White House threatens veto of $60-bil bil over oil inventory tax

Washington (Platts)--18Nov2005

The White House late Thursday threatened to veto a $60-bil Senate bill to
continue expiring tax cuts because it includes a tax increase for oil
companies.

     The tax reconciliation bill passed the Senate 64-43 in the early morning
hours Friday. 

     The provision that the administration is disputing is the repeal of the
last-in, first-out credit method of valuing oil inventories for 2005, a
move that is expected to generate nearly $5-bil for federal coffers. Oil
companies and refiners typically use the LIFO valuation, which allows them to
pay taxes on the oldest oil in storage, during periods of rising prices.

     "This provision would result in a retroactive tax increase by changing a
long-accepted accounting practice," the White House said in a statement
warning that senior advisers would recommend that President Bush veto the bill
if it is not removed.

     The House and Senate will meet in coming weeks to work out differences in
their respective version of the bills. The White House hopes the joint bill,
known as a conference report, removes the language dealing with LIFO.

     The House version of the bill, which is still being formulated, currently
includes no language dealing with FIFO.

     The Senate's version of the tax reconciliation legislation also
eliminates for major oil companies the provision from the recently pass energy
policy act that allows them to amortize geological and geophysical
expenditures. The proposal, which does not affect independents, is expected to
generate about $1-bil for the government over 10 years. The White House did
not comment on this measure.

     Nor did the administration weigh in on another measure in the bill which
modifies the manner in which the phase-out of the non-conventional fuel credit
is calculated and repeals the phase-out limit entirely for coke and coke gas
for 2005, 2006 and 2007. The proposal is expected to raise $151-mil over five
years.

      The bill did not include a windfall profits tax on oil companies,
despite attempts by Democrats on Nov 17.

				--Cathy Landry, cathy_landry@platts.com

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