          a 6% oil severance tax, the tax cannot be passed onto consumers  









          SB 241 -- 4/24/13 -- PageF

          and it will not affect production.  Virtually all economists  
          agree that the world market sets the price of oil, and that  
          underlying taxes whether from Texas, Kuwait or California, are  
          not passed through at the pump."
           
           2.   High costs, fewer jobs  .  The opposition to this measure call  
          it a "job killer" and state that the bill would add to the  
          state's already high tax burden on oil production, and  
          transportation fuels in this state.  The new severance tax  
          should make California's combined tax on oil production one of  
          the highest in the nation.  The higher taxes would add to  
          producer costs which would discourage in-state production  
          leading to direct job losses for oil field workers and also  
          indirect job losses that provide support for oil serves  
          operations.  Furthermore, decreased production will call for  
          greater imports to meet California's energy needs which will  
          necessitate higher transportation costs and greater greenhouse  
          gas emissions.  The opponents also point to the potential  
          development of the Monterey Shale which, according to the  
          "economists" and the USC Price School of Public Policy and the  
          Communications Institute, could produce up to $2.8 million jobs;  
          increase GDP by up to 14.3% and grow state and local revenues by  
          up to $24.6 billion.  Opponents point out that an oil severance  
          tax is a deterrent to the extracting oil from the Monterey  
          Shale.

          3.   Fill in the blank  .  The bill leaves a number of issues blank  
          which the author will resolve before the hearing including the  
          rate of the gas tax, the amount of the penalties and the  
          determination of the stripper wells' production.  

          4.   California's relative taxation of oil  .   California is the  
          nation's fourth largest producer of oil behind Alaska and Texas.  
           In addition, California is the only major oil producing state  
          that does not charge a severance tax.  Opponents however, argue  
          that California's oil resources are already among the most  
          heavily taxed in the country when one considers the combined tax  
          burden on oil production.  In 2011, the Assembly Committee on  
          Revenue & Taxation asked staff at the Franchise Tax Board and  
          the BOE to calculate the combined tax burden per barrel of oil  
          in both California and Texas.  After accounting for regulatory  
          fees, applicable severance taxes, property taxes, and income and  
          franchise taxes, this analysis found that California's combined  
          tax burden on oil production was $4.22 per barrel in 2008.  In  









          SB 241 -- 4/24/13 -- PageG

          Texas, by contrast, the combined tax burden on oil production  
          was more than three times higher at $14.33 per barrel.    
          Opponents argue that these relative numbers are misleading for a  
          number of reasons: (1) It is impossible to determine the income  
          tax per barrel of oil produced; (2) Property taxes are not  
          linked to production and the basis for calculation in Texas  
          versus California are very different; (3) California's  
          regulatory fees within DOC are open ended whereas all Texas'  
          regulatory fees are fixed.

          5.   Price at the pump  ?  This measure provides that the cost of  
          the severance tax shall not be passed on to consumers.  While  
          this provision may be both difficult and costly to enforce, the  
          tax itself will not likely affect gas prices.  In addition, this  
          bill does not specify penalties for noncompliance.   
          Nevertheless, the Legislative Analyst's Office noted in its 2006  
          report on Proposition 87, which would have imposed a similar  
          severance tax, that market forces ensure that the oil severance  
          tax would not be passed on to consumers.  Because California oil  
          refiners have many options for purchasing crude oil in the  
          global oil market, California oil producers must maintain  
          competitive prices to retain their share of the market.   
          Furthermore, not all oil is the same; for example, California  
          crude oil is a heavy crude and purchasers that need such crude  
          for their gasoline, for example, will only purchase from  
          California unless the price fluctuates wildly, which is unlikely  
          given the small percentage of the world's oil produced in  
          California.  Finally, oil prices are not dependent on California  
          laws at all, but instead on market supply and demand, the oil  
          "futures" price, (taxpayers that wish to hedge against large  
          price increases, lock in contracts at a price expected to be  
          lower) and market sentiment.  None of these factors considers  
          the cost of doing business in any oil producing state or  
          country.

