The Senate Transportation Committee this week heard testimony that Gov. Rendell’s proposed oil company profits tax may have unintended, negative impacts on the development of renewable fuels and domestic oil and natural gas development in Pennsylvania.

John Kulik, PA Petroleum Marketers and Convenience Store Association, said the draft legislation includes “wholesale distributors” which would capture hundreds of small and medium-sized businesses in the state and all their business profits, not just profits related to the sale of petroleum products.

Kulik noted an unintended consequence of the proposal would be to tax the very distributors Gov. Rendell is counting on to make significant investments in facilities to distribute renewable fuels, including biodiesel and gasoline containing ethanol. Taking millions of dollars away from the distributors would leave little room for investing in the infrastructure that would make renewable fuels viable in the state.

Gasoline supplies may also be an issue in some areas of the state, in particular the Southwest, because environmental regulations require a special blend of gasoline there. If it becomes more expensive generally to ship product into Pennsylvania because of this new tax, there could be supply issues as refiners ship product to states where it is cheaper to do business.

Stephen Rhoads, President of the PA Oil and Gas Association, said the proposal would also cover the hundreds of small oil and natural gas producers in the state and take up to $99 million away from rural areas to fund mass transit in the more urban areas creating a new battle ground between urban and rural Pennsylvania.

Rhoads also noted the proposed tax would not be a stable source of income for mass transit because revenues and profits are tied in large measure to the price of oil and natural gas, both of which have fluctuated significantly over the last 10 years.

Rhoads said another unintended consequence of the tax proposal would be to decrease investment in developing Pennsylvania and domestic energy supplies at a time Gov. Rendell and others are promoting homegrown energy resources.

Acting Revenue Secretary Thomas Wolf appeared before the Committee to defend the tax, but said clearly the state cannot just tax big oil companies legally, but had to pick an industry sector involved in the sale of vehicle fuel, heating oil and propane, whether they drill for it, refine it or deliver it.

In response to questions about companies leaving Pennsylvania and gasoline prices increasing, Acting Secretary Wolf said he thought there would be some increase in prices, but the market would work to correct any temporary increases.

Sen. Madigan (R-Bradford), Republican Chair of the Committee, concluded the hearing by saying, “We have a major problem because this tax is being sold by the Governor as a tax on big oil companies when it’s really going to hit producers and distributors.”

NewsClips: Rendell’s Proposed Oil Tax Debated

Senators Warned About Impact of Rendell’s Oil Tax

3/30/2007