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Oil and Gas Severance Taxes

Oil and Gas Severance Taxes: States Work to Alleviate Fiscal Pressures Amid the Natural Gas Boom

Updated February 2012

By Jacquelyn Pless

As state lawmakers across the nation debate the implications of more (or less) stringent oil and gas regulations, Pennsylvania faces a slightly different battle: the continuing fight over a natural gas drilling tax that some argue may have already cost the state over $300 million in lost revenue.1

Pennsylvania remains the largest natural gas-producing state without a severance tax. At least 36 states impose some sort of severance tax, and 31 states specifically levy taxes on the extraction of oil and gas. In 2010, more than $11 billion was generated in the United States from severance taxes alone. Between 10.5 percent and 74.3 percent of total state tax revenue came from severance taxes in at least six states—Alaska, Montana, New Mexico, North Dakota, Oklahoma, and Wyoming.2

Severance taxes help insure that costs associated with resource extraction—such as road construction and maintenance, and environmental protection—are paid by the producers, helping to alleviate potential impacts on state and local taxpayers. States distribute revenues in various ways, but typically, most of the collected taxes are deposited into the general fund. Many states also use the extra revenue to fund conservation and environmental cleanup projects and distribute portions of the collected taxes to local governments.

Furthermore, some states—such as Alaska, New Mexico and Wyoming—reserve a portion of the collected taxes for permanent funds, whose earned interest can help balance state budgets.

So far this legislative session, at least 11 states are considering legislation to either impose a new—or amend an existing—tax on oil or gas production.

Below is a chart of existing oil and gas severance taxes followed by a chart of key pending or enacted legislation so far this session. The chart of recent legislation only includes bills that propose new taxes on oil or gas production—or aim to revise existing taxes. Bills that solely amend revenue allocations have not been included. A 50-state map of oil and gas severance tax laws and legislation follows.

Oil and Gas State Severance Taxes as of 2012

Alabama | Alaska | Arizona | Arkansas | California | Colorado | Florida | Idaho | IndianaKansas | Kentucky | Louisiana | Michigan | Mississippi | Montana | Nebraska | Nevada | New Hampshire | New Mexico | North Carolina | North Dakota | Ohio | Oklahoma | Oregon | South Dakota | Tennessee | Texas | Utah | West Virginia | Wisconsin | Wyoming

 

State

Type of Tax

Description of Tax Rates

Alabama

Oil and Gas Privilege Tax on Production

  • 8 percent of gross value at point of production
  • 4 percent of gross value at point of incremental production for enhanced recovery projects
  • 4 percent if oil wells produce 25 barrels or less per day or if gas wells produce 200,000 cubic feet or less gas per day
  • 6 percent of gross value at point of production for certain on-shore and off-shore wells.
  • 50 percent rate reduction for wells permitted by the oil and gas board on or after July 1, 1996 and before July 1, 2002 for 5 years from initial production, except for replacement wells for which the initial permit was dated before July 1, 1996.

Alaska

Petroleum Profits Tax (PPT)

  • Ranges from 25 percent to 50 percent depending on net value of oil and gas, which is the value at point of production minus certain lease expenditures
  • 22.5 percent net value at wellhead
  • There is an additional surcharge for each dollar when net value exceeds $40 per barrel. This cannot exceed 25 percent of the monthly production tax value of taxable oil and gas.
  • Conservation surcharge of 4 cents per barrel and an additional 1 cent per barrel if there is less than $50 million in the Hazardous Release Fund

Arizona

Severance Tax

  • 3.125 percent for oil and gas production and nonmetal mining

Arkansas

Oil and Gas Conservation Tax

  • 0.3 of $0.01 cent per MCF for natural gas
  • Four percent to five percent depending on production levels for crude oil

California

Oil and Gas Production Assessment

  • Rate determined annually by Department of Conservation

Colorado

Severance Tax

  • Two to five percent based on gross income for oil, gas, carbon dioxide and coalbed methane
  • Four percent of gross proceeds on production exceeding 15,000 tons per day for oil shal

 

Oil and Gas Conservation Levy

  • Maximum 1.5 mills/$1 of market value at wellhead

Florida

Oil, Gas and Sulfur Production Tax

  • Five percent of gross value for small well oil
  • Eight percent of gross value for all other and an additional 12.5 percent for escaped oil
  • For gas, the gas base rate times the gas base adjustment rate each fiscal yea

Idaho

Oil and Gas Production Tax

  • Maximum of five mills/bbl. of oil and five mills/50,000 cubic feet of gas

 

Additional Oil and Gas Production Tax

  • Two percent of market value at site of production

Indiana

Petroleum Production Tax

  • One percent of value or $0.24 per barrel for oil, or $0.03 per 1,000 cubic feet of gas (whichever is greater)