          6.   Property tax revenue  .  According to an LAO letter to Senator  
          Fuller dated April 15, 2013, an oil severance tax would reduce  
          property tax revenues to local governments because for most  
          properties, "the severance tax would reduce the volume of  
          existing proved reserves in the year the severance tax is  
          imposed because the tax would reduce the amount of oil that is  
          profitable to extract."  Kern, Los Angeles, Ventura and Fresno  
          would be the most significantly affected (Kern would be  
          disproportionately affected because it has the greatest number  









          SB 241 -- 4/24/13 -- PageH

          of facilities).  The author will amend the bill in Committee as  
          follows: Any local property tax reductions which may result from  
          the imposition of the tax in this section shall be reimbursed  
          from the revenues received from the imposition of the tax. 

          7.   Volatility  .  Oil prices are volatile; therefore, any tax  
          associated with the tax will be volatile over time unless the  
          tax is a fixed price per barrel.  A review of states indicates  
          that the tax is almost always imposed as a percent of barrel  
          prices of oil.  This bill requires that DOC determine an average  
          price of barrels of oil and gas two times a year in an attempt  
          to minimize the volatility.  To avoid becoming overly dependent  
          on this revenue source, the Committee may wish to consider  
          reserving part of the funds in a "rainy day" fund rather than  
          using the entirety of the money immediately.  

          8.  Oil taxes and severance taxes by state  .  Most other oil  
          producing states impose a tax on extraction.  The following  
          chart, provided by the National Conference of State Legislatures  
          (NCSL) provides a summary. 


           ------------------------------------------------------------------ 
          |Alabama        |Oil and Gas   |§ 8 percent of gross value at      |
          |               |Privilege Tax |  point of production              |
          |               |on Production |                                   |
          |               |              |§ 4 percent of gross value at      |
          |               |              |  point of incremental production  |
          |               |              |  for enhanced recovery projects   |
          |               |              |                                   |
          |               |              |§ 4 percent if oil wells produce   |
          |               |              |  25 barrels or less per day or if |
          |               |              |  gas wells produce 200,000 cubic  |
          |               |              |  feet or less gas per day         |
          |               |              |                                   |
          |               |              |§ 6 percent of gross value at      |
          |               |              |  point of production for certain  |
          |               |              |  on-shore and off-shore wells.    |
          |               |              |                                   |
          |               |              |§  50 percent rate reduction for   |
          |               |              |  wells permitted by the oil and   |
          |               |              |  gas board on or after July 1,    |
          |               |              |  1996 and before July 1, 2002 for |
          |               |              |  5 years from initial production, |









          SB 241 -- 4/24/13 -- PageI

          |               |              |  except for replacement wells for |
          |               |              |  which the initial permit was     |
          |               |              |dated before July 1, 1996.         |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Alaska         |Petroleum     |§ Ranges from 25 percent to 50     |
          |               |Profits Tax   |  percent depending on net value   |
          |               |(PPT)         |  of oil and gas, which is the     |
          |               |              |  value at point of production     |
          |               |              |  minus certain lease expenditures |
          |               |              |                                   |
          |               |              |§ 22.5 percent net value at        |
          |               |              |  wellhead                         |
          |               |              |                                   |
          |               |              |§ There is an additional surcharge |
          |               |              |  for each dollar when net value   |
          |               |              |  exceeds $40 per barrel. This     |
          |               |              |  cannot exceed 25 percent of the  |
          |               |              |  monthly production tax value of  |
          |               |              |  taxable oil and gas.             |
          |               |              |                                   |
          |               |              |§  Conservation surcharge of 4     |
          |               |              |  cents per barrel and an          |
          |               |              |  additional 1 cent per barrel if  |
          |               |              |  there is less than $50 million   |
          |               |              |  in the Hazardous Release Fund    |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Arizona        |Severance Tax |§  3.125 percent for oil and gas   |
          |               |              |  production and nonmetal mining   |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Arkansas       |Oil and Gas   |§ 0.3 of $0.01 cent per MCF for    |
          |               |Conservation  |  natural gas                      |
          |               |Tax           |                                   |
          |               |              |§  Four percent to five percent    |
          |               |              |  depending on production levels   |
          |               |              |  for crude oil                    |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |California     |Oil and Gas   |§  Rate determined annually by     |
          |               |Production    |  Department of Conservation       |
          |               |Assessment    |                                   |
          |---------------+--------------+-----------------------------------|









