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State Revenues and the Natural Gas Boom

State Revenues and the Natural Gas Boom: An Assessment of State Oil and Gas Production Taxes

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June 2013
By Cassarah Brown

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Taxes on Oil and Gas Production

As technological developments increase access to natural gas reserves across the country, states are exploring ways to benefit from these newly accessible resources and to ensure that communities are reimbursed for the impact that natural gas development may have on infrastructure. A primary approach has been to impose taxes and fees on the extraction, production, and sale of natural gas and oil. These “severance” taxes—taxes applied to materials severed from the ground—tax the extraction or production of oil, gas, and other natural resources.  
 
Thirty-two states currently produce natural gas, with Texas, Louisiana, Wyoming, Oklahoma, and Colorado ranking as the top five producers in 2012. Maryland, New York, and Pennsylvania are the only natural gas producers without a severance tax. Thirty-five states have enacted fees or taxes on oil and gas production and three of these—North Carolina, Idaho, and Wisconsin— have taxes on oil and gas production despite lacking commercial gas and oil wells.

Ways to Tax Oil and Gas Production

States differ in how to impose taxes on oil and gas, generally taxing a fraction of the market value, the volume produced, or some combination of the two. Further, most states have enacted tax incentives, credits, and exemptions to encourage production from certain well types or to encourage producers to donate money to support areas like education. Many states impose oil and gas conservation fees, levies or assessments in addition to or instead of a traditional production or severance tax. These fees and assessments also tax the volume or value of the oil and gas produced.
 
Taxing the Volume of Oil and Gas Produced
Several states tax the volume of oil or gas produced, most often per barrel of oil or per one thousand cubic feet of natural gas. While simple to implement, these taxes do not reflect price fluctuations. Gas and oil conservation fees and assessments commonly tax the volume produced with a relatively low flat rate, often adjusted annually. For example, Arkansas places a value tax on gas and oil through its severance tax, but it places a relatively modest fee per volume of oil and gas produced for its oil and gas assessment. Volume taxes are often designed to be more easily adjustable than value taxes—through these adjustments, they can adapt to the changing market value of gas and oil.
 
Value Taxes on Oil and Gas Production
States most often tax the value of produced oil and gas. For example, Texas and Wyoming tax the assessed oil and gas value with reduced rates and exemptions to incentivize production from certain well types. These taxes are applied at the point of production, before accounting for transportation and distribution costs. Value taxes can be difficult to implement because states must closely monitor gas and oil sales to determine the current market value. Further, because prices are prone to fluctuation, value taxes can make state revenue predictions difficult.
 
Two states—Colorado and Illinois—tax the gross income from produced oil and gas, rather than calculate the monthly market value. While Illinois has a flat rate, Colorado uses a tiered system.
 
Value-Volume Taxes on Oil and Gas Production
Many states with severance taxes incorporate both the volume of oil and gas produced and the oil and gas market value, or apply separate taxes to the volume and value. For example, Montana adjusts its tax rate on production value based on the volumes of oil or gas a well produces, in addition to the age and classification of the well. Other states, such as Oklahoma, adjust their tax rate on gross production value based on the current value of gas. Such approaches aim to increase a state’s severance tax income when the oil and gas industries are thriving and reduce state pressure when the industry lags.

Controversy Surrounding Oil and Gas Severance Taxes

While the natural gas market is thriving, so too are debates over severance taxes. Because approaches vary, it is difficult to directly compare states’ severance tax revenue potential. For example, while West Virginia applies a 5 percent flat tax on gross oil and gas production, it has exemptions for low producing oil and gas wells. Many states, including Mississippi, apply tax exemptions and incentives to high cost gas wells, inactive wells and discovery wells, to help encourage production. States also provide tax credits to offset local taxes on oil and gas. Since methods to determine marketable value may vary per state, tax rates on the market value of oil and gas are difficult compare.
 
Pennsylvania and Ohio offer interesting examples of the controversy surrounding severance tax rates and their enactment.
 
Pennsylvania: Impact Fee versus Severance Tax
Pennsylvania is the largest US natural gas producer that does not impose a severance tax. Instead, it levies an impact fee on every producing gas and oil well in the state, regardless of the volume produced. Severance tax opponents argue that a tax would deter gas production and that estimates of “missed” revenue are wrong because they do not account for tax exemptions and reductions that would likely be applied if Pennsylvania enacted a severance tax.  However, studies by the Pennsylvania Budget and Policy Center estimate that the impact fee will generate $237 to $261 million by 2015, compared to an estimated $800 million from a five percent tax on production value. The 5 percent tax is based on proposals by Pennsylvania Governor Edward Rendell and is modeled on West Virginia’s severance tax.
 
Ohio: Pushback Against Governor’s Proposed Severance Tax Increase
Severance taxes have faced resistance from other states, legislators, and industry groups that oppose amendments to increase severance tax rates. Ohio Governor John Kasich proposed a controversial severance tax increase in his 2014-2015 budget to offset a proposed income tax rate decrease. Kasich’s budget proposal, which estimates the state would accrue $45 million in 2014 and $155 million in 2015 from the tax, would set the severance tax on natural gas to 1 percent of production value while natural gas liquids, oil, and condensate would be taxed at 4 percent of production value. Opponents of the tax fear it would deter growth by hurting investment in Ohio’s Utica shale, a shale region with high natural gas and oil production potential.

