STATE AND LOCAL TAXATION: ENERGY POLICY BY ACCIDENT

This report describes the many ways in which state and local governments tax and don't tax energy. Research for this report required a thorough examination of 50 state (plus the District of Columbia) tax codes and thousands of local taxing jurisdictions, multiplied by at least 10 broad categories of interrelated energy taxes. The greatest task in this two-and-a-half-year effort was organizing the information in a manner that is simple enough to be understood, while complex enough to accurately represent state and local energy tax codes. This report is organized in five chapters. Chapters 1 and 2 describe how states tax energy and how they provide special tax treatment to energy producers and users. These chapters should help the reader become more familiar with the variety of taxes and tax breaks for energy and develop a greater awareness of the complex and diverse universe of state and local tax laws. Chapter 3 lays out the analytical framework for comparing tax burdens on energy and non-energy products. The authors sum the energy-specific taxes levied on each of 10 selected end-use energy products and then make adjustments to account for offsetting tax breaks and user fees. They compare the resulting tax rates to combined state and local general sales tax rates to determine how each of the energy products is taxed relative to the typical consumer product. The results of this analysis are reported in Chapter 4, which also addresses the revenue impacts on state and local budgets that result from taxing end-use energy products differently than non-energy products. The report concludes with Chapter 5, in which the authors make recommendations for energy tax code reforms and further research. The Appendix to this report describes the approximately 1,000 energy-related tax provisions identified in the course of the research. These tax provisions represent deviations from the uniform tax treatment of energy, both among various types of energy resources and relative to non-energy products. As such, the tax provisions may result in energy products or businesses being taxed more or less than non-energy products or businesses, or certain types of energy products being taxed more or less than other types.