          SB 241 -- 4/24/13 -- PageJ

          |Colorado       |Severance Tax |§ Two to five percent based on     |
          |               |              |  gross income for oil, gas,       |
          |               |              |  carbon dioxide and coalbed       |
          |               |              |  methane                          |
          |               |              |                                   |
          |               |              |§  Four percent of gross proceeds  |
          |               |              |  on production exceeding 15,000   |
          |               |              |  tons per day for oil shal        |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Oil and Gas   |§  Maximum 1.5 mills/$1 of market  |
          |               |Conservation  |  value at wellhead                |
          |               |Levy          |                                   |
          |---------------+--------------+-----------------------------------|
          |Florida        |Oil, Gas and  |§ Five percent of gross value for  |
          |               |Sulfur        |  small well oil                   |
          |               |Production    |                                   |
          |               |Tax           |§ Eight percent of gross value for |
          |               |              |  all other and an additional 12.5 |
                                                  |               |              |  percent for escaped oil          |
          |               |              |                                   |
          |               |              |§  For gas, the gas base rate times |
          |               |              |  the gas base adjustment rate     |
          |               |              |  each fiscal yea                  |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Idaho          |Oil and Gas   |§  Maximum of five mills/bbl. of   |
          |               |Production    |  oil and five mills/50,000 cubic  |
          |               |Tax           |  feet of gas                      |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Additional    |§  Two percent of market value at  |
          |               |Oil and Gas   |  site of production               |
          |               |Production    |                                   |
          |               |Tax           |                                   |
          |---------------+--------------+-----------------------------------|
          |Indiana        |Petroleum     |§  One percent of value or $0.24   |
          |               |Production    |  per barrel for oil, or $0.03 per |
          |               |Tax           |  1,000 cubic feet of gas          |
          |               |              |  (whichever is greater)           |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Kansas         |Severance Tax |§  Eight percent of gross value of |
          |               |              |  oil and gas, less property tax   |









          SB 241 -- 4/24/13 -- PageK

          |               |              |  credit of 3.67 percent           |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Oil and Gas   |§ 91 mills/bbl crude oil or        |
          |               |Conservation  |  petroleum marketed or used each  |
          |               |Tax           |  month                            |
          |               |              |                                   |
          |               |              |§  12.9 mills/1,000 cubic feet of  |
          |               |              |  gas sold or marketed each mont   |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Kentucky       |Oil           |§  4.5 percent of market value     |
          |               |Production    |                                   |
          |               |Tax           |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Natural       |§  4.5 percent of gross value, less |
          |               |Resource      |  transportation expenses          |
          |               |Severance Tax |                                   |
          |---------------+--------------+-----------------------------------|
          |Louisiana      |Natural       |§  Varies according to substance   |
          |               |Resources     |                                   |
          |               |Severance Tax |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Oil Field     |§  Varies according to type of well |
          |               |Restoration   |  and production                   |
          |               |Fee           |                                   |
          |---------------+--------------+-----------------------------------|
          |Michigan       |Gas and Oil   |§ Five percent for gas             |
          |               |Severance Tax |                                   |
          |               |              |§ 6.6 percent for oil              |
          |               |              |                                   |
          |               |              |§ Four percent (oil from stripper  |
          |               |              |  wells and marginal properties)   |
          |               |              |  of gross cash market value of    |
          |               |              |  the total production             |
          |               |              |                                   |
          |               |              |§  Maximum additional fee of 1     |
          |               |              |  percent gross cash market value  |
          |               |              |  on all oil and gas produced in   |
          |               |              |state in previous year             |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Mississippi    |Oil and Gas   |§ Six percent of the value at      |
          |               |Severance Tax |  point of gas production          |









