Taxes

Taxes on crude oil production

Most States impose a severance tax when oil (or gas or another natural resource) is produced from property within their territory.  It is generally a percentage of the sale price and thus varies with markets.  In 1996, States collected a total of about $3.3 billion in severance taxes on oil and gas production.  For Alaska, the State by far the most dependent on oil production activity, severance taxes account for about half of all State tax revenue.  In other large producing States, severance tax revenue is important but is less than 10 percent of total tax revenue. 

Royalties are not taxes but fees paid to landowners, whether private or public.  (As noted earlier, private ownership of mineral rights is unique to the United States.)  Payment of royalties is universal, part of a standard contract to produce oil or gas from a given property.  The amount of the royalty percentage is part of the negotiation process and thus varies with boom and bust cycles in the industry.  Generally, oil royalties are about 1/7 (some 14 percent) of the sale price.  Royalty agreements with the Federal government have generally required a higher royalty payment.  In 1996, the Federal government collected approximately $3 billion in royalties on oil and gas production from Federal property, including Federal offshore areas.

Excise and Other Taxes

U.S. import tariffs on oil are generally modest, except on gasoline.  They are a fixed level per unit and thus become more important at low overall market prices. Depending on the density of the oil, crude oil and fuel oils pay 5.25 cents per barrel (for heavier quality) and 10.5 cents for lighter oils.  Transportation fuels, such as gasoline and jet fuel, pay 52.5 cents per barrel, or 1.25 cents per gallon. 

Excise taxes are an important source of revenue to the taxing authority, whether the authority is the Federal, State, or local government.  Among oil products, highway fuels are by far the most heavily taxed.  Federal excise taxes on gasoline are 18.3 cents per gallon and on diesel fuel are 24.3 cents.  In addition, the Federal government collects a fee of  0.1 cents per gallon to finance the Leaking Underground Storage Tank Trust Fund.  Furthermore, State taxes on gasoline vary from less than 10 cents per gallon to about 40 cents, averaging about 22.6 cents per gallon in early 1998.  Taxes on diesel used as a highway fuel show a similar range and also average 22.6 cents per gallon.  These data for State taxes include "excise" taxes as well as other taxes, such as sales taxes that some States impose on gasoline and diesel.  State excise taxes alone, as of early 1998, average about 18 cents per gallon. 

Gasohol, a blend of 10 percent ethanol and 90 percent gasoline, may also be subject to a different excise tax rate.  The Federal tax on gasohol is 13 cents per gallon, or 5.3 less than the rate of tax on gasoline.  Nine States also provide preferential excise or sales tax treatment for gasohol, ranging from 1 cent per gallon (Connecticut, Iowa) to 15 cents per gallon (Ohio.) 

Excise taxes account for almost all of the difference between prices for gasoline in the United States and prices in our foreign trading partners, such as Europe and Japan.  When the price of gasoline in the United States is $1.10 per gallon, for instance, excise taxes account for about 40 cents, or 36 percent of the total; the pre-tax price is about 70 cents.  At the same time, the price in Germany, for instance, might be $3.00 per gallon, with taxes accounting for some $2.30, or some 77 percent of the total; the pre-tax price is about the same as that in the United States:  70 cents per gallon

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