Bode Lawsuit Could Smash Tax Relief for Energy Industry, Trigger Tax Hike on Oil Producers

A lawsuit advocated by Corporation Commissioner Denise Bode could torpedo a tax relief law that helps Oklahoma oil producers, plunging the state energy industry into deeper turmoil and costing the state thousands of jobs in the process, according to a state legislator.

The 1999 law in question created a three-tiered gross production tax rate that rises or falls based on the price of oil. The statute is almost identical to an income tax rate provision that is currently being challenged by Commissioner Bode. Bode claims the latter law is unconstitutional and is threatening a lawsuit to overturn it.

"Whether she means to or not, Commissioner Bode may ultimately be responsible for killing one of the best energy incentive programs in the country. She could cost oil producers millions of dollars and cause thousands of energy workers to lose their jobs," said Senator Herb Rozell of Tahlequah.

Under the provisions of the 1999 energy relief package, gross production taxes are reduced when oil prices decline and times are tough in the energy industry. When times improve and oil prices increase, so does the tax rate. Similarly, the 1998 law that is now being challenged by Bode enacted an income tax reduction at a time when the state was running a revenue surplus. Under the provisions of the statute, when times are bad and the state is facing a revenue shortfall, the tax rate is raised to its 1998 level. When times improve and a surplus is again posted, the income tax rate is reduced.

"Because the tax rate provisions in the laws are almost identical, if one statute is struck down as unconstitutional, the other one will be knocked out too. That may not be what Commissioner Bode intended, but that will be the end result of her actions," said Senator Rozell.

Under the energy tax relief program, the gross production tax is levied at a rate of 1 percent, 4 percent or 7 percent, depending on the price of oil. If Bode's legal challenge is successful and the law is ultimately declared unconstitutional, the tax rate would revert to the level set in previous law - a flat 7 percent.

"I don't think we should be raising taxes on an industry that is struggling to survive, but that's what Commissioner Bode would be doing. I think she needs to take a close look at the energy law before she does something that we may all regret," said Senator Rozell.

When the energy tax relief law was passed in 1999, Commissioner Bode was one of its biggest proponents, calling it "an extraordinary action" that "provided leadership for the nation."

In light of the potential impact on the energy relief program, Senator Rozell is urging Bode to rethink the lawsuit and consider other methods for achieving the result that she desires on the income tax law. He noted that several legislators have already announced their intention to repeal the statute in the coming legislative session.

"I know that she's running for office and the lawsuit is getting her name in the headlines, but I don't think raising taxes on the energy industry is going to be very helpful for her campaign either. I would urge her to seek a more effective tool for achieving her goal, not one that would cripple a key contributor to the Oklahoma economy," said Senator Rozell.