          SB 241 -- 4/24/13 -- PageL

          |               |              |                                   |
          |               |              |§ Three percent of gross value of  |
          |               |              |  occluded natural gas from coal   |
          |               |              |  seams at point of production for |
          |               |              |  the well's first five years      |
          |               |              |                                   |
          |               |              |§ Maximum 35 mills/bbl. oil or     |
          |               |              |  four mills/1,000 cubic feet of   |
          |               |              |  gas (Oil and Gas Board           |
          |               |              |  maintenance tax)                 |
          |               |              |                                   |
          |               |              |§ Six percent of value at the      |
          |               |              |  point of oil production          |
          |               |              |                                   |
          |               |              |§  Three percent of value at       |
          |               |              |  production when enhanced oil     |
          |               |              |  recovery is used                 |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Montana        |Oil or Gas    |§  Maximum of 0.3 percent on the   |
          |               |Conservation  |  market value of each barrel of   |
          |               |Tax           |  crude petroleum oil or 10,000    |
          |               |              |  cubic feet of natural gas        |
          |               |              |  produced, saved and marketed or  |
          |               |              |  stored within or exported from   |
          |               |              |  the state                        |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Oil or        |§  Varies from 0.5 percent to 14.8 |
          |               |Natural Gas   |  percent according to the well    |
          |               |Production    |  and type of production           |
          |               |Tax           |                                   |
          |---------------+--------------+-----------------------------------|
          |Nebraska       |Oil and Gas   |§  Three percent of value of       |
          |               |Severance Tax |  nonstripper oil and natural gas  |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Oil and Gas   |§  Two percent of value of stripper |
          |               |Conservation  |  oil. Maximum of 15 mills/$1 of   |
          |               |Tax           |  value at wellhead                |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Nevada         |Oil and Gas   |§  $50/mills/bbl of oil and 50     |
          |               |Conservation  |  mills/50,000 cubic feet of gas   |









          SB 241 -- 4/24/13 -- PageM

          |               |Tax           |                                   |
          |---------------+--------------+-----------------------------------|
          |New Hampshire  |Refined       |§  0.1 percent of fair market value|
          |               |Petroleum     |                                   |
          |               |Products Tax  |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Excavation    |§  $0.02 per cubic yard of earth   |
          |               |Tax           |  excavated                        |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |New Mexico     |Oil and Gas   |§  3.75 percent of value of oil,   |
          |               |Severance Tax |  other liquid hydrocarbons,       |
          |               |              |  natural gas and carbon dioxide   |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Oil and Gas   | 3.15 percent of value of oil,    |
          |               |Emergency     |other liquid hydrocarbons and      |
          |               |School Tax    |carbon dioxide; Four percent of    |
          |               |              |the value of natural gas           |
          |---------------+--------------+-----------------------------------|
          |               |Natural Gas   |§  $0.0220/mmBtu tax on the volume |
          |               |Processor's   |                                   |
          |               |Tax           |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Oil and Gas   |§  Based on property tax in the    |
          |               |Ad Valorem    |  district of production           |
          |               |Production    |                                   |
          |               |Tax           |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Oil and Gas   |§  0.19 percent of value           |
          |               |Conservation  |                                   |
          |               |Tax           |                                   |
          |---------------+--------------+-----------------------------------|
          |North Carolina |Oil and Gas   |§  Maximum of five mills/barrel of |
          |               |Conservation  |  oil and 0.5 mill/1,000 cubic     |
          |               |Tax           |  feet of gas                      |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |North Dakota   |Oil Gross     |§  Five percent of gross value at  |
          |               |Production    |  the well                         |
          |               |Tax           |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Gas Gross     |§  $0.04 per 1,000 cubic feet of   |
          |               |Production    |  gas produced. The rate is        |









          SB 241 -- 4/24/13 -- PageN

          |               |Tax           |  subject to a gas rate adjustment |
          |               |              |  each fiscal year.                |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Oil           |§  6.5 percent of gross value at   |
          |               |Extraction    |  the well. Exceptions exist for   |
          |               |Tax           |  certain production volumes and   |
          |               |              |  incentives for enhanced recovery |
          |               |              |  projects.                        |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Ohio           |Resource      |§ $0.10/bbl of oil                 |
          |               |Severance Tax |                                   |
          |               |              |§  $0.025/1,000 cubic feet of      |
          |               |              |  natural gas                      |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Oklahoma       |Oil, Gas and  |§ Seven percent if greater than    |
          |               |Mineral Gross |  $2.10 mcf; four percent if       |
          |               |Production    |  greater than $1.75 mcf but less  |
          |               |Tax and       |  than $2.10 mcf; and one percent  |
          |               |Petroleum     |  if less than $1.75 mcf natural   |
          |               |Excise Tax    |  gas and casinghead gas (a        |
          |               |              |  byproduct of natural gas         |
          |               |              |  extraction), and 0.95 percent    |
          |               |              |  levied on crude oil, casinghead  |
          |               |              |  gas and natural gas.             |
          |               |              |                                   |
          |               |              |§  Oil Gross Production Tax is     |
          |               |              |  variable based on the average    |
          |               |              |  price of Oklahoma oil. The tax   |
          |               |              |  rate is seven percent if average |
          |               |              |  price is equal to or exceeds     |
          |               |              |  $17/bbl; four percent if the     |
          |               |              |  average price is less than       |
          |               |              |  $17/bbl but equal to or exceeds  |
          |               |              |  $14/bbl; and one percent if the  |
          |               |              |  average price is less than       |
          |               |              |$14/bbl.                           |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Oregon         |Oil and Gas   |§  Six percent of gross value at   |
          |               |Production    |  well                             |
          |               |Tax           |                                   |









