Louisiana Gov. John Bel Edwards (D) has vetoed a bill that would have created a new severance tax exemption on oil production, saying there is no evidence that it would have increased production or created jobs.
H.B. 29, sponsored by Rep. Phillip DeVillier (R), would have temporarily suspended severance taxes on oil production occurring from any newly drilled well, a completed well undergoing enhancements that require a state Department of Natural Resources permit, or an orphaned well.
Edwards vetoed the bill along with seven others, according to a November 12 announcement by the governor's office. One of those bills, H.B. 37, would have provided an income tax credit for annual and renewal license or permit fees paid by owners of bars and restaurants to the state alcohol and tobacco agency for 2020. The bills were among several tax bills lawmakers approved during the recent special session, some of which Edwards has signed into law.
H.B. 29 was supported by the Louisiana Oil and Gas Association, which said in a statement that the bill would “increase activity and give operators some much needed incentives that will help put Louisiana’s oil and gas industry back to work.”
However, Edwards noted in his November 11 veto letter that “no legitimate evidence or testimony supports this assertion, other than the testimony of those with a vested interest through enactment of a new exemption.”
“In fact, according to research by the LSU Center for Energy Studies, production is relatively unresponsive to price changes,” the governor continued. Also, there is no requirement in the bill that “the drilling operator certify that it employed Louisiana residents to the extent possible in production activities, unlike the New Discovery Well statutes enacted in the mid-1990s,” according to the letter.
Edwards said the bill also contains practical shortcomings that would have created compliance uncertainty for operators and administrative burdens for state government.
In his veto letter on H.B. 37, the governor said the bill is “extremely broad in that any restaurant or bar that suffered an interruption in business due to COVID-19 would be eligible to receive the credit if their sales tax from the 2020 calendar year are less than” their sales in the previous year. He also noted that a bill (S.B. 72) he signed into law earlier this month provides a one-time refundable income tax credit based on permit amounts for the same types of businesses.
A veto session would be required to override the governor’s vetoes. Veto overrides in Louisiana require support from two-thirds of elected members in each legislative chamber.
Jason DeCuir, partner at Advantous Consulting LLC, told Tax Notes that he thinks it would be difficult to mobilize a veto since the legislature isn’t in session. However, he expects there will be a strong push to pass an oil severance tax exemption bill early in the upcoming fiscal session, so it can better withstand a potential veto. He also said that if the measure is reintroduced, he expects it may be more favorable to the industry than H.B. 29.