BISMARCK – The oil tax cut known as the large trigger will not take effect on Monday, causing the state to collect about a half billion dollars more this year than legislators budgeted.
The exemption would have taken effect next month if the price of West Texas Intermediate crude oil at Cushing, Okla., averaged below $55.09 a barrel for a fifth consecutive month in May. The trigger would have lowered the state’s oil extraction tax from 6.5 percent to 4 percent for existing wells and exempted new wells entirely for 24 months.
But oil prices rebounded in May, and the tax cut that loomed over the past legislative session will not take effect.
“Given that oil has been trading mostly in the upper 50s, well above $55.09, we will not be triggering,” State Tax Commissioner Ryan Rauschenberger said Friday.
Legislators built state budgets around a forecast that included the large trigger kicking in, with an estimated tax impact of about $80 million a month.
Ron Ness, president of the North Dakota Petroleum Council, said companies had been making plans to ramp up activity in June if the large trigger had taken effect.
“I think it’s a fairly significant blow to industry,” Ness said. “It would have been a good stimulus.”
An increase in oil activity would have benefited the state through more jobs and sales tax income, Ness said.
If oil prices decline again, there is still a chance that the large trigger could take effect in November. But a bill approved by legislators this past session makes the large trigger expire on Nov. 30.
“One month would essentially be a blip in the radar,” Rauschenberger said of the potential revenue impact.
Another state tax incentive known as the “small trigger,” which took effect Feb. 1, reduces the oil extraction tax from 6.5 percent to 2 percent for the first 75,000 barrels produced.
The small trigger incentive prompted more wells to be completed in March, Ness said. That incentive is set to expire on June 30, giving operators one more month to take advantage of the incentive.
Starting Jan. 1, the oil extraction tax will permanently decrease from 6.5 percent to 5 percent under legislation approved this past session. The gross production tax will not change, bringing the state’s overall tax on oil from 11.5 percent to 10 percent next year.