New North Dakota oil tax framework saving state $1M daily
BISMARCK, N.D. (AP) — Action by the North Dakota Legislature earlier this year means a price-triggered exemption for the state’s oil industry did not go into effect Dec. 1.
November marked the fifth-straight month that oil prices averaged less than a trigger price of $55.09. Had lawmakers not acted, the tax break for drillers would have gone into effect Dec. 1, costing the state millions in lost revenue.
“I’ve said ‘I told you so’ about eight times today,” Republican House Majority Leader Al Carlson, R-Fargo, told The Associated Press.
The price for North Dakota sweet crude has averaged nearly $10 less than the trigger price in the past five months. North Dakota oil was fetching about $14 less than the trigger Dec. 1.
North Dakota has two primary taxes on oil production — a 5 percent production tax and a 6.5 percent extraction tax, the latter of which was part of an initiated measure voters approved in November 1980. Until Dec. 1, state law had forgiven the extraction tax if the five-month average price slipped less than the trigger prices.
The prospect of the big tax cuts due to declining oil prices had North Dakota lawmakers scrambling to approve a new oil tax framework that cuts the overall rate from 11.5 percent to 10 percent, while abolishing the trigger for drillers on Dec. 1.
North Dakota’s oil industry enjoyed the triggered tax break for 17 years, until 2004 when oil prices rebounded for five months greater than the trigger, which was just more than $35 a barrel at the time.
State Tax commissioner Ryan Rauschenberger said the Legislature’s elimination of the law means the state will save about $1 million daily based on current oil prices and production.
The legislation abolishing the breaks was among the most contentious of the session and passed just a few days before lawmakers adjourned. GOP lawmakers said it would provide a predictable tax policy.
“I think this will prove in the end that it will create long-term stable situation for us,” Carlson said.
Democrats said the lower tax rate will cost the state billions of dollars in tax revenue in the long run. Senate Minority Leader Mac Schneider said most in his party favored cutting the price-triggered exemptions but did not want to shave the overall tax rate.
“There was absolutely no long-term thought given to this,” Schneider said. “It was shoved through the Legislature in the last five days of the session.”
North Dakota’s oil industry wanted a flat 9 percent tax rate in exchange for giving up the price triggers.
Ron Ness, president of the North Dakota Petroleum Council, said the tax emption would have triggered a surge in drilling in the oil patch, were the number of drill rigs has slipped from 187 a year ago to 66 on Dec. 1.
“My phone is not ringing with glee from our folks,” Ness said. “It didn’t exactly work out in our favor but we can’t cry over spilled milk.”