A House subcommittee heard from a panel of small business owners concerned about the disappearance of popular tax deductions at a hearing in Tulsa, Okla., during  the congressional recess.

The House Committee on Small Business’s Subcommittee on Investigations and Oversight held the hearing Tuesday. Michael Terry, president of the Oklahoma Independent Petroleum Association, argued that small independent producers would be hurt by proposals for repealing the expensing of intangible drilling costs, reducing or eliminating the deduction for depletion, and exempting passive losses for interest owners. He noted that the proposals could have severe implications on the ability of independent oil producers to attract sources of capital.

“In my opinion, the tax policies proposed by the White House combined with the cap-and-trade bill passed by the U.S. House would be the largest 'money grab' on small business in the history of our country,” he said in his prepared testimony. “The proposed tax treatment is specifically designed to dramatically curtail the drilling and production of the independent oil and gas industry, thus thrusting a dagger in the heart of small business in America.”

Robert J. Sullivan, owner of Sullivan & Co., a small oil and gas exploration company in Tulsa, argued against the elimination of intangible drilling costs as a tax deduction and the repeal of percentage depletion as a tax deduction.

“Percentage depletion has been recognized for over 50 years by the accounting profession as a normal and logical recognition of a depleting asset, much like depreciation on a piece of income-producing real estate,” he said. “Like drilling cost deductions, eliminating percentage depletion has become a politically popular vehicle for nailing oil companies. The most misunderstood fact among elected officials is that, if the objective is to bash Big Oil, the major oil companies don’t even use percentage depletion as a tax deduction – they use cost depletion. So the repeal of percentage depletion hurts only little guys, like me.”

He added that if these two deductions had been repealed last year, family members and other investors in his business would have paid $975,000 more in federal income taxes. Sullivan is a former Secretary of Energy in Oklahoma and a former Republican gubernatorial candidate.


On the other hand, the owner of a wind energy business praised the tax incentives for clean energy promoted by the Obama administration. Michael Bergey, president of Bergey Windpower in Norman, Okla., pointed out that small wind energy producers did not receive such tax credits a year ago.

“Small wind does not qualify for the Section 45 production tax credit that has propelled the commercial wind industry to 42 percent of new generation capacity last year and industry revenues of $17 billion,” he said. “If this hearing was held a year ago, I would be complaining about our technology’s treatment in the federal Tax Code. A year ago, an American homeowner could get a federal tax credit on a Japanese solar module, but not on an American small wind turbine. This strange discrepancy in the Tax Code was established in the 2005 energy bill and stands, to my mind, as a good example of the disadvantages small businesses face in Washington.”

However, he noted, Congress rectified the imbalance in the stimulus bill that was passed in February. “We now look forward to seven years with a Section 25 30-percent federal tax credit for our customers,” he said. “Recession notwithstanding, we expect this policy to help us create hundreds of new ‘green collar’ jobs in the next five years as we are finally able to move our products into mass production.”


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