Congress enacted the Crude Oil WIndfall Profit Tax Act in 1980 in response to the excessive "windfall profits" (unexpected profits resulting from some event not controlled by those who are profiting) that oil producers were earning following the deregulation of oil prices. The Act imposed a windfall profit tax on domestically produced crude oil beginning after February 29, 1980, that ranged from 30 to 70 percent of the producer's windfall profit.
The Act defined three categories of oil taxed:
- Tier one consists of all domestically produced oil not explicitly placed in either tier two or tier three, or is exempt from the windfall profit tax.
- Tier two includes oil produced from a stripper well property and oil from the Naval Petroleum Reserve.
- Tier three oil consists of oil discovered after 1978, heavy oil, and incremental tertiary oil.
This act provided a tax credit of $3 per barrel of tar sands oil-equivalent to producers of alternative energy sources. Congress intended to use a substantial portion of the revenues from the windfall profit tax of crude oil to finance the tax credit for alternative fuels. The Omnibus Trade and Competitiveness Act of 1988 repealed the Crude Oil Windfall Profit Tax Act.
- Revenue Effects of the Crude Oil Windfall Profit Tax Act (United States Congressional Budget Office)
- Judicial Brief: Shell Petroleum Inc. v. United States of America (United States Department of Justice)
- Historical Perspective: The Windfall Profit Tax -- Career of a Concept, Joseph J. Thorndike, The Tax History Project, November 10, 2005.