Tax breaks for the oil and gas industry will continue to cost Oklahoma close to $400 million this year and next, based on new data from the Oklahoma Tax Commission.
At the December Board of Equalization meeting, the Tax Commission submitted forecasts of gross production tax (GPT) revenues for FY 2018 and FY 2019. In FY 2018, total GPT from oil and gas is projected at $638 million. Based on these revenue projections, OK Policy calculates that GPT collections will be $397.5 million less than the state would collect if all production was taxed at the standard 7 percent rate. Instead, new wells are being taxed at 2 percent for the first three years of production. Some older wells were being taxed at lower rates but lawmakers raised the rate on these “legacy wells” to 4 percent in regular session and to 7 percent in the first special session. The state is also expected to pay $2.0 million in credits and adjustments in FY 2018.
In FY 2019, which will begin on July 1, 2018, gross production tax revenues are projected at $722.0 million. That is $333.5 million less than what collections would be if all wells were taxed at 7 percent, rather than new wells benefiting from the 2 percent rate for their first 36 months. In addition to the tax break for new wells, the state is projected to pay out $39 million in rebates, credits, and adjustments to producers.
For FY 2018, the effective rate for all production is projected to be 4.3 percent; in FY 2019 the effective rate is expected to rise to 4.8 percent. That’s an increase over the effective rate of 3.2 percent calculated for 2016 in a study released earlier this year by the Covenant Consulting Group prior to the tax on legacy wells being raised from 1 to 7 percent, but it still puts Oklahoma’s effective rate well below that of other major energy producing states. In a fair comparison of all taxes on the value of oil and gas combined, producers pay an effective rate of 8.3 percent in Texas and North Dakota, 13.3 percent in Louisiana and 13.4 percent in Wyoming, according to the Covenant Group report.
While the bills to raise the tax rate on older wells have reduced the cost of oil and gas tax breaks, Oklahoma continues to forsake hundreds of millions of dollars annually by taxing new oil and gas production at just 2 percent, and this continues to be a major contributor to the state’s continued budgets shortfalls. Whether in special session or regular session, Oklahoma lawmakers should further curtail or end altogether these costly tax breaks to put the state budget on a sound and sustainable path. If lawmakers do not rise to the challenge, Oklahoma voters may do it for them.
2 thoughts on “Cost of oil and gas tax breaks continues to approach $400 million”
Again this goes to show the world that Oklahoma is afraid to change the statue quo. Other states have diversified their economy to not rely on one segment for revenue. Oil and gas is being replace at an alarming pace. These elected lawmakers are stuck in the (Oilfield Dark Ages). Make the oil and gas producers pay for the many years of tax breaks. Enough is Enough! They just got a windfall from the Federal Government, so will that trickle down? I don’t think so Oklahomans.
Those at the legislature that refuse to raise the GPT to match South Dakota and Texas should be required to stand before all Oklahomans and explain themselves. It’s like they are stealing from our children, our elderly, and our vulnerable citizens and giving it to an industry that rewards them with campaign contributions.