BISMARCK — North Dakota senators easily rejected a bill seeking to tap earnings from the state's oil tax piggy bank to replace state income taxes Wednesday, March 20.

The Senate's 41-4 rejection came a month after the House approved the plan pushed by the chairman of its Finance and Taxation Committee, Republican Rep. Craig Headland. Republican Gov. Doug Burgum previously said the bill wasn't "good policy."

The bill would have diverted half of the Legacy Fund’s earnings each two-year budget cycle to an “income tax rate reduction fund,” as long as the transfer was at least $50 million. It would have taken at least a decade to reduce the rates to zero and repeal individual and corporate income taxes, Tax Commissioner Ryan Rauschenberger previously estimated.

Sen. Jessica Unruh, R-Beulah, said the state should maintain its "three-legged stool" tax structure and avoid becoming too reliant on one industry for government revenue. She noted that the state already has low income tax rates.

"Even though the rates are low, what having an income tax does is allows for everyone to have just a little bit of skin in the game when it comes to government and government-funded services," Unruh said.

WDAY logo
listen live
watch live
Newsletter signup for email alerts

The average individual state income tax liability in North Dakota is roughly $860 per return, according to the tax commissioner’s office. The state is expected to generate almost $950 million in individual and corporate income taxes during the biennium that ends June 30.

The bill's backers have argued it would allow the state to be more competitive with states that don't levy income taxes, such as South Dakota.

Voters agreed to write the Legacy Fund into the state constitution in 2010 by dedicating 30 percent of oil and gas tax revenue. State officials invest the principal, which has grown to nearly $6 billion.

Conservative estimates suggest $300 million in earnings will be transferred to the state's general fund at the end of the biennium. Burgum has pitched using earnings for projects like the Theodore Roosevelt Presidential Library and unmanned aircraft infrastructure.

A bipartisan group of legislative leaders have proposed a constitutional amendment making it harder for lawmakers to spend the fund's earnings.