Oil Industry Takes "Significant Blow" As Tax Exemption Fails To Trigger

The dreaded and much-talked-about “big trigger” oil tax exemption will not go into effect on June 1 as a slight rebound in oil prices will put the average price for the month of May above the trigger price. If the exemption had triggered it would have eliminated the state’s 6.5 percent oil extraction tax entirely, leaving in place only the 5 percent oil production tax.

[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#000000″ txt_color=”#ffffff”]That’s modest tax relief in exchange for giving up a massive exemption when oil prices fall. Hardly what any reasonable person would call a give away to “big oil.”[/mks_pullquote]

You can expect Democrats to make political hay over this turn of events in the coming months. During the legislative session, when the state’s revenue forecasts predicted the “big trigger” hitting for at least 11 months and blowing a big hole in state revenues, lawmakers pushed through a reform to the oil tax code removing the “big trigger” and other exemptions for small reduction in the state’s overall oil tax.

Democrats have been fighting that reform for years, but with the state staring down the barrel of the “big trigger” costing big revenues in the middle of a session, the political majorities finally emerged to pass it.

Now that the trigger hasn’t hit, expect Democrats to do some “told ya so” politics. Because the threat of low oil prices prompting wild swing in state revenues every few years is…a good thing, or something?

You can expect Democrats to couch their talking points about the oil tax reform in a “handouts for big oil” narrative, which is why North Dakota voters should keep this moment when the tax exemption didn’t hit in mind. Because the oil companies are taking a pretty substantial hit right now as industry spokesman Ron Ness points out:

Ron Ness, president of the North Dakota Petroleum Council, said companies had been making plans to ramp up activity in June if the large trigger had taken effect.

“I think it’s a fairly significant blow to industry,” Ness said. “It would have been a good stimulus.”

An increase in oil activity would have benefited the state through more jobs and sales tax income, Ness said.

For what it’s worth the “big trigger” could still hit if oil prices fall again over the summer – the oil tax reform doesn’t go into law until December – but traditionally oil prices are higher over the summer months so that seems unlikely.

And if the “big trigger” doesn’t hit this year it’s never, ever going to hit again. Never again will the oil industry enjoy getting their production/extraction tax burden cut in half amid low oil prices. That’s gone.

In exchange, they got a reduction in the combined production/extraction tax from a top rate of 11.5 percent to 11 percent when oil is over $90 per barrel. Under $90 per barrel they’ll still be paying 10 percent.

That’s modest tax relief in exchange for giving up a massive exemption when oil prices fall. Hardly what any reasonable person would call a give away to “big oil.”