By Steve Anderson, CPA and Jonathan Small, CPA
The Oklahoma Policy Institute (OPI) recently attacked Oklahoma-based Devon Energy, accusing the corporation of a windfall of profits and avoiding Oklahoma corporate income taxes. Here is the statement that OPI released:
“Number for the day 0.3%—Effective state corporate income tax paid by Devon Energy in (sic) from 2008 to 2015. Over that period, the company made $21.76 billion in profits but paid only $71 million in corporate income taxes, more than $1.2 billion less than if the company paid Oklahoma’s official corporate income tax rate of 6%.”
OPI cites the analysis of the Institute on Taxation and Economic Policy (ITEP), a hard-left and George Soros-funded organization that has a long history of misrepresentation.
Apart from the issue of using phony data, OPI, who is actively engaged in trying to move Oklahoma’s tax code in a significantly more liberal direction and raise taxes by more than $1.4 billion annually, appears to be unaware of how companies are taxed. OPI appears to not realize that state income taxes are paid in the state where the income is earned.
It is well known that Devon has holdings in several states, as well as an extensive operation in Canada. In the United States, their largest area of oil and gas production was the Barnett Shale in Texas followed by the Eagle Ford in Texas. Only recently has Devon made a decision to expand operations in the Oklahoma Anadarko Basin, expanding their production beyond the 9% of total production prior to that in Oklahoma.
Commerce-aware Oklahomans know that Devon had significant operations outside the state. Even if the data for the study was correct, this fact alone renders OPI’s statement misleading. Oklahoma will never have a right to charge corporate income tax on corporate income that wasn’t earned in Oklahoma and is subject to another state’s taxing jurisdiction.
However, it turns out the allegation by OPI and ITEP that Devon “made $21.76 billion in profits but paid only $71 million in corporate income taxes” is not supported by facts or data. Here are the numbers taken from the audited financial statements that can be found on Devon’s website. (It's important to note that ITEP claims they gathered their data directly from company websites.)
At first glance, we knew something was faulty in OPI’s and ITEP’s data. Any Oklahoman who paid attention to the industry knows the underlying issues that have plagued the oil and gas industry since the precipitous drop in oil prices since 2007. OPI and ITEP appear to not have researched the fact that in December of 2007 the price of oil was at $105.88 per bbl and by December of 2008 it had fallen to $51.74 per bbl and continued to dramatically rise and fall during the period OPI and ITEP selected until December of 2015, where it stood at a low of $38.28 per bbl.
Contrary to the narrative of windfall profits, the actual audited financial statements reveal Devon has had net losses over the periods touted by OPI and ITEP. Devon had to layoff significant numbers of Oklahomans to weather the energy price war waged by OPEC and the lower price of natural gas due to its abundance.
Conveniently, OPI and ITEP didn't report that over the same period of time, Devon paid $3.39 billion in production and property taxes. This amount excludes the millions of dollars that Devon paid in sales taxes across the multiple taxing jurisdictions in which it operates.
How did OPI not know this? Did OPI not thoroughly analyze ITEP’s data? Is it because the phony analysis fits the tax increase narrative that OPI rushed to attack an Oklahoma-based company? Worse, did OPI actually know the data and conclusions were faulty but they ran with it anyway?
As lawmakers consider the tax increase recommendations of special interests and tax consumers, they should carefully consider whether or not those organizations even have the sophistication to understand financial statements and the impact of their tax, spend, and regulate agenda. A lot of Oklahomans are going to be hurt if lawmakers rely on groups who can’t even understand a financial statement and the difference between revenues, expenses, earnings, profits, losses, and the basic concepts of taxing authority and taxing jurisdiction.
Good numbers are only good and reliable if they are actually based in reality. The real numbers show that OPI’s attack of Devon is not based on facts.