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1 Scott A. Hodge & Jonathan Williams, Large Oil Industry Tax Payments Undercut Case for Windfall Profits Tax 1 (2006)

handle is hein.taxfoundation/ffeixz0001 and id is 1 raw text is: FOUNDATION January 31, 2006 Large Oil Industry Tax Payments Undercut Case for Windfall Profits Tax by Scott A. Hodge and Jonathan Williams In the midst of corporate earnings season on Wall Street, the major domestic oil companies continue to report record profits. If the media attention to the sizeable profits from the third quarter of 2005 is any indicator, the new earnings reports will be met with equal vigilance. Scrutiny over third-quarter profits sparked action from lawmakers to increase taxes on the oil industry. Legislation was drafted to create a federal windfall profits tax, and states, such as California, are now considering instituting their own windfall profits taxes. On the federal level, several provisions aimed at the oil industry have gained traction. For instance, measures to disallow some use of foreign tax credits and last in, first out (LIFO) accounting methods have received support in Congress. These measures represent an indirect attempt to raise taxes on the domestic energy industry. In the past week, quarterly earnings were announced for the three largest integrated oil and gas producers in the nation. The most recent media attention is directed towards the earnings report from Exxon Mobil. (NYSE:XOM) These earnings come on the heels of last week's announcements by ConocoPhillips (NYSE: COP) and Chevron (NYSE: CVX) Based on preliminary SEC filings, these companies reported combined annual corporate gross earnings of $108.2 billion, throughout the course of 2005. It is important to remember that net income reported on financial statements, is the result of subtracting income-based taxes from corporate gross earnings. Before shareholders receive a return on their investment, the government takes its significant share off the top. During 2005, these three companies paid a combined corporate income tax burden of $44.3 billion on their reported gross earnings. Compared to last year's combined corporate income taxes of $29.7 billion, their burden for 2005 has increased by 49.2 percent and follows the overall trend of escalating corporate tax collections in the United States. In addition to corporate income taxes, the same companies paid or remitted over $114.5 billion in other taxes in 2005, including franchise, payroll, property, severance and excise taxes.

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