North Dakota's Oil Tax Must Be Fixed

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