James MacPherson, Associated Press, Published March 11 2013
Oil industry opposes ND House oil tax measureBISMARCK — A Republican-sponsored House bill aimed at simplifying and restructuring oil taxes in North Dakota has morphed into a complex and costly measure that penalizes drillers, an oil industry spokesman said Monday.
“All we want is a clean, simple and fair tax policy,” Ron Ness, president of the North Dakota Petroleum Council, told the Senate Finance and Taxation Committee.
The oil tax measure passed the House and is under review by the Senate; a similar Senate bill is slated to be reviewed by the House.
Both measures seek to close loopholes used by oil companies in exchange for lower tax rates.
The measure's prime sponsor, Rep. Roscoe Streyle, R-Minot, said the intent of the bill was to simplify the state's tax code and encourage long-term oil development in western North Dakota's oil patch.
“I don't think anybody in this state understands oil taxes at this point,” Streyle told the Senate committee, adding that his measure attempted to clarify the tax code.
But Ness said the 19-page House bill with its numerous amendments actually is more confusing, onerous and open for interpretation than the state's current oil tax laws.
“You can look at this a million ways,” Ness told lawmakers. “We're better off with the current tax policy.”
Ness said the House measure raises the effective tax rate for oil companies by at least 1 percent. The percentage also would climb as oil production increases, he said.
“This bill has been moving in the wrong direction and it keeps moving there,” Ness said. “Our position is that this bill is a tax increase.”
The proposed legislation aimed solely at the oil industry comes when lawmakers are considering tax cuts to individuals, corporations and property owners, said Ness, whose group represents more than 400 companies working in the state's oil patch.
“Oil taxes are increasingly paying for other tax deductions,” Ness said.
Streyle said the goal is to keep companies drilling and paying taxes in North Dakota.
“We're not the only one that has a shale play going on,” he said.
Sen. Dwight Cook, R-Mandan, who chairs the Senate Finance and Taxation Committee, has crafted a tax restructuring bill that has passed the Senate and has moved over to the House. The measure would charge oil companies an effective tax rate of 9.5 percent on wells drilled after 2017 instead of the 11.5 percent tax rate they're charged now, in exchange for closing loopholes used by companies.
Cook's proposal would cut the exemption for so-called stripper wells that the state Tax Department says is costing North Dakota about $50 million in revenue each year. The 1980s-era law cuts taxes for low-producing oil wells to keep them pumping but it also has been applied in recent years to some gushers in North Dakota because they are near the weaker wells.
Stripper wells are exempt from the state's 6.5 percent extraction tax, but not a 5 percent production tax. Attempts to close the loophole have failed in the past three legislative sessions.
Cook told The Associated Press that the stripper well exemption has become increasingly unacceptable to North Dakotans. But companies also must be offered incentives so that they don't move rigs elsewhere, he said.
“Our goal is to create a win-win and I think we can,” Cook said. “And if we don't fix the stripper well exemption this time, shame on all of us.”
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