The state’s large oil tax trigger will not go into effect, allowing for nearly half a billion dollars more in revenue collections, the state tax commissioner confirmed Monday.
Tax Commissioner Ryan Rauschenberger said the price of oil in May averaged $59.47 per barrel. In order for the trigger to have hit, it would have had to average below $55.09 per barrel for five consecutive months; prices had been below the trigger prices for the previous four months. The trigger is based on the West Texas International benchmark price used in the U.S. based out of Cushing, Okla.
“Virtually all production in the state would’ve been at a reduced (rate),” Rauschenberger said.
Without the trigger in place, nearly $80 million per month in additional oil extraction tax revenue will be collected, or $480 million overall from June to November.
Lawmakers passed legislation in April lowering the state’s 6.5 percent oil extraction tax to 5 percent effective Jan. 1, 2016, and raises the threshold for hitting the state’s large oil tax trigger after that date.
The legislation leaves the current oil tax trigger provisions in place through November. The oil tax legislation eliminates a 24-month incentive for industry from the old trigger, which would have forgiven the oil extraction tax for that period of time on new wells.
Rauschenberger said the state’s small oil tax trigger that triggered Feb. 1 remains in effect through the end of this month. This smaller trigger lowers the oil extraction rate to 2 percent on the first 75,000 barrels or the first $4.5 million of gross value for 18 months after the completion of the well.
“Four hundred sixty-six wells have been completed since Feb. 1,” Rauschenberger said.
He estimated the small trigger has had an impact of $160,000 to $170,000 per well. A fiscal impact of the small trigger would be able to be calculated after it sunsets.
Republican lawmakers stated, when the oil extraction tax cut was passed, it would provide more certainty to industry and eliminate archaic tax law.
Democratic-NPL Party lawmakers were opposed to the tax cut, calling the tradeoff of the trigger for less revenue in the long term misguided.
Sen. Mac Schneider, D-Grand Forks and Rep. Kenton Onstad, D-Parshall, repeated that argument in a joint statement Monday: “The non-activation of the trigger is just further affirmation that the majority’s decision to ramrod through their massive oil tax cut … was never about avoiding that temporary tax incentive. It was about dramatically reducing the oil extraction tax for senseless ideological reasons that are diametrically opposed to best interests of North Dakota citizens, both present and future.”