Audit: Louisiana falls short in severance tax review

BATON ROUGE (AP) — Louisiana’s Department of Revenue hasn’t been making sure oil and gas companies pay everything they owe the state in severance taxes, according to an audit released Monday.
The tax revenue is one of state government’s larger sources of financing for operations, and Legislative Auditor Daryl Purpera’s office said the state could be missing out on millions it is owed from companies that remove oil and gas from the state’s soil or water.
“Because severance taxes comprise approximately 10 percent of the state’s general fund revenues each year, it is important for LDR to ensure these payments are accurate and timely,” the audit says.
The audit says the state Department of Revenue in 2010 turned off an automated program that looked for companies that didn’t file severance tax returns and does only a limited review to make sure self-reported data used to compute taxes owed are accurate.
The department’s review of severance tax refund requests also is insufficient, allowing companies to get more refunded to them than what is owed, the audit says.
In a written response to the audit, the Department of Revenue agreed with auditors’ findings and said it is working on improved tax review software to ensure severance taxes are properly collected.
Auditors reviewed severance tax payments from 2009 through 2012.
Before the revenue department’s automated review of severance tax returns was turned off in September 2010, the program had identified an average of nearly 1,100 companies a year that didn’t file the proper severance tax returns and owed nearly $12 million.
Department officials told auditors that they stopped using the automated system because the department was receiving complaints that companies were receiving incorrect assessments.
Natalie Howell, undersecretary for the revenue department, said the program has been redesigned and will be up and running before the end of December. She said the department also will work to devise an automated method for determining whether companies’ self-reported data matches market rates.
In addition, Howell wrote that the revenue department is considering ways to review severance tax refunds for accuracy before they go out to companies.
Oil and gas companies paid $821 million in severance taxes to Louisiana in the last budget year, according to the audit. Combined with royalty payments that companies must pay the state when they extract oil and gas from state-owned land or water-bottoms, the mineral revenue represents about 16 percent of the state’s general fund income.
Purpera’s office also has found problems with the royalty collections overseen by the Department of Natural Resources.
In an audit released in September, the legislative auditor’s office said lax reviews by the department could have cost the state cash that it was owed and that would have helped cope with budget shortfalls in recent years. The review covered five budget years from 2007 to 2012.

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