Sen. Dwight Cook, Published February 13 2013
Letter: Oil tax proposal is soundNorth Dakota’s oil tax policy is an assortment of taxes, triggers and discount incentives that have been cobbled together over the past 60 years. Not only has new technology made our tax policy obsolete, our oil tax law poses great risk to our state’s long-term oil tax revenue dependability.
As chairman of the North Dakota Senate Taxation Committee, I have proposed a major restructuring of the state oil taxes (SB 2336) to provide stability to this vital revenue stream for state government. My plan will require that oil companies withhold income taxes from out-of-state royalty payments, eliminate stripper well property exemptions for the Bakken and Three Fork formations, create an incentive for companies to explore beyond the Bakken and Three Fork formations, reduce the extraction tax by 2 percent on new wells starting in 2017, and, most importantly, eliminate major price-triggered tax reductions.
Unfortunately, but not surprisingly, some of my Democratic friends have misrepresented this bill for their own political gain by focusing on just one aspect of the bill. In doing so, they failed to give the voters of North Dakota the whole story and risk the long-term stability of oil revenues for the state of North Dakota.
My Democratic friends will tell you this bill will cut taxes to the oil industry by $595 million during the first five years the reduction is in place. They base this fiscal analysis on the generous assumption that the oil industry will be drilling 1,750 new wells per year and the price of oil will stay at $80 per barrel. Here is what they don’t tell you about SB 2336:
• The bill also increases the taxes paid on Bakken and Three Fork wells located on stripper well property. In those same five years, those increases will generate an additional $500 million in oil taxes.
• The 2 percent reduction in the extraction tax applies only to new wells drilled starting in 2017. Current oil production and any new wells drilled before 2017 will not benefit from the reduction.
• North Dakota is projected to collect $5.2 billion in the 2013-15, up from $3.2 billion in the current biennium. And if oil prices hold, North Dakota will see a significant increase in oil tax collection long into the future.
• This bill eliminates current price triggers that would reduce oil tax revenue by $2 billion per biennium. Or, to put it another way, this bill increases oil taxes by $2 billion a biennium should this volatile industry realize a major downturn.
It is this final point that has driven us to take action now to develop responsible oil tax policy. While this restructuring of oil taxes might be bad politics, it is excellent public policy. In fact, it would be irresponsible of us not to address the potentially disastrous effect a price drop would have on our state’s ability to invest in much needed infrastructure, schools and public safety.
So the next time you hear or read some critic lamenting the Republican plan to supposedly cut oil taxes, make sure, as Paul Harvey used to say, you get the rest of the story. To see the bill for yourself, go to http://tinyurl.
Cook, R-Mandan, has served District 34 in the North Dakota Senate since 1997.