Beebe veto overridden

Legislators’ vote allows well-drilling tax cut

Rep. Stephen Meeks, R-Greenbrier, speaks on the House floor Wednesday in favor of overriding Gov. Mike Beebe’s veto.
Rep. Stephen Meeks, R-Greenbrier, speaks on the House floor Wednesday in favor of overriding Gov. Mike Beebe’s veto.

The Republican-controlled Legislature on Wednesday overrode Democratic Gov. Mike Beebe’s line-item veto of a sales-tax exemption for sand used in oil- and natural gas-well drilling before adjourning.


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This year’s fiscal session lasted 38 days - 13 days longer than either of the Legislature’s first two fiscal sessions in 2010 and 2012 - according to state records.

Two days after the House and Senate Republican leaders urged the Legislature to override Beebe’s veto, the House voted 55-41 to override it, and then the Senate voted 26-7 to override it with little discussion.

It’s the fourth time that the Legislature has overridden one of Beebe’s vetoes; all four of them have occurred in the past two years after Republicans gained control of the House and Senate.

On Monday, Beebe vetoed Section 16 of House Bill 1048 - an appropriation bill for the state Department of Finance and Administration’s Revenue Services Division - which grants the tax break.

Section 16 also would grant a sales-tax exemption to other proppants used in oil and gas wells. Proppants are granular substances that are injected into wells to keep fractures open so oil or gas can be removed.

Beebe, who is the state’s former attorney general, said Monday that he vetoed that section because it was unconstitutional.

Its sponsor, Sen. Jonathan Dismang, R-Searcy, failed to win the required permission of two-thirds of the 35-member Senate and 100-member House to introduce the tax measure in the fiscal session under the Arkansas Constitution, Beebe said. But Dismang said his proposal merely clarified the legislative intent of state law and didn’t require a two-thirds vote to be introduced. A Pulaski County circuit judge has already ruled the state isn’t allowed to collect that sales tax, Dismang added.

Arkansas law already exempts equipment used in manufacturing from the state sales tax.

Under Arkansas Code Annotated 26-52-402, “manufacturing” includes the process of “extracting oil and gas.”

Rep. Stephen Meeks, R-Greenbrier, on Wednesday urged the House to override the veto to provide “clarity” to the Legislature’s intent to provide the sales-tax exemption.

He said the override would encourage business in the state and prevent workers in the industry from moving to other states.

“During the peak of activity, we saw a robust economic impact to our areas in north-central Arkansas and to the rest of the state,” Meeks said. Some policy decisions made by the Legislature have caused the number of rigs operating in the area to decline, he said without citing any particular decisions.

“Because of that, people that live and work in that area have less opportunity than they had before,” he said.

Five Democratic representatives joined 50 Republicans in voting for the override:

Stephen Magie of Conway, Mark Perry of Jacksonville, Nate Steel of Nashville, Tommy Thompson of Morrilton, and Jeff Wardlaw of Warren. Steel is the only Democratic candidate running for attorney general, a post also being sought by three Republicans.

Four Democratic senators joined the Senate’s 22 Republicans in voting for the override: Eddie Cheatham of Crossett, Bruce Maloch of Magnolia, Bobby Pierce of Sheridan, and Larry Teague of Nashville.

No lawmakers spoke in favor of upholding Beebe’s veto.

Afterward, Senate Democratic leader Kent Ingram of West Memphis said he supported the veto because a two-thirds vote in the House and Senate should have been obtained before considering the tax exemption. Ingram said he agreed with the court ruling - and his colleagues - who say that the tax shouldn’t apply to sand and proppants.

Dismang told senators that he understands that the senators who voted against overriding the veto were concerned with the procedure that was used to introduce the amendment and that their vote is “not a sign of their unwillingness to support the natural-gas industry in the state of Arkansas.

Beebe spokesman Stacey Hall said the governor “is disappointed that the Legislature passed an unconstitutional bill for the benefit of out-of-state corporations at the expense of their own state employees.”

The new legislation will reduce state tax revenue by about $5.1 million per year, including $3.5 million in state general revenue according to the state finance agency.

Tim Leathers, deputy director of the state Department of Finance and Administration, has warned lawmakers that the 1 percent cost-of-living raises that the Legislature authorized for most state employees could be cut if they approve the tax exemption.

Asked whether the governor intends to cut the state’s general-revenue forecast for fiscal 2015 as a result of his veto being overridden so funding for the raises would be cut, Hall said that’s “unknown at this time. That will take some discussions to determine.”

Dismang said he’s confident that tax revenue will be sufficient to fund the 1 percent cost-of-living raises for most state employees in fiscal 2015, though he said the Beebe administration should have trimmed its general revenue forecast for fiscal 2015 based on the lower court ruling.

Hall said the governor won’t direct the finance department to challenge the constitutionality of the law enacted Wednesday as a result of his veto being overridden.

John Theis, an assistant revenue commissioner for the state, told lawmakers earlier this month that the finance department adopted a 2008 rule to specify that proppants are taxable after it received questions from the energy industry. The Legislature provided a sales-tax exemption for equipment used in manufacturing in the 1960s, and the finance department concluded in 2008 that “a grain of sand that gets shoved into a crevice under the earth is not a piece of equipment,” he said.

The finance department was sued by Weatherford Artificial Lift Systems Inc. of Houston after the firm was forced to pay nearly $1.4 million in sales taxes on the sand.

Pulaski County Circuit Judge Timothy Fox recently ruled that the proppants used by Weatherford are exempt from the state sales tax because they constitute “equipment” under the law exempting manufacturing machinery and equipment from the tax. Fox ordered the state to pay nearly $1.4 million plus interest and court costs to Weatherford.

Tim Leathers, deputy director of the finance department, has said the department plans to challenge Fox’s ruling.

Dismang said he decided to propose the tax-cut language after learning about the Weatherford litigation and talking with constituents.

“A lot of that was derived from conversations I had back with people in my district,” he said, and not any lobbyists.

“These are people that I know, that I lived next to that are neighbors and I have strong associations with,” Dismang said.

Beebe has vetoed 15 bills and exercised his line-item veto authority to strike provisions in three other bills since he became governor in 2007, according Beebe spokesman Matt DeCample.

The Legislature has now overridden four of those vetoes.

In 2013, the Republican-controlled Legislature overrode Beebe’s vetoes of bills barring most abortions after 12 weeks of gestation and 20 weeks of pregnancy and requiring voters to present photo identification before casting ballots.

Front Section, Pages 1 on 03/20/2014

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