Limits the deduction for intangible drilling and development costs used in the computation of the Louisiana net income of a corporation. (Item #5)(gov sig)
Impact
If passed, SB 23 will lead to significant changes in how corporations involved in oil and gas extraction account for their expenses. The bill will eliminate the ability of corporations to claim deductions for intangible drilling costs when these costs are involved in calculating the payout of well costs for the severance tax exemption. This change is designed to ensure that tax benefits are not unfairly utilized, potentially leading to an increase in state tax revenues as deductions become less favorable for companies that take advantage of the severance tax exemptions.
Summary
Senate Bill 23, also known as the 'Kennedy Plan', aims to modify the corporate income tax deduction system for intangible drilling and development costs in the state of Louisiana. The bill specifies that these deductions will only be allowable under certain conditions, particularly focusing on their relationship to the severance tax exemption provided for horizontal drilling. The intent is to refine the existing tax framework by adjusting the deductions so that they correspond with the taxable status of well costs, effectively tightening the rules governing how corporations can report and benefit from these deductions.
Sentiment
The sentiment surrounding SB 23 has been characterized by a mix of support from proponents who argue that it will bring fairness and clarity to the tax system, and opposition from industry stakeholders who are concerned about the negative financial implications it may have on oil and gas operations. Advocates highlight the bill's potential to prevent abuse of tax deductions and ensure that benefits are accurately aligned with actual operational costs. Conversely, critics express worry that the stricter deduction guidelines may deter investments and hinder economic activities in the oil and gas sector.
Contention
Notable points of contention include the potential impact this bill would have on the profitability of oil and gas companies operating under the current severance tax exemption policy. Opponents argue that limiting these deductions may raise operational costs, allowing for a negative ripple effect on employment and investment in Louisiana’s energy sector. Furthermore, there is debate regarding the state's approach to regulating the tax code, with questions about whether such measures will stifle growth or enhance fiscal responsibility.
To establish a framework upon which to repeal the property tax on business inventories and offshore vessels as well as the state income tax credits associated therewith through the repeal of a state sales and use tax, the levy of a limited, temporary state sales and use tax, and limitations on the applicability of certain exclusions and exemptions from certain state sales and use taxes (Items #31 and 36) (OR SEE FISC NOTE GF RV)