          SB 241 -- 4/24/13 -- PageO

          |---------------+--------------+-----------------------------------|
          |South Dakota   |Energy        |§  4.5 percent of taxable value of |
          |               |Minerals      |  all energy minerals              |
          |               |Severance Tax |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Conservation  |§  2.4 mills of taxable value of   |
          |               |Tax           |  all energy minerals              |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Tennessee      |Oil and Gas   |§  Three percent of sales price    |
          |               |Severance Tax |                                   |
          |---------------+--------------+-----------------------------------|
          |Texas          |Natural Gas   |§ 7.5 percent of market value of   |
          |               |Production    |  gas                              |
          |               |Tax           |                                   |
          |               |              |§  Condensate Production Tax is 4.6 |
          |               |              |  percent of market value of gas   |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Oil-Field     |§ 5/8 of $0.01/barrel              |
          |               |Cleanup       |                                   |
          |               |Regulatory    |§  1/15 of $0.01/1,000 cubic feet  |
          |               |Fees          |  of gas                           |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Utah           |Oil and Gas   |§ Three percent of value for the   |
          |               |Severance Tax |  first $13 per barrel of oil and  |
          |               |              |  five percent if the value is     |
          |               |              |  $13.01 or higher                 |
          |               |              |                                   |
          |               |              |§ Three percent of value for the   |
          |               |              |  first $1.50/mcf and five percent |
          |               |              |  if the value is $1.51 or higher  |
          |               |              |                                   |
          |               |              |§  Four percent of taxable value of |
          |               |              |  natural gas liquids              |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |               |Oil and Gas   |§  0.002 percent of market value at |
          |               |Conservation  |  the wellhead                     |
          |               |Fee           |                                   |
          |---------------+--------------+-----------------------------------|
          |West Virginia  |Natural       |§ Five percent of gross value for  |
          |               |Resource      |  natural gas; ten percent of net  |









          SB 241 -- 4/24/13 -- PageP

          |               |Severance     |  tax is distributed to local      |
          |               |Taxes         |  governments                      |
          |               |              |                                   |
          |               |              |§ Five percent of gross value for  |
          |               |              |  oil; ten percent of net tax is   |
          |               |              |  distributed to local governments |
          |               |              |                                   |
          |               |              |§  Additional tax for workers'     |
          |               |              |  compensation debt reduction rate |
          |               |              |  of $0.047/mcf of natural gas     |
          |               |              |  produced                         |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Wisconsin      |Oil and Gas   |§   Seven percent of market value  |
          |               |Severance Tax |  of oil or gas at the mouth of    |
          |               |              |  the well                         |
          |               |              |                                   |
          |---------------+--------------+-----------------------------------|
          |Wyoming        |Severance     |§ Six percent on crude oil, lease  |
          |               |Taxes         |  condensate or natural gas        |
          |               |              |                                   |
          |               |              |§  Four percent for stripper       |
          |               |              |oil                                |
          |               |              |                                   |
           ------------------------------------------------------------------ 

          9.  Related Legislation  - There have been several attempts at  
          similar bills in the past:

                 AB 1326 (Furutani), 2011, Imposed a 12.5% tax on oil and  
               gas severed in this state.  

                 AB 1604 (Nava), 2010, Imposed a tax at the rate of 10%  
               of the gross value of each barrel of oil severed.  The bill  
               was held in the Assembly Revenue & Taxation Committee.

                 AB 656 (Torrico), 2010, Imposed an oil and gas severance  
               tax at 12.5% to fund higher education.  AB 656 was held in  
               the Senate Education Committee.  

