ADVERTISEMENT

ADVERTISEMENT

Tax commissioner: Oil-tax reform strengthens N.D.'s budget

BISMARCK--The 2015 North Dakota Legislature tackled many difficult issues, including the reform of oil taxes through the passage of House Bill 1476. I am writing to clarify the oil tax law changes and the revenue implications that resulted from p...

2943355+0B5XccNgaGKZTZjBfSWlrSEp4b2s.jpg

BISMARCK-The 2015 North Dakota Legislature tackled many difficult issues, including the reform of oil taxes through the passage of House Bill 1476. I am writing to clarify the oil tax law changes and the revenue implications that resulted from passage of HB1476.

From December 2015 through August 2016, the state has collected $372 million more in oil taxes than it would have if HB1476 had not been passed.

Oil in North Dakota is subject to two taxes: the oil extraction tax and the oil and gas gross production tax. Both are levied as a percentage of the value of oil.

Before the passage of HB1476, the extraction tax was 6.5 percent and the gross production tax was 5 percent, for a total of 11.5 percent.

Many exemptions and tax incentives were allowed that reduced the extraction tax. The most significant incentive was commonly referred to as "the large trigger." The large trigger incentive would have become effective if oil prices fell below a certain level for five consecutive months. This would have drastically lowered the oil extraction tax from 6.5 percent to roughly 1

ADVERTISEMENT

percent.

Had the law not been changed, the large trigger would have become effective on Dec. 1, 2015, and would have remained in effect today due to sustained low oil prices.

At the time the Legislature was considering HB1476, the estimated fiscal impact of the large trigger being effective for an entire biennium would have been a state revenue loss of nearly $2 billion.

That amount of fluctuation in revenue, driven by an uncertain tax incentive policy, made it extremely difficult for lawmakers to craft a state budget.

HB1476 eliminated both the uncertainty of the large trigger in December 2015, and the potential $2 billion tax savings the oil industry seemed likely to receive under the old law.

In addition to removing the large trigger and its possible rate reductions, HB1476 permanently lowered the oil extraction tax rate from 6.5 percent to 5 percent and removed other exemptions.

This creates a lower top rate, but removes the wild fluctuations and uncertainty that resulted from the exemptions allowed under the old law.

In only nine months, HB1476 has generated an additional $372 million in state revenues dedicated to water projects, flood relief, property tax relief and K-12 education.

ADVERTISEMENT

Rauschenberger is state tax commissioner of North Dakota.

Related Topics: RYAN RAUSCHENBERGER
What To Read Next