North Dakota’s Oil Tax Must Be Fixed

Oil_Pu331

The Bismarck Tribune sounds a note on energy taxation and regulation that legislators ought to heed:

Although the state has become comfortable with surplus revenues from oil and gas (make that expectant of surpluses), the Legislature needs to take a methodical and well-reasoned approach to any long-term financial commitments. It’s not likely oil production will go away in western North Dakota, but its rate of expansion and production could level off or even decline.

Oil production in North Dakota took off when the technology, cost of exploration and production and price of oil reached a point where wells drilled in the Bakken formation became profitable. Incentives (triggers) from the state, regulations and a business-friendly environment are included in the cost part of that equation. It’s the stuff the state can control.

Legislators must account for the impact of state actions on the costs of oil production, maintaining a balance of taxes, incentives and spending on infrastructure related to the oil industry.

Indeed. And if legislators want to look at striking the right balance with taxes they could start with the state’s too-high and variable oil extraction tax.

Far too many North Dakotans will sneer at any proposal to lighten the tax load of the oil industry, many certainly did when former Governor Ed Schafer broached the topic during the last legislative session, but they ought to be reminded of the parable about the goose and the golden eggs. North Dakota’s oil extraction tax is not only one of the highest in the nation but it’s also variable, pinned to the price of oil in such of way that at certain price levels there is a great deal of uncertainty both within the industry and in state government as to just how much in taxes will be paid.

We need to end that uncertainty, for the good not just of the industry but of the state as well. Taxes, whoever it is being taxed, ought to be simple and fair. Do we throw that concept out the window because the industry being taxed in this situation is one that isn’t exactly sympathetic in the eyes of the public?

Of course not. Fix North Dakota’s oil extraction tax ought to be fixed

Rob Port is the editor of SayAnythingBlog.com. In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters. He writes a weekly column for several North Dakota newspapers, and also serves as a policy fellow for the North Dakota Policy Council.

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  • caeslinger

    I’d be for that. I’d also be for them being taxed from day 1 on flared natural gas.

    • http://sayanythingblog.com Rob

      I dunno, the approaches to solve the flaring problem in the legislature seem to ignore what’s causing the problem. It isn’t that the industry doesn’t want to capture that gas. It’s valuable. They like making money.

      It’s that they can’t cut through the red tape to build the infrastructure to capture it. Neither tax credits, nor tax hikes, are going to change that situation.

      • zipity

        This is true. The Government and Enviro-wackos can stop/delay any project they oppose, or simply make it too expensive to pursue by piling the lawsuits and red-tape as high as they can. In today’s world, most of the countries major projects, from dams to the Tennesse Valley Authority, to the Erie canal or the Interstate Highway System would most likely never be realized due to this obstructionism. Lefty Libtards won’t be happy until three quarters of the worlds population is dead, and the remnants are cowering in caves eating grass.

        • John_Wayne_American

          I don’t know about cowering in caves, but the lefty Libtards only wish the folks beneath them ,dead, so they can enjoy the fruits of the production of those they wish eliminated.

          Like their never ending dependency class they seem to enjoy enlarging, the simple fact is, without the “little people” the elitists would have to produce on their own. It is a catch 22 and perhaps the only reason they allow the “Little People” to survive as long as they have.

          Hitler, Mao, Stalin and PolPot knew they couldn’t supply the huge masses with limited resources, we all know how the tried to solve that minor “issue”.

          Does the debate over the 2nd amendment apply here?

          What is KIng Zero’s real agenda and end game? Zero started out a community organizer which might be a few steps ahead of a German holiday card designer in 1922…?

      • caeslinger

        Point taken. Work from both sides on this issue. It’s also the NIMBY citizenry, not just necessarily government red tape, that is an obstacle.

        • http://sayanythingblog.com Rob

          Yes, you’re right, it’s the easements problem though I think the state can help a great deal with that.

          Maybe instead of giving tax credits to the industry, we should give tax credits to land owners willing to go along with easements to build out infrastructure.

          So we a) have tax relief for citizens while b) clearing the way for pipeline buildout.

      • WOOF

        They sure cut through the red tape for $100+ a barrel oil. Natural gas ain’t worth the effort especially as they are not being charged for flaring it off. States need to look at mineral resources as being partially state property and when companies extract they should pay. Flare natural gas pay for the gas. Polluting the atmosphere appears to have a free pass.

  • Kevin Flanagan

    ND’s entire chaotic tax system needs fixing.

    • zipity

      Yeah, it should be streamlined and sensible. More like the Federal Tax Code.

      *SNORT*

  • Clairvoyant

    The “chicken little” cry of they’ll leave if we don’t reduce taxes is laughable. Where are they going to drill instead? Vermont, Florida? Wisconsin? They drill here because the oil’s here!. They knew what the tax rates were here, when they set up shop. No need to take our pants off. No to tax increases, but yes to holding them where they are at. The current tax rates are needed to support the infrastructure out there.

    • http://sayanythingblog.com Rob

      The “chicken little” cry of they’ll leave if we don’t reduce taxes is laughable. Where are they going to drill instead? Vermont, Florida? Wisconsin? They drill here because the oil’s here!.

      I don’t think your attitude is warranted. Yes, the oil is here, and it isn’t going anywhere. But they could very well decide to drill other places if doing so is more profitable than drilling here. They could let us sit on our oil for a few decades, and then come back if we change our policies or if market conditions change.

      The idea that we’ve got the industry by the short hairs is not only short-sighted, but flat-out wrong. What do you have have against a mutually-beneficial relationship with the industry? One that ensures both their continued investment in our state, and our state enjoying the on-going stimulus and tax revenues from their activities?

      • Clairvoyant

        Oil drilling isn’t like ice fishing where you a drill a hole, wait and then move 20 feet and drill another hole. The research and financial investment that is made is substantial and these commitments are based on long term viability. If you check your facts, you’ll see that we are actually one of the more tax favorable states to industry. Seems our representatives are getting a little heat from contributors to push down the taxes.

        • http://sayanythingblog.com Rob

          If you check your facts, you’ll see that we are actually one of the more tax favorable states to industry.

          I think maybe someone has given you the wrong facts.

          We have a high rate, nationally, that’s variable.

          At the very least, can we agree that a fixed rate would be better?

  • Roy_Bean

    Thirty years ago the democrats pushed through Measure 6 as a “tax the rich” plan to finance education in North Dakota by taxing the oil fields. It makes no sense to take a billion dollar surplus out of the economy of western North Dakota every 2 years and then talk about tax incentives to build houses. The California mentality is creeping way outside the university system. They spent their way to bankruptcy and if we keep it up, we will too.

  • Lynn Bergman

    A fixed total of 9.5% makes a lot of sense, now that energy development is mature.

    It’s time North Dakota quits “plucking the golden goose” and just harvests its eggs.

    And the big spenders must understand that either 9.5% or 11.5% of nothing is nothing; $45 oil is not impossible in the marketplace.

  • Dallas

    The President of Whiting Oil, appearing on a MSNBC busiess show, recently said his company made great money in ND at $30 a barrel. Where are they going? They hit nine out of ten holes drilled (best rate in the country by far), are able to pay for a well in 6 months and knew what the taxes weere before they came. They make enough to pay an umeployable, broke, former Governor a million a year, pay for part of this site, bailed out Scott “Da Banker” Hennen.

    Life is good for the oil industry in ND. Leave it alone!

    • http://sayanythingblog.com Rob

      What a short sighted, parochial view.

      You really are very ignorant.

      By the way, no oil company pays for any part of this site.

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