                 ABx3 9 (Nunez), 2008, Imposed a 6% oil severance tax and  
               a 2% surtax on that portion of taxable income or net  
               income, respectively, in excess of $10 million, of  
               taxpayers engaged in the petroleum industry.  AB x3 9  









          SB 241 -- 4/24/13 -- PageQ

               failed passage on the Assembly Floor.  

                 AB 2442 (Klehs), 2006, Imposed a surtax at the rate of  
               2% on net income in excess of $10,000,000 that is  
               apportioned to California and arises from business  
               activities in the petroleum industry.  AB 2442 failed  
               passage on the Assembly Floor.

                 AB 673 (Klehs), 2006, Imposed a 2.5% tax on the windfall  
               profits of petroleum producers and refiners.  AB 673 failed  
               passage on the Assembly Floor.  

                 ABx1 128 (Corbett) and ABx2 2 (Corbett), 2001, Imposed a  
               tax on the windfall profits of electrical energy companies  
               during the electricity crisis in 2001-02.  ABx1 128 was  
               held by the Assembly Appropriations Committee; ABx2 2  
               failed passage on the Assembly floor. 

                 SBx1 1 and SBx2 1 (Soto), 2001, Imposed a windfall  
               profits tax on sellers of electricity and provided that the  
               amount collected would be refunded to individuals that  
               filed a tax return.  SBx1 1 was held by the Assembly when  
               the first extraordinary session closed; SBx2 1 failed  
               passage on the Assembly Floor.

                 SB 1777 (Burton), 2000, Imposed a Petroleum Windfall  
               Profits Tax on certain taxpayers engaged in petroleum  
               refining.  SB 1777 was held in the Senate Rules Committee.

                 SB 14 (Thompson), 1996, Imposed a Petroleum Windfall  
               Profits Tax on certain taxpayers engaged in petroleum  
               refining.  SB 14 failed passage in this committee. 

                 AB 336 (Villaraigosa), 1996, Imposed a 6% oil severance  
               tax on certain oil producers.  AB 336 failed to pass out of  
                this committee.

                 AB 1693 (Margolin), 1994, Imposed an oil severance tax  
               on certain oil producers at a rate of 6% of gross market  
               value.  AB 1693 failed to pass out of this committee.













          SB 241 -- 4/24/13 -- PageR

                           Support and Opposition  (4/25/13)

           Support  :  University of California Student Association (UCSA) &  
          California State Student Association (CSSA) (co-sponsors);  
          California Teachers Association; AFSCME, California Federation  
          of Teacher; Faculty Association of Community Colleges;  
          California Faculty Association; California School Employees  
          Association; California State University; University of  
          California; State Building and Construction Trades Council of  
          California; California State parks Foundation; Sierra Club;  
          Courage Campaign; California National Organization for Women;  
          California Watershed Network; Sacramento River Watershed  
          Program; Salmonid Federation; Sierra Nevada Alliance; Sonoma  
          Ecology Center; California Urban Stream Partnership; Northern  
          California Council of Fly Fishers; California Association of  
          Resources Conservation District; California Conference Board of  
          the Amalgamated transit Union; California Conference of  
          Machinists; California Official Court reporter Association;  
          California Teamster Public Affairs Council; Coalition for  
          Enhance Marine Resources; Engineers and  Scientists of  
          California; International Longshore and warehouse Union; Jockeys  
          guild; Professional & technical Engineers; Unite Here  
          International Union; United Anglers; United Food and Commercial  
          Workers;  University of California ( in concept); California Tax  
          Reform Association.

           Opposition  :  California Chamber of Commerce' California  
          Taxpayers Association; California Manufacturers and Technology  
          Association; National Federation of Independent  
          Business/California; Howard Jarvis Taxpayers Association;  
          Coalition of Energy Users
          Small Business Action Committee; Black Business Association; San  
                                    Diego Urban Economic Corporation; Contra Costa Taxpayers  
          Association; Sacramento Black Chamber of Commerce; Kern County  
          Taxpayers Association; Independent Oil Producers Agency; Sutter  
          County Taxpayers Association; Western States Petroleum  
          Association ; Carson Black Chamber of Commerce; California  
          Independent Oil Marketers; Santa Barbara Technology and Industry  
          Association; Moreno Valley Black Chamber of Commerce; California  
          Independent Petroleum Association; California Association of  
          Black Pastors; San Diego Tax Fighters; California Small Business  
          Alliance.











          SB 241 -- 4/24/13 -- PageS