BISMARCK -- The North Dakota Senate overwhelmingly rejected a proposal on Wednesday, Jan 30, to increase the oil extraction tax, with opponents saying they want to keep the Bakken competitive.

Senate Bill 2336, which would have increased the oil extraction tax from 5 percent to 6.5 percent, failed in a 10-36 vote, with Democrats supporting it and Republicans in opposition.

Sen. Dale Patten, R-Watford City, said the Senate Finance and Taxation Committee recommended a do-not-pass on the bill, in part because it would make North Dakota one of the highest tax states for oil and gas production taxes.

“It takes a great deal of capital to drill and produce these wells,” Pattern said. “North Dakota is in constant competition with other states and other oilfields for this capital.”

North Dakota also has a 5 percent gross production tax for an overall tax rate of 10 percent.

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Sen. Jim Dotzenrod, D-Wyndmere, said legislators have had a “circular debate” about whether the oil tax overhaul lawmakers approved in 2015 resulted in a tax increase or a tax cut for the oil industry.

Lawmakers in 2015 removed tax breaks for the oil industry that would have kicked in when oil prices were low, a move that has led to the state collecting an additional $942 million in oil tax revenue since 2016, according to Tax Commissioner Ryan Rauschenberger.

At the same time, lawmakers also reduced the oil extraction tax from 6.5 percent to 5 percent. If the tax rate had stayed the same but the tax breaks were removed, the state would have collected an additional $815 million since 2016.

Democrats advocated for restoring the tax to 6.5 percent, returning it to the level voters approved in 1980. The bill was estimated to add about $450 million in additional revenue for 2019-21.

“We are struggling here to find the adequate funding for nursing homes, to keep up our infrastructure,” said Dotzenrod, adding that in many budgets legislators are “trying to scrape to find where revenue is going to come from.”

Sen. Brad Bekkedahl, R-Williston, pointed out that oil taxes already account for 50 percent of all tax revenues collected by the state. Under the current policy, the oil extraction tax would increase to 6 percent if oil prices exceed $90 for three consecutive months, Bekkedahl added.

“I think they pay a lot now, and I think we have the right balance between industry and government,” Bekkedahl said.

Sen. Dwight Cook, R-Mandan, chairman of the Senate Finance and Taxation Committee, said removing the tax breaks created certainty for the industry.

A similar proposal is being considered by the House.

Also Wednesday, the North Dakota House voted unanimously in support of expanding an oil tax incentive for enhanced oil recovery that uses carbon dioxide produced from coal. The proposal, House Bill 1439, was supported by North Dakota lignite and oil industry leaders. It now moves to the Senate for consideration.