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Rauschenberger: Oil tax trigger repeal saves state $500M

Tax Commissioner Ryan Rauschenberger this week shared a major statistic regarding the repeal of the oil tax triggers via the passage of House Bill (HB) 1476 during the 2015 North Dakota Legislative Assembly.

“The oil tax reforms passed during the 2015 legislative session have generated an additional half a billion dollars in state revenue over the past 12 months.” Rauschenberger shared.

At the time HB 1476 was being considered, the extraction tax was 6.5 percent and the gross production tax was 5 percent, for a total of 11.5 percent.  Numerous exemptions and tax incentives were allowed that reduced the extraction tax.  The most significant incentive was commonly referred to as the “large trigger.”  The large trigger incentive would have become effective if oil prices fell below a certain level for five consecutive months.  This would have drastically lowered the oil extraction tax from 6.5 percent to roughly 1 percent.

In addition to removing the large trigger and its possible rate reductions, HB1476 permanently lowered the oil extraction tax rate from 6.5 percent to 5 percent and removed other exemptions.  This creates a lower top rate, but removes the wild fluctuations and uncertainty that resulted from the exemptions allowed under the old law.

If HB 1476 had not repealed the oil extraction tax triggers, the “large trigger” would have become effective on Dec. 1, 2015, and would have remained in effect today.  The state would have collected $494.8 million less in oil taxes through January 2017.

“This additional revenue has been helpful to the state during a time of economic downturn,” Rauschenberger added. “These state revenues are dedicated to water projects, flood relief, property tax relief, K-12 education and the Legacy Fund.”