Kansas

Severance Tax

  • Eight percent of gross value of oil and gas, less property tax credit of 3.67 percent

 

Oil and Gas Conservation Tax

  • 91 mills/bbl crude oil or petroleum marketed or used each month
  • 12.9 mills/1,000 cubic feet of gas sold or marketed each mont

Kentucky

Oil Production Tax

  • 4.5 percent of market value

 

Natural Resource Severance Tax

  • 4.5 percent of gross value, less transportation expenses

Louisiana

Natural Resources Severance Tax

  • Varies according to substance

 

Oil Field Restoration Fee

  • Varies according to type of well and production

Michigan

Gas and Oil Severance Tax

  • Five percent for gas
  • 6.6 percent for oil
  • Four percent (oil from stripper wells and marginal properties) of gross cash market value of the total production
  • Maximum additional fee of 1 percent gross cash market value on all oil and gas produced in state in previous year

Mississippi

Oil and Gas Severance Tax

  • Six percent of the value at point of gas production
  • Three percent of gross value of occluded natural gas from coal seams at point of production for the well's first five years
  • Maximum 35 mills/bbl. oil or four mills/1,000 cubic feet of gas (Oil and Gas Board maintenance tax)
  • Six percent of value at the point of oil production
  • Three percent of value at production when enhanced oil recovery is used

Montana

Oil or Gas Conservation Tax

  • Maximum of 0.3 percent on the market value of each barrel of crude petroleum oil or 10,000 cubic feet of natural gas produced, saved and marketed or stored within or exported from the state

 

Oil or Natural Gas Production Tax

  • Varies from 0.5 percent to 14.8 percent according to the well and type of production

Nebraska

Oil and Gas Severance Tax

  • Three percent of value of nonstripper oil and natural gas

 

Oil and Gas Conservation Tax

  • Two percent of value of stripper oil. Maximum of 15 mills/$1 of value at wellhead

Nevada

Oil and Gas Conservation Tax

  • $50/mills/bbl of oil and 50 mills/50,000 cubic feet of gas

New Hampshire

Refined Petroleum Products Tax

  • 0.1 percent of fair market value

 

Excavation Tax

  • $0.02 per cubic yard of earth excavated

New Mexico

Oil and Gas Severance Tax

  • 3.75 percent of value of oil, other liquid hydrocarbons, natural gas and carbon dioxide

 

Oil and Gas Emergency School Tax

• 3.15 percent of value of oil, other liquid hydrocarbons and carbon dioxide; Four percent of the value of natural gas

 

Natural Gas Processor's Tax

  • $0.0220/mmBtu tax on the volume

 

Oil and Gas Ad Valorem Production Tax

  • Based on property tax in the district of production

 

Oil and Gas Conservation Tax

  • 0.19 percent of value

North Carolina

Oil and Gas Conservation Tax

  • Maximum of five mills/barrel of oil and 0.5 mill/1,000 cubic feet of gas

North Dakota

Oil Gross Production Tax

  • Five percent of gross value at the well

 

Gas Gross Production Tax

  • $0.04 per 1,000 cubic feet of gas produced. The rate is subject to a gas rate adjustment each fiscal year.

 

Oil Extraction Tax

  • 6.5 percent of gross value at the well. Exceptions exist for certain production volumes and incentives for enhanced recovery projects.

Ohio

Resource Severance Tax

  • $0.10/bbl of oil
  • $0.025/1,000 cubic feet of natural gas

Oklahoma

Oil, Gas and Mineral Gross Production Tax and Petroleum Excise Tax

  • Seven percent if greater than $2.10 mcf; four percent if greater than $1.75 mcf but less than $2.10 mcf; and one percent if less than $1.75 mcf natural gas and casinghead gas (a byproduct of natural gas extraction), and 0.95 percent levied on crude oil, casinghead gas and natural gas.
  • Oil Gross Production Tax is variable based on the average price of Oklahoma oil. The tax rate is seven percent if average price is equal to or exceeds $17/bbl; four percent if the average price is less than $17/bbl but equal to or exceeds $14/bbl; and one percent if the average price is less than $14/bbl.

