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August 2009

Oil Franchise Tax:
A Tax on Consumers Defeated

You’ve probably heard that the state budget signed into law by Governor Doyle in late June did not include his proposed oil franchise tax, which would have taxed by as much as 3 percent the gross receipts of companies, including cooperatives, that bring petroleum products into the state. The governor’s proposal included “anti-pass-through” language intended to prevent oil companies from passing the tax on to consumers.

The cooperative community fought this provision hard because it treated Wisconsin farm supply co-ops like for-profit oil companies. The irony is farm supply cooperatives were created because the agricultural community did not want to be dependent on for-profit oil companies, in much the same way rural citizens did not want to be dependent on for-profit electric utilities. In both cases, rural citizens knew they would likely be treated much better by companies they owned rather than by companies that often viewed service to rural areas as inefficient and secondary.

Another reason farm supply co-ops aggressively opposed this tax is that it would have swallowed up the estimated $10 million they receive each year in patronage from the regional fuel supply cooperatives, CHS, Inc. and Growmark. Because farm supply cooperatives are owned by their members, they operate on relatively slim fuel margins. Taking their yearly patronage would have caused a number of co-ops to lose money over the next several years, driving some out of business and harming local economies. In addition, a number of local cooperatives would have had difficulty retiring equity and paying member patronage dividends, further harming local communities.

Finally, legal analysts including the nonpartisan Legislative Council and former Wisconsin Attorney General Peg Lautenschlager advised that the governor’s proposed anti-pass-through language would likely violate the U.S. Constitution’s “Commerce Clause.” The likely results would have been a federal court striking down the provision, and you paying higher gas taxes at the pump. Such an outcome was strongly opposed by Wisconsin’s co-ops.

In the Joint Finance Committee, Senator Luther Olsen (R–Ripon) introduced a motion to delete the proposal and won the support of Senator Alberta Darling (R–River Hills), and State Representatives Jennifer Shilling (D–LaCrosse), Robin Vos (R–Racine), Phil Montgomery (R–Green Bay) and Gary Sherman (D–Port Wing). However, Senator Luther’s motion failed on a 10–6 vote and the budget bill moved on to the State Assembly with the oil franchise tax provision still in it.

Fortunately, the Assembly recognized the oil tax had significant flaws and worked to reduce its impact by capping the maximum rate. The changes were made in large part due to concerns expressed in writing by rural Democratic legislators such as State Representatives Chris Danou (Trempealeau), Assistant Majority Leader Donna Seidel (Wausau), Mary Hubler (Rice Lake), Fred Clark (Baraboo), Kelda Helen Roys (Madison), Mark Radcliffe (Black River Falls), Ted Zigmunt (Francis Creek), Kristen Dexter (Eau Claire), Amy Sue Vruwink (Milladore), Andy Jorgensen (Fort Atkinson), Nick Milroy (Superior), and Phil Garthwaite (Dickeyville).

The Senate took this effort one step further and eliminated the tax in its version of the budget. Cooperative supporters among the senators included Jon Erpenbach (D–Middleton), Kathleen Vinehout (D–Alma), Bob Jauch (D–Poplar), and Pat Kreitlow (D–Chippewa Falls).

Finally, six members of the Senate and Assembly met in conference committee and agreed to drop the proposed oil franchise tax from the final version of the bill, thereby ending the 2009 budget debate with a substantial victory for cooperatives and their member-owners.


Copyright ©2009 Wisconsin Energy Cooperative News
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