North Dakota needs a stable, reliable tax policy to ensure the oil and gas industry stays over the long term, and that is the goal of a tax restructuring bill, a state senator said.
Sen. Dwight Cook, R-Mandan, talked Tuesday about Senate Bill 2336, an oil tax restructuring bill he and a handful of lawmakers introduced Jan. 28.
It drew opposition Tuesday from a number of state organizations as well as a representative of one of the largest drilling companies operating in the state.
Cook, chairman of the Senate Finance and Taxation Committee, said the bill is similar to one proposed during the latter stages of the 2011 session but was shelved at the time.
“We did not yet know what the Bakken looks like,” Cook said.
SB2336 eliminates a loophole for Bakken and Three Forks wells to be given stripper well status on well sites where there currently is a stripper well. It also raises the threshold for a stripper well from 30 barrels per day of production to 45 and has companies withhold income taxes from out-of-state mineral rights owners.
The bill also offers incentives for drilling outside the Bakken and Three Forks. It would permanently lower the oil extraction tax from 6.5 percent to 4.5 percent and eliminate a series of triggers that would come online in the event of a sharp drop in the price of oil.
The bill drew a sharp rebuke from Democratic leaders shortly after it was introduced. A fiscal note projects a $595 million loss in revenue in the first five years after 2017, when the tax rate cut would begin.
Cook showed the committee a slide from a presentation highlighting the state’s effective oil tax rate since 2000. The slide showed a low of just under 7.5 percent in 2004 with a rise to nearly 11 percent currently.
“The intent of this bill, hopefully, is to remove the lows and highs,” Cook said. He said it would create more stability for the industry so companies know what to expect in North Dakota and can plan accordingly.
Sen. Jim Dotzenrod, D-Wyndmere, questioned having an oil extraction tax decrease in the bill.
“How important is that 2 percent reduction?,” Dotzenrod said. “What would be the downside?”
Cook said the oil industry responds to tax policy when deciding where to drill.
“I think when you put all the taxes on the table we’re probably in the middle,” Cook said.
Ron Ness, president of the North Dakota Petroleum Council, said SB2336 would provide a lot of the stability Cook was talking about.
“We’ve got a tax policy that has been cobbled together really since January 1981,” Ness said. He said following the passage of Measure 6 in 1980, which created the 6.5 percent oil extraction tax, 53 percent of the oil rigs operating in the state left within three months.
Blu Hulsey, director of government affairs for Continental Resources, said the tax rate change that would be enacted in 2017 was the company’s main source of opposition to the bill.
“This is an industry that goes where the capital is, and tax rates do matter,” Hulsey said. “A simple tax policy is helpful.”
North Dakota Education Association spokeswoman Kayla Pulvermacher also spoke against SB2336 ,citing potential impacts on future education funding.
“We have to concern ourselves with the cost of education and how you pay for that in the future,” Pulvermacher said. “This decreases future revenue.”
North Dakota Public Employees Association director Stuart Savelkoul said higher education and government institutions are struggling to find and retain employees in western North Dakota.
“Good luck finding someone (for) driving a snowplow west of Bismarck,” Savelkoul said.
Savelkoul said his group also opposes the bill due to the projected revenue loss after 2017. He said the state should focus on addressing oil impacts and providing more competitive wages for jobs outside the oil industry.
No action was taken Tuesday on SB2336.
Sponsoring SB2336 along with Cook are Sens. Rich Wardner, R-Dickinson, David O’Connell, D-Lansford, and Reps. Wesley Belter, R-Fargo, Al Carlson, R-Fargo, and David Drovdal, R-Arnegard.