BISMARCK — House legislators Wednesday rejected an oil tax reform bill that would have lowered the oil extraction tax, closed a tax loophole for low-producing wells and set up guidelines for a new tribal tax agreement.
Rep. David Drovdal, R-Arnegard, said the conference committee met 17 times to reach a compromise on House Bill 1234, which aimed to reform several oil tax provisions while staying close to revenue neutral for the state. The bill failed 71-21.
The bill would have increased taxes on the oil and gas industry by $65 million but would have resulted in a $9.9 million loss in revenue to the state of North Dakota because more tax dollars would go to the Three Affiliated Tribes, Drovdal said.
Rep. Scot Kelsh, D-Fargo, said the bill had some good provisions, but reducing the oil extraction tax from 6.5 percent to 6 percent was a deal-breaker.
Earlier Wednesday, Democrats called the proposal, which would have applied to new oil production, a “thoughtless, unnecessary shortchanging of North Dakota’s future” that would cost the state $280 million in the first four years.
“The industry is flourishing under that current tax rate,” Kelsh said. “As the industry grows, the need for infrastructure continues to grow.”
Other legislators who voted against the bill had concerns about the guidelines it established for a new agreement with the Three Affiliated Tribes that would equally divide oil taxes generated on the Fort Berthold Reservation between the tribes and the state.
No one spoke in opposition to dividing the tax revenues equally, but several said they wanted more assurance that the tribes would spend the new dollars on roads on infrastructure. The bill requires the Three Affiliated Tribes to report how the money is spent, but does not have any other requirements.
Rep. Mark Dosch, R-Bismarck, called it “a shame” that tribal leaders will not commit to spending the money on infrastructure and said he would oppose the bill.
“This should benefit all people of North Dakota and not just the tribal government,” Dosch said.
Others said it’s wrong for state legislators to tell a sovereign nation how to spend its money.
“You have to look at their wisdom and how they’re going to use their dollars and put a little bit of trust in them,” said Ken Onstad, D-Parshall.
Drovdal said he received a lot of emails from oil companies working on the reservation who support the bill.
The oil companies “absolutely need this bill to pass,” Drovdal said.
If a new agreement with the tribe is not reached, tribal leaders have indicated they could break the existing agreement and charge a tax on top of the state’s tax, making it too costly for companies to drill on the reservation.
Most legislators spoke in favor of the bill’s provision that would eliminate a tax loophole for low-producing well properties.
Low-producing wells, known as stripper wells, can receive tax exemptions if they fall below a designated production value. A tax loophole, however, exists for wells that are high-producing wells that are located near the weaker wells.
Eliminating that loophole would increase tax revenue by about $105 million for the 2013-15 biennium.
Republican legislators said during their caucus meeting before the vote that closing that loophole could be addressed in the budget bill for the Office of Management and Budget.
Rep. Vicky Steiner, R-Dickinson, said she supported the bill because while it wasn’t perfect, it cleaned up some old tax provisions that aren’t relevant with today’s technology.
“There were some things that we needed to update and match our tax policy to the Bakken and not what we did in the ’80s,” Steiner said.