Republican lawmaker calls oil tax increase 'political theater'

ND State Capitol (Korrie Wenzel/Forum News Service)

BISMARCK — A proposal to increase the oil extraction tax received a cold reception in a North Dakota legislative committee on Wednesday, Jan. 23, with the chairman chastising the bill sponsor for “political theater.”

Rep. Pamela Anderson, D-Fargo, proposes to increase the oil extraction tax from 5 percent to 6.5 percent, restoring the tax to the level it was before lawmakers changed it in 2015.

Anderson argues that reducing the oil tax contributed to the dire financial situation facing the state in 2017.

But opponents say the state would have lost $942 million in revenue since 2016 if lawmakers had not approved the tax overhaul, which included removing tax breaks that would have kicked in when oil prices were low.

Rep. Craig Headland, R-Montpelier, chairman of the House Finance and Taxation Committee, said he gets “irritated” when someone suggests that state lawmakers “gave away” money to the oil industry.

“I think your whole testimony is frankly nothing but political theater, and I don’t appreciate it happening in my committee,” Headland said.

Anderson’s proposal is projected to generate about $600 million for 2019-21 in additional oil tax revenue. She said voters encouraged her to introduce the bill to provide more funding for education, state employee raises, health care, social services and other priorities.

“I don’t think it was political theater at all,” Anderson said after the hearing. “I was stating the facts.”

If legislators had removed the tax breaks in 2015 but kept the 6.5 percent tax rate, the state would have collected an additional $815 million since 2016, according to Tax Commissioner Ryan Rauschenberger.

Ron Ness, president of the North Dakota Petroleum Council, testified on behalf of the oil industry in opposition to the tax increase. Ness said North Dakota competes for industry investment against other oil-producing states with lower oil tax rates.

“Encouraging production gives you more tax revenues than a higher tax rate,” Ness said.

The overall tax on North Dakota oil production is 10 percent. Some older, low-producing wells receive a tax exemption and only pay 5 percent. When those exemptions are factored in, the tax rate on the oil industry is 9.7 percent, Rauschenberger said.

A study by RegionTrack, an Oklahoma City-based economic research firm, compared the overall oil tax rates for fiscal year 2016 for all oil-producing states. It showed that North Dakota’s tax rate was above the national average of 6.8 percent.

That year, North Dakota had the fifth highest oil tax rate in the nation, with New Mexico, Wyoming, Montana and Louisiana charging more. The study showed North Dakota’s tax rate is higher than Texas, Oklahoma and Colorado, states that compete with the Bakken for industry investment. The study looked at the effective tax rate, or the actual rate paid after exemptions are considered.

Anderson said she doesn’t believe the tax increase would “shut down” the Bakken, but she anticipates oil production will continue growing.

“I believe North Dakota residents should share in this uptick and not just out-of-state oil companies,” she said.

The Petroleum Council also released an oil and gas tax revenue study Wednesday, showing that the industry has paid nearly $18 billion in oil and gas extraction and production taxes from 2008-18. The oil taxes account for more than 50 percent of all tax revenues collected by the state.

The committee did not take immediate action on the bill.