The calculation of Proposition 87's tax rates will be based on decisions made by the Franchise Tax Board, the state agency responsible for collecting all state taxes owed, and then later confirmed or adjusted by the courts when challenged. For instance, a barrel of $70 crude could raise between $2.17 and $4.20 in tax depending on how the tax due is calculated.
Considering that oil producers are already spending millions of dollars attempting to convince California voters to turn down this initiative, can we imagine they wouldn't follow it up with court challenges intended to prevent the application and enforcement of this new and cumbersome law?
There is too much room for abuse in this taxation process. I would feel much better about a fixed tariff per unit of oil, regardless of its price. It would make it easier for producers to know how much such a tax will cost in a way that allows them to securely plan ahead. It also reduces the incentive to cheat.
As Proposition 87 stands, it will lead to cheating. We can even guess how. For example, while Proposition 87 prevents producers from passing along their costs to consumers, the State Legislative Analysts' Office admits that there is no practical way to enforce this.
I hope that the authors of this proposition, whose intentions are good, find ways to tighten up their process so that it can be implemented with a minimum of judicial retouching. As it stands, there are too many loose ends in Proposition 87 for me to recommend anything to my California readers except a "no" vote.