Posted on 02/28/2013 6:41:07 AM PST by thackney
As lawmakers debate whether North Dakota’s oil taxes need tweaking, a recent study suggests the state sits in the middle of major oil-producing states when it comes to oil taxation.
The Republican-controlled Senate on Tuesday approved a bill that would reduce the state’s oil extraction tax rate from 6.5 to 4.5 percent, despite strong objections from Democrats who argue the tax cut is unnecessary.
The lower rate approved in Senate Bill 2336 would take effect for new oil wells drilled starting in 2017, or if the average statewide daily production exceeds 1 million barrels per day for three consecutive months, whichever comes first.
One Democrat, Sen. David O’Connell of Lansford, voted in favor of the extraction tax cut in the 34-13 vote.
A recent study commissioned by the state Department of Commerce calculated North Dakota’s effective tax rate on oil production at 9.8 percent, making it the fourth-lowest rate among the top eight oil-producing states in the fiscal year ending in June 2010, the most recent year for which comparable data was available.
“It absolutely begs the question (of) why we’re going forward with such a radical and reckless reduction of the extraction tax,” said Senate Minority Leader Mac Schneider, D-Grand Forks.
The bill’s sponsor, Sen. Dwight Cook, R-Mandan, said the study looks at only one point in time, and today’s effective tax rate is closer to 10.6 percent. He highlighted a provision in the bill that would eliminate current price “triggers” that protect the oil industry with extraction tax exemptions and rate cuts if the price of oil dips below a certain threshold.
“The most important thing we need to do is decouple our tax rate from the price of oil,” he said.
Rod Backman, the former state budget director whose Covenant Consulting Group did the study, said there have been a number of comparisons of oil production and severance taxes among states. But while many other states or their local jurisdictions impose a property tax on oil-producing properties, North Dakota imposes a 5 percent oil-and-gas production tax in lieu of property taxes.
To reconcile the difference for comparison purposes, Backman divided the oil tax collections of each state by the value of their oil production to come up with an overall effective tax rate.
North Dakota’s rate of 9.8 percent ranked between Montana, at 10.7 percent, and Texas, at 7.9 percent.
Alaska had the highest rate, at 25.1 percent, while California had the lowest, at 2.5 percent. Without those two states, the average rate among the remaining six states was 9.8 percent, the same as North Dakota’s rate.
“Based on these major producing states that were included in the study, we’re about in the middle,” Backman said, adding that the study method doesn’t account for all the differences between states, and an exact comparison is virtually impossible.
Democrats warn that the extraction tax cut will eventually cost the state billions. They point to a Legislative Council memo that projects the state will lose $595 million in oil extraction tax collections in the first five years alone, based on a Department of Mineral Resources projection of 1,750 new wells and an oil price of $80 per barrel, an estimate used in the governor’s budget for 2013-15.
Cook has called those projections a “generous assumption.” He counters that the bill also closes an extraction tax loophole for low-producing “stripper wells” in the Bakken and Three Forks formations, which he claims will generate an additional $500 million in oil taxes -- a claim Democrats dispute because of the grandfathering of old stripper wells that produce fewer than 150 barrels per day.
Schneider said the claim that closing the loophole will offset the reduction in extraction tax revenue isn’t credible.
“Anyone who says so is either delusional or being deliberately misleading. No rational person could think this is a revenue-neutral bill,” he said.
Schneider said he hopes the bill receives more scrutiny in the House than it did in the Senate.
“Unfortunately, I think this bill is greased,” he said.
Cook said he fully expects the bill to pass and end up on governor’s desk, calling it “sound tax policy for the future of our state.
“I’m open to some common sense changes to it,” he said.
Oil tax rates compared
A comparison of effective oil tax rates in fiscal year 2010 of the top eight oil-producing states in the U.S. found that North Dakota had the fourth-lowest rate. Here is the ranking of the rates, with the total taxable value of oil production in each state in parentheses.
1. California 2.5 percent ($15.2 billion)
2. Oklahoma 6.7 percent ($11.1 billion)
3. Texas 7.9 percent ($49.4 billion)
4. North Dakota 9.8 percent ($6 billion)
5. Montana 10.7 percent ($2 billion)
6. Louisiana 10.9 percent ($8.6 billion)
7. Wyoming 13 percent ($8.3 billion)
8. Alaska 25.1 percent ($14 billion)
Source: Covenant Consulting Group study commissioned by the North Dakota Department of Commerce
What is the amount that Colorado extorts form the people?
I don’t know.
If you want the answer from others, are you talking about the oil production tax as discussed in the article or other taxes applied to individuals? If for individuals, which taxes are you talking about: sales? property? income?
I was thing of the extraction tax like the name of the article but had not considered the total extortion form the state of Colorado
Yeah, I know about the commerce clause in the constitution, but if some states can ignore the second amendment, why can't others ignore the commerce clause?
Why would you want to encourage the refinery operations to be done in other states? That would just lead to oil leaving the state instead of the higher value products, along with the associated jobs leaving the state as well.
Each time I see targeted taxes and/or subsidies, it is a mess. Keep it simple and straightforward.
A little off topic but I was curious.
Anyone know the history of when/where these type of taxes came from? Is this why Rockefeller was so rich, because, he could get oil before it was taxed?
I see stuff like this, with folks acting like it’s normal to have something called an “extraction tax” and wonder what ever happened to the concept of property rights.
It used to be if I bought property and I could get something out of it, I could do so. Doesn’t seem that way now.
I was inclined to look into some of the last homestead act stuff for Alaska at one point, which, at least in the old days, were basically land grants that you could keep as long as you developed the property in some way.
Sounded good until I saw the disclaimer that mineral rights, et.al, were considered the property of the people of Alaska. I was instantly turned off and I remember thinking, “how did this commie concept get here?”
In Alaska’s case, remember the entire state was bought by the Feds from Russia specifically to gain the resources. Giving those resources away after that makes little sense. As it is, the state limps along trying to gain every dollar possible on taxes to the oil/gas companies after the minerals are extracted. But mining of Coal, Gold, Zink and other solid minerals is treated far differently.
As an incentive to continue producing at relatively high rates, a lowered tax will bring more revenue in the long run than a dash for greener taxation pastures if Federal lands open up elsewhere.
Of course, "Democrats warn that the extraction tax cut will eventually cost the state billions.
(Typical Democrats, it isn't the State's money.)
They point to a Legislative Council memo that projects the state will lose $595 million in oil extraction tax collections in the first five years alone, ...
The Democrats tend to be from the communities which don't have oil resources, but are benefiting from the prosperity that reaches farther out than just the oil producing counties.
I bet they failed to calculate just how much the new tax on a million BOPD would bring.
I have not found the tax rate yet, but I did find something ugly.
Colorado severance tax is imposed upon nonrenewable natural resources that are removed from the earth in Colorado. The tax is calculated on the gross income from oil and gas and carbon dioxide production.
http://www.colorado.gov/cs/Satellite/Revenue/REVX/1176829212124
Democrats seem to always figure the base won’t go up or down when calculating tax rates. It is why they want high tax rates; they don’t understand the macroeconomics.
My first question was why there was no military service on “Mac’s” resume?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.