Legislative Messages of Hon. James V. Allred, Governor of Texas 1935-1939 Page: 44 of 263
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recommend that this Legislature make a careful investigation into
the present tax on crude oil with the view of equalizing the tax burdens
borne by various natural resources of Texas. In levying a tax against
crude oil, I believe this Legislature should consider the fact that it is
subject to depletion and that eventually it will be taken forever from
Texas soil. They should consider further the fact that the oil industry is
a money making industry even in the midst of these dark days of economic
depression. The Legislature should consider the fact that about 85% of
oil produced in Texas is used outside Texas borders.
We all know it is impossible to shift a severance tax on oil 100% to the
consumers of Texas oil in other states, but it can be shifted to a great
extent, and this fact should have the consideration of the Legislature. I
believe that oil, sulphur and all other natural resources should bear a
relatively high part of the State's financial upkeep and that the tax on
any particular natural resource should be equalized from a comparative
standpoint with the tax levied on all other natural resources. It is impossible
to undertake this problem of equalization without a sweeping
and careful investigation, and I urge upon this Legislature such an investigation,
detailed and careful enough that it will ascertain the facts.
The present tax on crude is 2 a barrel up to $1.00 in value, and 2%C
thereafter. Any increase in this tax should be determined by a proper
consideration of the factors affecting the sale of petroleum products outside
the State. By this I mean we should not so increase the tax as to
place Texas petroleum at a disadvantage in competitive markets also supplied
by foreign oil or oil from other states. If the increase is excessive
or unreasonable, then independent Texas producers might be forced to
absorb an additional burden in disposing of their products to major oil
and pipe line companies. These integrated major organizations are already
able to largely shift the burden of the petroleum tax to those outside the
If, in keeping with this recommendation, the Legislature sees fit to
increase the tax on crude, it may enable us to effect reductions in the ad
valorem rate. If your investigation indicates that all natural resources
should have a general increase in production tax, then I urge that you
take appropriate action. These reductions would, of course, accrue to the
benefit of persons or corporations owning taxable property within the
State, including even the producers of natural resources who would contribute
to the increased natural resources tax.
If the Legislature should raise additional revenues from other sources,
but not deem it advisable to reduce the ad valorem tax from the level of
77 , then I suggest that a portion of the revenues derived from any increased
severance tax on oil should be placed in the permanent free school
fund of Texas. No doubt, a day will come when the natural resources of
this State will have been drained from under the earth. When that day
arrives a potential source of revenue will be exhausted, one which should
largely be paid at the present time by people outside the State who benefit
from our natural resources. We owe it to posterity to retain for them a
portion of these great natural resources, which we by production deny
to them as an inheritance.
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Allred, James V. Legislative Messages of Hon. James V. Allred, Governor of Texas 1935-1939, book, 1939; (texashistory.unt.edu/ark:/67531/metapth3899/m1/44/: accessed January 17, 2018), University of North Texas Libraries, The Portal to Texas History, texashistory.unt.edu; .