Guest Post: Change Oil Taxes To Protect The People


North Dakota’s current oil tax policy is an assortment of taxes, triggers and discount incentives that have been cobbled together over the last 60 years. Not only has new technology made our tax policy obsolete, our current oil tax law poses great risk to our state’s long term oil tax revenue dependability.

As chair of the North Dakota Senate Taxation Committee, I have proposed a major restructuring of the state oil taxes (SB2336) to provide stability to this vital revenue stream for state government. My plan will require that oil companies withhold income taxes from out-of-state royalty payment, eliminate stripper well property exemptions for the Bakken and Three Fork formations, create an incentive for companies to explore beyond the Bakken and Three Fork formations, reduce the extraction tax by 2% on new wells starting in 2017, and most importantly eliminate major price triggered tax reductions.
Unfortunately, but not surprisingly, some of my Democrat friends have misrepresented this bill for their own political gain by focusing on just one aspect of the bill. In doing so, they failed to give the voters of North Dakota the whole story and risk the long term stability of oil revenues for the state of North Dakota.

My Democrat friends will tell you this bill will cut taxes to the oil industry by $595 million dollars during the first five years the reduction is in place. They base this fiscal analysis on the generous assumption that the oil industry will be drilling 1750 new wells per year and the price of oil will stay at $80 dollars per barrel. Here is what they don’t tell you about SB2336.

The bill also increases the taxes paid on Bakken and Three Fork wells located on stripper well property. In those same five years, those increases will generate an additional $500 million in oil taxes.

The 2% reduction in the extraction tax applies only to new wells drilled starting in 2017. Current oil production and any new wells drilled before 2017 will not benefit from the reduction.

North Dakota is projected to collect $5.2 billion in the 2013-15, up from $3.2 in the current biennium. And if oil prices hold, North Dakota will see a significant increase in oil tax collection long into the future.

This bill eliminates current price triggers that could reduce oil tax revenue by $2 billion per biennium. Or, to put it another way, this bill increases oil taxes by $2 billion a biennium should this volatile industry realize a major downturn.

It is this final point that has driven us to take action now to develop responsible oil tax policy. While this restructuring of oil taxes might be bad politics, it is excellent public policy. In fact, it would be irresponsible of us not to address the potentially disastrous effect a price drop would have on our state’s ability to invest in much needed infrastructure, schools and public safety.

So the next time you hear or read some critic lamenting the Republican plan to supposedly cut oil taxes, make sure, as Paul Harvey used to say, you get the rest of the story.

To see the bill for yourself, click here.

Senator Dwight Cook represents District 34 in the North Dakota legislature and serves as chairman of the Senate Finance and Taxation Committee.

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  • Kevin Flanagan

    The whole tax system in the state is chaotic and that is by design by those people who spend their lives living off of them!

  • WOOF

    North Dakota should tax extracted oil and gas resources at 50%.
    That’s the Norwegian way.
    Whose oil is it ?

    • joeb

      With the exception of state lands, the oil actually belongs to the private individuals who own the mineral rights. A 50% tax would be a great way to make sure that the oil stays in the ground. Despite all the fantasies of Statists, industry has to be able to make enough profit to find the next big oil field for when the current production depletes, and along the way, that is done with money in hand. Only Government can go head over heels into debt and keep operating.
      When you take royalties out, deduct expenses, the state would be taking twice as much as the oil companies would get, with the oil companies taking all the risks.

  • Sue

    One well holds over 1200 acres. Several people pay this tax. Before I get my 700 bucks the State gets 11.5%. I still have my regular taxes at the end of the year. Federal and State. It is not just the oil company, it is every person in the unit who pays this tax. One well holding all our leases even if it is not drawing off our minerals. One well forced to share and the only big winners are the State and the Stock Holders for the oil company for a padded portfolio. Propose something that actually protects the RIGHTS of the mineral owner. This was a BS bill. Just another money grab drafted in another way. I can’t side with either party.

  • Common Sense North Dakota

    It’s not so surprising that one of the biggest tax and spend republicans Dwight Cook cares more about big oil than the tax payers of North Dakota. Mr. Cook is one of those Opposing Measure 2. One of his famous statements was that he did not know what a legally imposed obligation was. Scary when you realize that’s what state Senators do, create laws. It’s not that I oppose reducing the oil tax, but if we pass a property tax measure two we will be able to diversify our economy thus enabling us to afford the oil tax reduction. Lets start using common sense and stop giving out of state students This year 308 million dollars Dwight.

  • Dallas

    Obviously a bill written by the oil industry. I suspect the guest column was also. Bottom line is simple, we’re giving away billions to an industry that doesn’t need breaks.
    Go ahead and fix the stripper well tax but don’t cut the extraction tax. You’d have millions more in revenue, could cut college tution and property taxes for everyone.

    • Rob

      Right, because the hundreds of millions of dollars.we’ve already sent to local governments and the universoty system have lowered taxes and tuition right?