This is an archived article that was published on in 2011, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

A proposal to hike taxes on oil and gas wells flamed out in a House committee Tuesday, leaving the sponsor to lament that it will cost Utah a small gusher of potential revenue that could have helped heal state budget woes.

Rep. Brian King, D-Salt Lake City, said his HB112 would raise taxes that he says are too low in Utah compared with other states, providing an unneeded subsidy for a highly profitable industry. But the oil industry argued that higher taxes would chase away new drilling in the state.

The House Revenue and Taxation Committee killed the bill on a 9-4 vote.

"We're subsidizing them [oil and gas companies] because we are artificially low compared to other states" in the severance taxes that Utah charges, King said. "They don't need our subsidy."

But Lee Peacock, president of the Utah Petroleum Association, said while Utah does have low severance taxes, it also has higher property and income taxes than in some states. He said the overall tax mix puts Utah about in the middle of the pack among states. But he said HB112 would bring a huge tax hike — $26.5 million beyond the roughly $56 million collected now in state severance tax. Besides that, he said production costs are high in Utah because of difficult geography and waxy crude, which needs more refining. Added together, he said that would lead the industry to drill elsewhere.

But Gabriel Lozada, a University of Utah economics professor, said economic models of prices and taxes over the past four decades in Utah predict that only about one fewer oil well and one fewer gas well would be drilled a year because of the gas hike.

Rep. Jim Nielson, R-Bountiful, reflected the attitude of several committee members, saying, "This is a tax increase, and I don't like tax increases. … In difficult economic times, that's the worst possible time to increase taxes."

Utah charges a 3 percent severance tax on the first $13 per barrel and 5 percent on the value above that. King proposed charging a straight 5 percent on the entire barrel and proposed raising tax on natural gas wells from 4 percent to 5 percent.