Two Democratic legislators are proposing to increase North Dakota’s oil extraction tax, a move that would reverse a decision made by lawmakers in 2015.
Sen. Merrill Piepkorn, D-Fargo, and Rep. Pamela Anderson, D-Fargo, have introduced similar proposals that would restore the oil extraction tax from 5 percent to 6.5 percent.
They project the increase would generate nearly $600 million in revenue for the 2019-21 budget cycle that could be available for K-12 education, water projects, health care and other priorities.
The bills do not change the 5 percent oil production tax. Under their proposals, the overall tax on oil in North Dakota would increase from 10 percent to 11.5 percent.
When the Republican-led Legislature reduced the oil extraction tax to 5 percent, lawmakers also eliminated price-based tax breaks known as triggers. The change aimed to provide stability and predictability for both industry and the state.
Had legislators not changed the law, the state would have lost $942 million in oil tax revenue from January 2016 to January 2019, according to Tax Commissioner Ryan Rauschenberger. Because of the tax breaks in the former law, industry would have paid an average tax rate of about 6 percent for much of that time frame, he said.
But Democrats argue legislators were not given adequate time to debate the oil tax overhaul. The proposal was introduced on day 70 of the 80-day session in 2015.
“Most of us didn’t get the rest of the story. Had the 2015 Legislature done the right thing for the people of North Dakota, they would have eliminated that trigger while maintaining the 6.5 percent rate,” said Piepkorn, who joined the Senate in 2017.
The Democrats also point out that the 6.5 percent rate was approved by voters in 1980.
“The actions of the 2015 Legislature do not accurately reflect the attitudes of our people of North Dakota,” Piepkorn said.
If the price breaks were removed and the oil extraction tax stayed at 6.5 percent, the state would have collected $815 million more in oil tax revenue from January 2016 to January 2019, according to Rauschenberger’s estimates.
However, Rauschenberger, a Republican, added that no legislator introduced such a proposal in 2015.
Sen. Dwight Cook, R-Mandan, chairman of the Senate Finance and Taxation Committee, said Democrats have raised the oil tax issue in recent elections and didn’t gain traction.
“I think what we did was absolutely the right thing to do,” Cook said.
Ron Ness, president of the North Dakota Petroleum Council, said increasing the oil extraction tax would discourage industry investment in the state.
Last year, Gov. Doug Burgum voiced opposition to raising the oil extraction tax when there were discussions about putting the proposal on the ballot.
"We need to ensure that North Dakota is competitive with other oil plays when it comes to our tax rates and regulatory policies, because higher taxes won't yield higher tax revenue if companies choose to do business elsewhere,” Burgum said at the time.
Anderson’s proposal changes how the oil extraction tax is distributed. Of the nearly $600 million in projected increased revenue, about $280 million of that would go into the state’s general fund under her bill.
Anderson’s bill, House Bill 1449, has a hearing at 11 a.m. Wednesday in the Fort Totten Room. Piepkorn’s bill, Senate Bill 2336, is expected to be heard the week of Jan. 28.