MINOT, N.D. — Tying a tax rate to something as hugely volatile as oil prices is stupid public policy. Especially for a state like North Dakota which, at times, can count one out of every two dollars flowing into the state treasury as coming from taxes on oil production and extraction.
And yet, for a long time, that’s exactly what our oil tax code was. Low prices would trigger an elimination of the extraction tax, basically cutting the effective tax rate on oil activity in half.
I’m sure I don’t need to point out to you readers the sort of headaches that created. Lawmakers were stuck wringing their hands over the price of oil, terrified that a price rout would blow a hole in their budget. This became a bigger problem as the oil boom drove up oil production and thus the amount of revenues oil taxes were generating for the state.
Which is why, in the 2015 legislative session, lawmakers changed things. They lowered the top rate from 11.5% to 10%, and changed the trigger. Instead of the extraction tax being eliminated at low oil prices, it goes up with high oil prices. The new trigger moves the extraction tax from 5% to 6% when oil prices are high.