Gross Production Taxes

Gross production taxes, or severance taxes, are value-based taxes levied at a basic rate of 7 percent upon the production of oil and gas in Oklahoma. Under legislation approved in the 2017 special session (HB 1010xx), oil and gas from newly-spudded wells are taxed at 5 percent for the first 36 months of production effective June 27, 2018. Previously, new production was taxed at 2 percent for 36 months. HB 3568, enacted in 2022, lowered the tax rate on projects that use secondary and tertiary recovery methods and other specified production. The tax rate on all production is also lower when oil and gas prices fall below a certain threshold. Whatever the tax rate, one percent of gross production tax revenues is divided equally between counties and school districts, with the remainder going to the state.

In FY 2022,  the state collected $1.152 billion in FY 2022 from the gross production tax on oil and gas, up substantially from $522.6 million million in FY 2021, a year when energy prices plummeted to record low levels during the early stages of the Covid-19 pandemic. Gross production taxes accounted for 9.7 percent of total tax revenues in FY 2021, which made it the third largest revenue source, after the personal income tax and sales tax.

Gross production taxes tend to be the state’s most volatile tax sources, often fluctuating dramatically from year to year and often coming in far above or below certified estimates. Under a 2016 law, a portion of oil and gas revenues are allocated to the Revenue Stabilization Fund in years where collections are projected to exceed their five-year average in an attempt to make the state budget less subject to extreme fluctuations.