Administration and Regulation of the California Ad Valorem Taxing System

This paper was prepared for the 43rd Annual California Regional Meeting of the Society of Petroleum Engineers of AIME to be held in Bakersfield, Calif., Nov. 8–10, 1972. Permission to copy is restricted to an abstract of not more than 300 words. Illustrations may not be copied. The abstract should contain conspicuous acknowledgment of where and by whom the paper is presented. Publication elsewhere after publication in the JOURNAL OF PETROLEUM TECHNOLOGY or the SOCIETY OF publication in the JOURNAL OF PETROLEUM TECHNOLOGY or the SOCIETY OF PETROLEUM ENGINEERS JOURNAL is usually granted upon requested to the Editor PETROLEUM ENGINEERS JOURNAL is usually granted upon requested to the Editor of the appropriate journal, provided agreement to give proper credit is made. Discussion of this paper is invited. Three copies of any discussion should be sent to the Society of Petroleum Engineers Office. Such discussions may be presented at the above meeting and, with the paper, may be considered for publication in one of the two SPE magazines. Abstract In the State of California local government revenues are raised through a tax on property including mineral rights. Although this ad valorem system is administered by the various counties and regulated by the Stat it often requires active participate by informed taxpayers. However, few petroleum engineers understand the petroleum engineers understand the system sufficiently well to work effectively with it. This paper explains California's ad valorem tax system and each parties' respective responsibilities, rights and remedies so as to provide the petroleum engineer with an understanding that will allow him to be of assistance in assuring that a fair and equitable tax burden is levied on the petroleum properties he operates. Introduction In the year 1922, the State's taxing agency stated in its annual report that "Many of the counties are adding new sources of revenue (which will be used) … for the relief in some instances of the … property tax." The rise in values and taxes in the half-century since that report was published has been meteoric. The full cash value of locally assessable and taxable property in 1972 was an awesome 3233 billion, and local revenues of more than $6 billion were two-thirds as much as the total value of fifty years earlier. In the past five years alone, the value of assessments has risen at a compounded rate of three percent per year, and local taxes have increased at an average annual rate of eleven percent. Public and political interest in the property tax has accelerated, and some relief from that tax has already been achieved, in varying degrees, by a complex system of exemptions that tends to expand every year. How then does this affect us as petroleum engineers? First, ad valorem petroleum engineers? First, ad valorem taxes have become a major expense in lease operations (averaging about 0.20/bbl.) often exceeding such items as electricity, fuel, dehydration or overhead.