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.