Tax on ‘Windfall’ Oil Earnings Wins Backing of Assembly Panel

Chevron Corp., ConocoPhillips, Royal Dutch Shell and other oil producers with refineries in California would be charged a tax on some of their profits under a measure that passed a state legislative committee Thursday.

The bill, approved 10 to 6 by the Assembly appropriations panel, heads for a vote by the full Assembly as early as next week.

The measure is aimed at curbing alleged price gouging, said Oakland Democrat Johan Klehs, a sponsor of the bill. Klehs wants oil companies to pay a so-called windfall profit tax of 2.5% to California on returns that exceed each company’s average profit in the last five years.

“If these companies report record profits by spiking the price of oil and then result in higher prices at the pump, they will be subject to increased taxes,” Klehs said in a statement. “Since Californians provided these excess profits, they should see some benefits as well.”

Oil company executives have adamantly denied gouging consumers, saying that prices are set by supply and demand.

U.S. Sen. Joe Lieberman (D-Conn.) has proposed federal legislation that would levy a one-time 50% tax on profits earned from oil sold at above $40 a barrel.

A California windfall-profit tax measure would raise $140 million for the state budget in the fiscal year beginning July 1, according to the bill.

To become law, the measure would need to be passed by the state Senate before it reached Republican Gov. Arnold Schwarzenegger, who opposes tax increases.

But the measure has little chance of winning passage in the Assembly before a Jan. 31 deadline.

The state Constitution requires that a tax increase proposal win approval from two-thirds of the body’s 80 members.

The measure is unlikely to gain support from all 44 Democrats in the Assembly and is even less likely to win the minimum 10 Republican votes to meet the 54-vote threshold for passing a tax hike.

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Bloomberg News was used in compiling this report.