Gross Production Tax

The gross production tax, or severance tax, is a value-based tax levied at a basic rate of 7 percent upon the production of oil and gas in Oklahoma (the tax rate is lower when oil and gas prices fall below a certain threshold). 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. 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 2021, a year when energy prices plummeted to record low levels during the early stages of the Covid-19 pandemic, the state collected $522.6 million from the gross production tax on oil and gas, down from $679.0 million in FY 2020. Gross production taxes accounted for 5.4 percent of total tax revenues in FY 2021, which made it the third largest revenue source, after the personal income tax and sales tax.