A proposed tax on water sold for industrial use could end up generating millions in revenues for the state’s general fund.
House Bill 1398 would institute an 11.5 percent water extraction tax for water drawn from underground aquifers for sale for industrial use. Revenues from the new tax would be deposited in the state general fund.
“As the bill is structured and written, it’s very similar to the gross production tax,” Deputy Tax Commissioner Ryan Rauschenberger said.
Rauschenberger said he’s not aware of any other states that tax water in this manner. If HB1398 were to pass, he said, it would join the taxing of potash that began last session as the only completely new taxes instituted by the state since the 1980s.
With the sheer level of water being sold to industry, the majority for fracking of oil wells in western North Dakota, the potential revenues could prove significant.
“We’re doing about 200 wells a month,” Rauschenberger said.
Each well that’s fracked requires approximately 2 million gallons of water, possibly more depending on the number of stages, Rauschenberger said. This means at least 400 million gallons per month is being used for fracking. If all of the water being sold is being done by private water providers, Rauschenberger said, one could quickly be looking at a very large revenue stream.
Rauschenberger said if HB1398 were applied only to private water providers, approximately $3.74 million in revenue could be generated in a 24-month period. He said this figure was “based on some very, very rough preliminary estimates.” He added that if the water extraction tax were also to include all commercial water sales in the state, an additional $16 million could be generated in addition to that of private water providers.
The estimate takes into account a price of approximately1.5 cents per gallon for industrial sales.
Rep. George Keiser, R-Bismarck, said the bill is meant to apply to all commercial water sales in the state.
“It isn’t targeted at any groups,” Keiser said.
Keiser said water hasn’t been sold commercially in the state, or any other state, in the past. However, he said, North Dakota is unique due to the volumes of water being sold for fracking in the past few years.
“We are talking about lots and lots of water,” Keiser said.
Keiser said whether or not the bill is passed “it’s time to have this discussion.”
Todd Sando, state engineer with the State Water Commission, said he hasn’t had an opportunity to take a close look at HB1398 yet.
“North Dakota’s never taxed water before. Any such bill would need to go through extensive legislative review,” Sando said.
Sando said the State Water Commission would be more involved with the bill as it advances.
The Independent Water Providers group sent a letter to the Tribune voicing its opposition to HB1398. The group consists of about 100 independent water depot operators in the oil patch who have been selling water to the oil and gas industry for fracking over the past couple of years.
Independent Water Providers member Steve Mortenson of Williston submitted the letter on behalf of the group, which in part states:
“The Independent Water Providers response to (House) Bill 1398 being introduced by Rep. Keiser, Rep. Kruen and Rep. Schmidt, we feel is against all the principles North Dakota stands for; we have just battled the U.S. Army Corps of Engineers on their ability to tax the waters of North Dakota; now we have our own legislators wanting to do it.”
The letter also went on to question whether taxing water sold to industry could open the door to further taxation in the future:
“Is it wrong to try to run and operate a private business? Will these same legislators want to put a tax on the water if commodity prices go up for irrigation?”
Sponsoring HB1398 along with Keiser are Reps. Curtiss Kreun, R-Grand Forks, and Jim Schmidt, R-Huff.