Oregon

Oil and Gas Production Tax

  • Six percent of gross value at well

South Dakota

Energy Minerals Severance Tax

  • 4.5 percent of taxable value of all energy minerals

 

Conservation Tax

  • 2.4 mills of taxable value of all energy minerals

Tennessee

Oil and Gas Severance Tax

  • Three percent of sales price

Texas

Natural Gas Production Tax

  • 7.5 percent of market value of gas
  • Condensate Production Tax is 4.6 percent of market value of gas

 

Oil-Field Cleanup Regulatory Fees

  • 5/8 of $0.01/barrel
  • 1/15 of $0.01/1,000 cubic feet of gas

Utah

Oil and Gas Severance Tax

  • Three percent of value for the first $13 per barrel of oil and five percent if the value is $13.01 or higher
  • Three percent of value for the first $1.50/mcf and five percent if the value is $1.51 or higher
  • Four percent of taxable value of natural gas liquids

 

Oil and Gas Conservation Fee

  • 0.002 percent of market value at the wellhead

West Virginia

Natural Resource Severance Taxes

  • Five percent of gross value for natural gas; ten percent of net tax is distributed to local governments
  • Five percent of gross value for oil; ten percent of net tax is distributed to local governments
  • Additional tax for workers' compensation debt reduction rate of $0.047/mcf of natural gas produced

Wisconsin

Oil and Gas Severance Tax

  •  Seven percent of market value of oil or gas at the mouth of the well

Wyoming

Severance Taxes

  • Six percent on crude oil, lease condensate or natural gas
  • Four percent for stripper oil

 

 Source: Various state websites and the Council of State Governments

Key Pending/Enacted Legislation This Session Addressing Oil and Gas Severance Taxes*

 Alaska | Florida | Idaho | Maryland | Michigan | New Mexico | New Jersey | North Carolina | Ohio | Oklahoma | Pennsylvania | Virginia | West Virginia | Wisconsin |
 

 

State

Bill Number and Status

Description

 

 

 

Alaska

House Bill 17 - pending

Provides for different rates for the Oil and Gas Production Tax based on the average production tax value of oil and gas produced during a calendar year. Relates to the tax credit for a carried forward annual loss applicable to the tax on oil and gas production.

 

House Bill 66 - pending

Makes the tax of the production of natural gas used in the state applicable to fuel or feedstock in producing a manufactured end product.

 

Senate Bill 49 - pending

Relates to the oil and gas production tax rate and monthly installment payments of estimated oil and gas production tax. Also relates to oil and gas production tax credits for expenditures such as qualified capital credits for exploration, development, and production.

 

Senate Bill 112 - pending

Relates to a credit against the oil and gas production tax for drilling certain exploration wells using a jack-up rig in the Cook Inlet sedimentary basin.

 

House Bill 110 - pending

Relates to the oil and gas production tax rate and monthly installment payments of estimated oil and gas production tax. Also relates to oil and gas production tax credits for expenditures such as qualified capital credits for exploration, development, an

 

House Bill 231 - pending

Relates to tax credits applicable to the oil and gas production tax based on capital expenditures, including those incurred for a production facility for new oil and gas production.

 

Senate Bill 124 - pending

Provides a tax credit applicable to the oil and gas production tax based on the cost of building a year-round road to access an area of oil and gas exploration and development.

 

House Bill 276 and Senate Bill 145 - pending

Provides for a credit against the oil and gas production tax for costs incurred in drilling certain oil or natural gas exploration wells in the Nenana Basin.

 

House Bill 280 and Senate Bill 164 - pending

Provides for a credit against the oil and gas production tax for costs incurred in drilling certain oil and gas wells in the Kotzebue Basin or the Selawik Basin.

 

Senate Bill 167 - pending

Provides for an increase in the rate of tax on the production of gas as the average production tax value on a BTU equivalent barrel basis of gas produced outside of the Cook Inlet sedimentary basin.

 

House Bill 306 - pending

Provides for a specified tax rate for the production of oil and increases the rate of tax on the production of gas.

 

Senate Bill 192 - pending

Proposes changes to the oil and gas production tax.

Florida

Senate Bill 1188 - pending

Defines the term "mature field recovery oil" and the tiered severance tax rates applicable to tertiary oil to mature field recovery oil.

 

House Bill 87 - pending

Provides exemptions from tax on severance and production to certain wells that produce oil or gas on or after a specified date. Limits the duration of the exemptions.

Idaho

House Bill 379 - pending

Changes the oil and gas conservation tax to 2.5 percent of the market value of the oil or gas produced at the site of production and repeals provisions that establish a tax not to exceed five mills per barrel of oil or per 50,000 cubic feet of gas.

Maryland

Senate Bill 768 - pending

Imposes a natural gas severance tax of 2.5 percent of the wholesale market value on the date the gas is produced at the wellhead.

 

House Bill 907 - pending

Imposes a natural gas severance tax of 15 percent of the wholesale market value on the date the gas is produced at the wellhead.

Mississippi

Senate Bill 2282 - pending

Revises the manner in which oil severance taxes are distributed.

North Carolina

House Bill 242 - enacted June 2011

Directs the Department of Environment and Natural Resources to study oil and gas exploration in the state, including the potential economic impacts and taxes

New Jersey

Senate Concurrent Resolution 80 - pending

Memorializes the President and the U.S. Congress to enact legislation that would eliminate preferential tax treatment for oil and natural gas companies.

