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----- Original Message -----  
From: Lisa Martin 
To: lisa@caltax.org 
Sent: Tuesday, May 01, 2001 1:41 PM
Subject: Cal-Tax e-Alert: Windfall Profits Tax Update



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May  ,  2001?

To:????????????Cal-Tax?Board  of?Directors and Interested  Parties???
From:????????Larry McCarthy,  President?
Subject:????Windfall  Profits Tax Update??


This is?coverage that  will appear in the next Caltaxletter, relating to the 
latest development  of?the windfall profits tax  legislation:??

?WINDFALL PROFITS TAX ON  ENERGY PRODUCERS HITS SENATE FLOOR?

Majority Democrats muscled  n?electricity &windfall profits8 tax  bill to the 
Senate floor on Monday when the Appropriations Committee approved  SB 1X 
(Soto), imposing a 100 percent excise tax on sales of electricity  to 
California that exceed $80 per megawatt hour.

With Senate President Pro Tem John  Burton leading the charge, the fiscal 
panel approved the bill on a party-line  7-3 vote.??

Opponents testified that the  bill would have a perverse result by 
discouraging investment in new energy  generation in California despite a 
consensus over the need for additional power  plants to add more electricity 
and rein in the costs.

&While it makes good political  theater, this bill does absolutely nothing to 
solve the energy crisis,8 said  Mike Kahl, representing the Western States 
Petroleum Association and alternative  energy providers. He said such a 
&confiscatory tax sends a perverse message8 to  investors in electricity 
generation to avoid California. He also said it is a  &transparent attempt8 
to enact illegal price regulation of interstate  commerce.

Carrie-Lee Coke of the  California Manufacturers and Technology Association 
said the bill is the &wrong  medicine,8 would worsen the energy crisis by 
reducing supply, and would cause  &financial disaster8 for CMTA members.

Carl London, representing  InterGen, an international energy generator, said 
SB 1X will scare away  investment in badly needed power plants. &I can say 
with all certainty that the  prospect of having this bill hanging out there8 
will cause InterGen to stay away  from California, he said. 

Senator Burton said  the bill &says you can,t come in and rip us off. It 
doesn,t say you can,t come  in and do business.8??

Senator Jack Scott, principal  co-author of the bill, said, &We have been 
royally mistreated8 by energy  providers headquartered in other states that 
have &gouged us like no consumer  has been gouged in history.8 He said the 
bill still &guarantees a generous  profit for wholesalers.8??

Revenue from the tax would be  returned to California through income tax 
rebates. Since none of the revenue  goes into the state,s general fund and 
would be returned to taxpayers,  proponents contend that the revenue-neutral 
bill can increase a tax by mere  majority-vote approval of the Senate and 
Assembly, not the two-thirds majorities  required for tax increases in the 
state Constitution. Cal-Tax has long disagreed  with this interpretation.?

Supporters of the bill included  Toward Utility Rate Normalization, 
representing &small8 ratepayers; the  public-employee financed California Tax 
Reform Association; the California  Public Interest Research Group; the 
California Labor Federation and the Service  Employees International Union.?

When Senator Jim Battin noted that  the bill would impose windfall profits 
taxes on energy contracts negotiated by  the Davis Administration (at $86 per 
megawatt hour), Senator Scott agreed to  amend the bill to exempt existing 
contracts.?

While Governor Gray Davis has  indicated support for a windfall profits tax, 
his Department of Finance had no  position at Monday,s hearing. A 
spokesperson said there was no analysis from the  Franchise Tax Board on the 
impact on state revenues. The department also noted  that a company would 
have to have nexus (physical presence) in California to be  taxed, so at 
least some of the wholesalers could be immune. The department also  expressed 
concern about how poor people would benefit if they don,t earn enough  to 
file income tax returns.??

Co-authors Nell Soto and Scott  accepted a number of amendments suggested by 
committee staff.?

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