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States To Get At Least $135 Million From Supreme Court Oil Company Tax Ruling

April 4, 1989

TRENTON, N.J. (AP) _ Seven states will gain at least $135 million as a result of a Supreme Court ruling Monday that upholds a tax on oil company profits, officials said.

The high court, by an 8-0 vote, upheld a New Jersey tax that 13 major oil companies said unfairly had cost them tens of millions of dollars.

The court said New Jersey officials lawfully refused to allow state tax deductions for what the oil companies paid in federal windfall profit taxes.

The ruling also applied to six other states that refused to allow such deductions.

Lawyers for the oil industry, mining interests and natural gas producers had contended that a New Jersey victory in the nation’s highest court could encourage other states to adopt similar tax systems.

Writing for the court, Justice Harry A. Blackmun said the state tax does not unduly interfere with interstate commerce.

The ruling was lauded by state officials and criticized by oil company representatives.

The outcome of the case was of particular interest in New Jersey, which included an anticipated $98 million windfall from the oil companies as revenues in its tight state budget for next year.

Georgia stands to gain at least $25 million from oil companies as a result of the ruling, said Marcus Collins, commissioner of the state department of revenue.

South Carolina officials said the ruling means the state won’t have to pay out an estimated $10 million in refunds to the oil companies.

In Minnesota, the state will get at least $2.2 million from oil companies, officials said.

Officials from the other states affected by the ruling - New York, Iowa, and Wisconsin - said they did not know Monday how much money will be coming in because of the ruling.

The federal windfall profits tax was imposed on oil retrieval after President Carter announced he would gradually remove controls on domestic crude oil prices beginning in mid-1979.

The windfall profits tax allowed the federal government to recover billions of dollars in increased profits the oil companies realized by the jump in oil prices resulting from decontrol.

The windfall tax, which yielded more than $78 billion in federal revenue, was repealed by Congress last year but there may be some companies still paying on past earnings.

New Jersey’s corporate business tax imposes a levy on a portion of the ″entire net income″ of a corporation that does business in the state.

Under the state tax formula, a corporation’s net income is the same as its federal taxable income ″before net operating loss deduction and special deductions.″

The state tax law also includes an ″add-back″ provision that says ″entire net income shall be determined without the exclusion, deduction or credit of ... taxes paid or accrued to the United States on or measured by profit or income.″

The oil companies sought to avoid ″adding back″ the amount of their federal windfall profit taxes - in effect claiming a deduction for that tax from its ″entire net income.″ New Jersey authorities disallowed such a deduction.

″We conclude that the add-back provision does not discriminate against interstate commerce,″ Blackmun said.

″We’re disappointed with the ruling,″ said James Benton, executive director of the New Jersey Petroleum Council. ″We believed that a state such as New Jersey, which has no oil production, could not impose such a corporate business tax.″

Benton said oil companies will promptly pay the balance owed New Jersey.

The companies that challenged the tax are Amerada Hess Corp., Atlantic Richfield Co., Conoco Inc., Citgo Petroleum Corp., Exxon Corp., Phillips Petroleum Co., Chevron Corp., Mobil Corp., Unocal Corp., Gulf (a division of Chevron), Shell Oil Co., Tenneco Inc. and Texaco Inc.

Justice Sandra Day O’Connor did not participate in the case for unannounced reasons.

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