New Mexico

House Bill 142 - pending

Adjusts the rates of certain severance and natural resources taxes.

 

House Bill 174 - pending

Reduces certain deductions, credits, and rate differentials by ten percent for oil, natural gas and mineral taxes.

Ohio

House Concurrent Resolution 12 - pending

Urges the President to reconsider proposals to increase taxes on producers of coal, natural gas, and petroleum and instead commit to adopting policies that encourage domestic production of these resources.

Oklahoma

Senate Bill 587 - enacted May 2011

Relates to the excise tax on oil and gas and extends the termination date of the gross production tax and certain other taxes on barrels of petroleum and natural and casinghead gas.

 

Senate Bill 885 - enacted

Provides for application of a tax rate on certain horizontally-drilled wells.

 

House Bill 1488 - enacted

Extends the duration of certain incentives for tertiary and secondary recovery projects, production enhancement projects and other certain wells.

Pennsylvania

Senate Bill 352 - pending

Imposes a natural gas severance tax of five percent tax on the gross value of units severed at the wellhead, plus 4.6 cents per unit severed.

 

House Bill 33 - pending

Imposes a natural gas severance tax of five percent tax on the gross value of units severed at the wellhead, plus 4.6 cents per unit severed.

 

House Bill 833 - pending

Imposes a natural gas severance tax of 30 cents per unit severed at the wellhead and provides for an annual adjustment.

 

Senate Bill 680 - pending

Establishes a natural gas severance tax of 24 cents per unit severed at the wellhead and provides for an annual adjustment.

 

Senate Bill 905 - pending

Imposes a natural gas severance tax of 2 percent of the gross value of units severed at the wellhead for the first three years of production. If the well has been in production for more than three years on or after July 1, 2011, the tax rate will be 5 percent of the gross value of the units severed at the wellhead during a reporting period.
The tax rate is 2 percent of the gross value of the units severed at the wellhead if the rate of production from the well is less than 150,000 cubic feet of natural gas per day and more than 60,000 cubic feet of natural gas per day.

 

House Bill 1406 - pending

Imposes a natural gas severance tax of 1.5 percent of the gross value of units severed at the wellhead for the first 60 months of production and five percent of the gross value of units severed at the wellhead thereafter.

 

House Bill 1671 - pending

Imposes a natural gas severance tax of three percent of the gross value of units severed at the wellhead for the first 24 months of production and five percent of the gross value of units severed at the wellhead thereafter.

 

House Bill 1705 - pending

Imposes a natural gas severance tax of 1.5 percent of the gross value of units severed at the wellhead for the first 60 months of production and five percent of the gross value of units severed at the wellhead thereafter.

 

Senate Bill 1176 - pending

Imposes a natural gas severance tax of three percent of the gross value of the units severed at the wellhead of an unconventional well.

 

House Bill 1800 - pending

Establishes a natural gas severance tax of 30 cents per unit severed at the wellhead and provides for an annual adjustment

 

House Bill 1804 - pending

Imposes a natural gas severance tax of five percent tax on the gross value of units severed at the wellhead, plus 4.6 cents per unit severed.

 

Senate Bill 1286 - pending

Imposes a natural gas severance tax of 29 cents per unit severed at the wellhead and provides for an annual adjustment.

 

House Bill 1863 - pending

Imposes a natural gas severance tax of 4.9 percent of the gross value of units severed at the wellhead.

 

House Bill 1950 - enacted

Allows counties to choose whether or not to enact a severance tax.

Virginia

Senate Bill 658 - pending

Requires counties and cities that imposed or are imposing local severance taxes for the 2008 license year or thereafter to amend their local ordinances to adopt or include local license tax uniform ordinance provisions, and to make it retroactive to the 2008 license year.

 

House Bill 1233 - pending

Requires counties and cities that imposed or are imposing local severance taxes for the 2008 license year or thereafter to amend their local ordinances to adopt or include local license tax uniform ordinance provisions, and to make it retroactive to the 2008 license year.

Wisconsin

Senate Joint Resolution 31 - pending

Memorializes Congress to reintroduce and pass the Oil Industry Tax Break Repeal Act

West Virginia

Senate Bill 39 - pending

Increases the severance tax by ten percent on gas from Marcellus Shale or by fracturing if sold or transported out of state.

 

 * Does not include legislation that only addresses allocation of tax revenue. For more information, please contact Jacquelyn Pless.

50-State Map of Oil and Gas Severance Tax Laws

state severance tax map

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. The Pennsylvania Budget and Policy Center, Gas Drilling Tax Impasse Costs Pa. $300 Million, January 31, 2012.

2. Braybrooks, Melissa, Julio Ruiz and Elizabeth Accetta, State Government Tax Collections Summary Report: 2010, March 2011.

 

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