Wisconsin Oil Tax Scheme Unconstitutional

By May 29, 2007Energy

Another blow has fallen against Wisconsin Governor Jim Doyle’s preposterous, populist scheme to impose a 2.5 percent gross receipts tax on fuel sales but make it a crime for oil companies to pass on the additional cost to consumers. That’s right: Make a basic, commonplace business decision how to price your product, and GO TO JAIL.

Reaching a predictable legal conclusion, the non-partisan Wisconsin Legislative Council — the research arm of the state Legislature — has determined that provisions to criminalize passing on the costs violates the Commerce Clause of the U.S. Constitution. From our compatriots at the Wisconsin Manufacturers & Commerce:

“Clearly, this legal opinion demonstrates that consumers will pay the price at the pump,” said James A. Buchen, vice president of government relations for Wisconsin Manufacturers & Commerce. “That means this will be a gas tax that automatically goes up without legislative review.”

Non-partisan Legislative Council staff Attorney Bill Ford warned Assembly Speaker Mike Huebsch (R-Onalaska) in a legal analysis:

“Because the provisions of the anti-pass through provision in SECTION 2496 of 2007 Senate Bill 40 [the Senate budget bill] and the New York anti-pass through provision struck down in Shell Oil are similar, it appears that the anti-pass through provision in Senate Bill 40 raises the legal issue of whether it violates the Commerce Clause of the U.S. Constitution.”

With gas prices as they now stand, Doyle’s gross receipts tax would translate to 7 cents a gallon at the pump — a tax that could rise if prices continue to increase.

But what if the tax does pass constitutional muster? Well, it’s not as if the market stops functioning. As a WMC analysis (.pdf file here) argues:

The provision to make it a crime for oil suppliers to pass the gross receipts tax on to consumers is unworkable — legally suspect, and will hurt consumers. But assuming the no-pass-through provision is enforceable, rather than take a 2.5 percent hit in Wisconsin, fuel suppliers will look to ship fuel to other regional markets that are more economically attractive, which will result in less fuel going to the Wisconsin market. The
lower supplies will in turn result in higher prices, and with the threat of criminal penalties, these higher prices are likely to be well above the 2.5 percent underlying tax.

And on and on.

Doyle apparently thought he could push through a major tax increase on the political cheap, taking advantage of anti-oil company sentiments ginned up by cynical politicians. Besides poisoning the well, the tax tactic also discouraged a more rational discussion of budget and infrastructure needs in Wisconsin.

The plan’s dead, now, Governor. Try something else.