The 2013 Louisiana legislative session is less than two weeks from beginning. Legislators will convene at the state capitol on April 8th to kick off a 60-day fiscal session. Unlike the alternate-year 90-day session, this one will be a bit more of a sprint. Many pieces of legislations are being filed that could positively or adversely affect the oil and natural gas industry. One issue however is taking precedent this session. Governor Jindal’s tax proposal has many groups around the state buzzing for and against the package. While the oil and gas industry has spent countless hours reviewing the governor’s proposed plan, much work remains to pass a good bill.
The “tax swap”, as the governor’s tax package is being labeled, has many moving parts. The basis of the plan is to do away with corporate, franchise and personal income taxes in our state. Also, the plan is to broaden the tax base by increasing sales taxes on the service sector. Currently, as the administration has indicated, the oil and gas service sector would remain exempt from the sales tax on services. This is good news. Low taxes and healthy incentives both keep the oil and gas industry productive. With these two factors in place, jobs will be created and activity will continue.
The governor’s tax plan also has potential to expand certain exemptions that are already in place for the oil and gas industry. Expanding exemptions or spreading them out over longer periods of time, would keep the tax plan revenue neutral, as the administration has expressed desire to do. In addition to remaining revenue neutral, the expansion of exemptions creates a better business climate for those companies that are currently doing business as well as the new business that would come into the state as the result of a better tax climate.
A healthy tax climate creates organic competition. This competition is now as close as a few hundred yards over the state line. In order for the oil and gas industry of Louisiana, specifically, to remain the economic driver of our state, the legislative body must keep in mind what is important: jobs and economic growth.
The specific tax plan bill has not been drafted or filed at this time, but the oil and gas industry certainly looks forward to reviewing the bill. The industry also understands the legislative process and fully expects amendments and changes to any filed bill. The upstream sector of the industry that LOGA represents is supportive of the tax swap, however the midstream/downstream sectors are continuing to evaluate the plan.
Over the past year, natural gas prices have fallen to ten-year lows, rig counts have declined and oil and gas jobs have had to move out of state. As commodity prices return, investment incentives must remain strong. This will allow Louisiana to begin to see a competitive advantage over other oil and natural gas producing states.