BISMARCK — Oil companies fetching high prices for their product will likely see a reduced tax rate in North Dakota after lawmakers gave a green light to legislation backed by the powerful petroleum industry.
The Republican-led state Senate voted 36-10 on Wednesday, March 22, to pass House Bill 1286, which would abolish a requirement that oil producers pay a heftier tax rate when the commodity’s price hits high levels. The House of Representatives approved the proposal last month.
The proposal sponsored by Rep. Craig Headland, R-Montpelier, makes an exception for oil wells that touch the Mandan, Hidatsa and Arikara Nation's Fort Berthold Reservation.
Proponents of Headland's bill say cutting the oil tax trigger will encourage more investment in the Bakken oil field while creating fairness in the state's tax code. Critics say the extra tax revenue brought in when oil prices surge could fund important projects and programs.
Gov. Doug Burgum has previously indicated he would sign a bill to dispose of the so-called oil tax trigger, which he referred to as an “excess profits tax on companies that are investing greatly in our industry.”
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The Legislature originally approved the trigger in 2015 as part of larger tax reforms that cut the overall extraction tax from 6.5% to 5%. As a compromise with the industry, policymakers agreed that sustained high oil prices, determined by a formula, would trigger a 6% extraction tax.
Soaring oil prices last summer activated the higher tax rate for the first time, and the state took in an extra $117 million in revenue between June and October. The additional cash flowed to the voter-approved Legacy Fund, water infrastructure projects and local governments and trusts that bankroll K-12 education.
The MHA Nation received an extra $18.5 million from the trigger tax last year, according to figures provided by State Treasurer Thomas Beadle.
Sen. Dale Patten, R-Watford City, said eliminating the trigger tax would allow oil companies to reinvest in their North Dakota operations and to avoid seeking hard-to-attract investment from Wall Street.
Senate Majority Leader David Hogue, R-Minot, said removing the conditional tax would make North Dakota more attractive to oil companies at a time of close competition with oil fields in Texas and New Mexico.
Sen. Merrill Piepkorn, D-Fargo, noted that the oil industry has pocketed billions of dollars that would have gone to the state's coffers had it not been for the 2015 tax cut. He said oil lobbyists flood the Capitol every legislative session looking for favorable policy and tax cuts despite the industry's strong economic stature.
Oil lobbyists supported the legislation at public hearings earlier this year. North Dakota Petroleum Council President Ron Ness said the cost of producing oil has inflated along with the commodity’s prices, and the higher tax rate is overly burdensome.
Legislators are considering a handful of other industry-backed bills, including proposals to set aside state funding for flaring reduction and to lower the oil extraction tax on older wells that have been “restimulated” via the hydraulic fracturing process.
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