Bill would remove North Dakota's oil tax trigger

Opponents worry about fiscal impact

This pumpjack sits between Watford City and Mandaree in North Dakota.
Amy R. Sisk / The Bismarck Tribune

BISMARCK — North Dakota lawmakers have introduced a bill that would change state oil tax policy, removing a requirement for producers to pay higher taxes when oil prices reach high levels.

Supporters say it creates more certainty for oil companies, but opponents say it could cost the state millions of dollars of lost revenue.

Rep. Craig Headland, R-Montpelier, has sponsored House Bill 1286, which seeks to remove the so-called trigger from the oil extraction tax rate. Current policy requires oil producers to pay a higher tax rate when the average price of oil hits a certain price, known as a trigger. Last year, oil prices reached the trigger, leading North Dakota to collect an additional $135.6 million over five months of high oil prices.

Headland, who chairs the House Finance and Taxation Committee, said that having the best tax policy in place requires looking at what certainty there is for the oil industry and helping bring capital to North Dakota to produce oil.

“(This bill) is meant to try to keep the oil companies drilling (and) keeping them producing so we have a stable production level," he said. "That would in turn mean a stable revenue stream, and that’s what’s important.”


It’s bad tax policy to insert an additional tax on “an industry that we are so reliant on and that’s so significant and so important to North Dakota,” Headland added.

“Is it any different than us saying to a wheat farmer, ‘You know what? You’re getting $10 a bushel for your wheat, so maybe we should apply some kind of a tax on you.’ I just don’t philosophically believe that it’s good policy,” Headland said.

The trigger price is “formula driven,” State Tax Commissioner Brian Kroshus said, adding that the trigger price changes annually.

In 2022, the trigger price was $94.69 for a barrel of West Texas Intermediate oil, a common benchmark. On June 1, oil prices reached that level in the formula, requiring producers to pay 6% oil extraction tax rather than the standard 5%. Producers also pay a 5% gross production tax, a rate that does not vary based on price.

“That revenue collection will vary when the trigger is in effect. Two primary factors (are) price of crude oil at the time for that month and then also production levels,” Kroshus said.

This year’s trigger price is $115.55 for WTI crude oil pricing, Kroshus said, adding that it’s “an unusual jump, but a reflection of the high inflationary environment we’ve seen both in 2022 and to date as well.”

“It’s unlikely that the trigger would go back into effect. You can never say that with absolute certainty because you don’t know what the markets are going to do. But the benchmark is considerably higher for 2023,” he said.

Fort Berthold

Headland said his bill would not remove the oil tax trigger from production within the Fort Berthold Reservation. The Mandan, Hidatsa and Arikara Nation has an oil tax agreement with the governor that was signed in 2019.


MHA Chairman Mark Fox told the Tribune this week that the trigger on tribal lands “has positive opportunities” for the tribe, and he wouldn’t be opposed to legislation removing the trigger as long as it doesn’t affect wells on the reservation.

“When the fair market prices are high for an oil company and their revenues are exponential and their profitability is well established, we need that additional revenue to offset the many costs that the reservation contends with relating to oil and gas,” Fox said. “So we think it’s a good thing for the wells on the reservation.”

If oil prices reach the trigger again, that would mean producers would pay a higher oil extraction tax rate on the reservation than they would off of Fort Berthold. The reservation accounted for 15% of the state's oil production in November, the most recent figures available.

North Dakota Petroleum Council President Ron Ness said the industry supports removing the trigger.

“It’s an unnecessary burdensome tax. The oil industry is paying a super-large percentage of all those tax revenue streams so we think it’s time to eliminate this trigger and move forward with a flat tax,” he said.

Ness said that removing the trigger would “hopefully spur more investment in oil and gas activity,” and also provide tax relief for some North Dakotans.

“Mineral and royalty owners, tens of thousands pay this oil tax in addition to the oil producers," he said. "Those revenues derive from those people on a windfall profits tax like this. It certainly does not determine the fate of our state budget. I think those dollars are better off in the pockets of North Dakotans who pay those taxes or being reinvested by the oil industry.”

House Minority Leader Josh Boschee, D-Fargo, said that the high-end trigger was a compromise during the 2015 legislative session.


That year, lawmakers reduced North Dakota's oil extraction tax from 6.5% to 5% and also removed a low-end trigger that allowed the industry to get a tax break when oil prices dropped below a set level. Democrats unsuccessfully sought to restore the 6.5% oil extraction tax in 2019, arguing that level was approved by voters in 1980.

“I don’t understand why we feel the need to remove (the trigger), especially when there’s such a high threshold that has to be met anyways,” Boschee said. “If we continue to reduce revenue resources and increase our dependence on oil revenue, the math doesn’t add up in the long run … It’s going to impact North Dakotans in terms of the delivery of services that they expect from our state government.”

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