ND Republicans propose adjusting oil taxes to hedge against lower crude prices
BISMARCK – North Dakota Republicans are proposing a late-session bill that would hedge against the loss of tax revenue from low oil prices by cutting oil taxes instead of allowing an exemption to take effect that could cost the state billions of dollars.
The “trigger on the trigger” would permanently reduce the state’s oil extraction tax from 6.5 percent to 4.5 percent if the so-called “large trigger” incentive kicks in June 1 as expected. The state’s 5 percent oil production tax wouldn’t be affected.
Senate Majority Leader Rich Wardner, R-Dickinson, said the oil industry has indicated it will “reluctantly” go along with the plan, even though it will mean higher taxes for them, at least in the short-term.
“What they’re going to get is stability,” he said during a Senate Republican caucus meeting this morning.
House and Senate leaders have scheduled an 11 a.m. press conference to announce that the proposal will be introduced as a delayed bill.
Lawmakers defeated a similar proposal last session that would have lowered oil taxes in exchange for eliminating both the large trigger and small trigger incentives, but that bill didn’t hinge on whether the large trigger would take effect.
The large trigger becomes effective if the benchmark price for West Texas Intermediate crude in Cushing, Okla., averages less than $55.09 per barrel for five consecutive months. It lowers the extraction tax from 6.5 percent to 4 percent for existing wells and gives new wells a 24-month holiday from the tax.
The Moody’s revenue forecast released March 18 predicted the large trigger would be in effect for 11 months during the 2015-17 biennium.
Sen. Terry Wanzek, R-Jamestown, likened the plan to how farmers refrain from using a “gold-rush mentality” in planning their operations.
“We are relinquishing some upside potential, but we are managing our risk,” he said.