States with Severance Taxes and Pending Legislation

Figure 1 shows states with taxes and fees on oil and gas production and states with active legislation that aim to change the current severance tax rate or the severance tax revenue allocation.

taxes and fees map




















 

Distribution of Tax Revenues from Taxes and Fees on Oil and Gas Production

Severance and production taxes produce a relatively small portion of most states’ revenue. Alaska and North Dakota, however, saw severance tax revenues help drive their tax revenues to increase by 47 and 27.3 percent, respectively, between 2011 and 2012. Table 1 shows taxes and fees on oil and gas production per state and indicates the tax revenue allocations. Tax exemptions for gas used in the production of oil or gas, gas lost in production, and gas lawfully vented or flared are not noted.

The box allows you to conduct a full text search or use the dropdown menu option to select a state.

Table 1: Taxes on the Production and Severance of Oil and Gas and Tax Revenue Allocation

State Tax Type Tax Description Revenue Allocation

Alabama

Oil and Gas Production Tax
  • 2% of gross value of gas or oil at point of production
  • Exceptions:
    •   1% of gross value for 5 years from first production for wells permitted 7/1/96 through 6/20/02
    • 1.66% of gross proceeds from offshore production at depths greater than 8,000 feet below mean sea level
  • Revenues credited to the state general fund to defray costs associated with the conservation and regulation of oil and gas production

 

Oil and Gas Privilege Tax
  • 8% of  gross value of gas or oil at point of production
  • Exceptions:
    • 6% offshore wells producing more than 200MCF per day at depths less than 8,000 feet and wells permitted after 7/01/88
    • 4% offshore wells producing 200 MCF or 25 BBLs or less per day at depths less than 8,000 feet. Oil wells producing 25 BBLs or less per day. Gas wells producing 200 MCF or less per day.
    • 3.65% of proceeds from offshore production from depths greater than 8,000 feet below mean sea level
  • Submerged lands:
    • 90% to state general fund
  • 10% to oil or gas producing county
  • Non-submerged lands:
    • 25% to state general fund
    • Of remaining 75%:
      • 66-2/3% to state general fund and oil or gas producing county (via formula)
      • 16-2/3% to oil or gas producing county
      • 16-2/3% to state general fund

Alaska

Oil and Gas Production Tax
  • 25% of production value (base rate)
  • Additional tax added:
    • 0.4% progressive tax added for each additional dollar of production tax value if monthly production value more than $30 but less than $92.50 per equivalent barrel of oil or gas
    • Progressive tax rate added equal to 0.1% of the difference between the average monthly production tax value and $92.50, if monthly production value is greater than $92.50
  • Maximum tax rate is 75% of production value
  • Several credits and exemptions available to incentivize well exploration and university donations.
  • Rate changes to 35% of production value in 2014 with no additional progressive tax
  • Revenue received due to assessment or litigation deposited in Constitutional Budget Reserve Fund
  • Remaining revenue deposited in state general fund

Arizona

Transaction Privilege, Use, and Severance Tax
  • 3.125% on oil and gas production
    • 1% for distribution base
    • 2.125% for non-shared base
  • Distribution portion:
    • 25% to municipalities
    • 40.51% to counties
    • 34.49% to state general fund
  • Non-shared portion deposited into state general fund

Arkansas

Natural Gas Severance tax
  • Tax on market value of natural gas produced:
    • 1.5% for new discovery gas, 24 months from date of first production
    • 1.5% for high-cost gas, 36 months from date of first production, 12-month extension possible
    • 1.25% for marginal gas
    • 5% on natural gas not defined as new discovery or marginal gas
    • 5% on high-cost gas following cost recovery period
  • 5% of revenues deposited into state general fund
  • 95% of revenues deposited as special revenues distributed according to Arkansas Highway Distribution Law

 

Oil Excise Tax
  • Tax on market value at time of severance:
    • 4% of the market value when production averages 10 barrels or less per well per day
    • 5% of the market value when production averages more than 10 barrels per well per day
  • 3% of revenues deposited into General Revenue Fund Account
  • Of remaining 97%:
    • 75% to State Treasury Fund
    • 25% to County Aid Fund

 

Oil and Gas Assessment
  • Up to 50 mills per barrel of crude oil or petroleum used or marketed
  • Up to 10 mills per MCF of natural gas produced and saved each month
  • Revenues credited to pay for costs associated with oil and gas conservation administration

California

Oil and Gas Production Assessment
  • $0.1406207 on each barrel of oil and 10,000 cubic feet of natural gas produced. Rate established annually each June.
  • Ad valorem taxes administered by county
  • Assessment supports the Department of Conservation’s Division of Oil, Gas, and Geothermal Resources

Colorado

Severance Tax
  • Levied on the gross income from crude oil, natural gas, and oil and gas based on gross income:
    • 2% if income less than $25,000
    • $500 plus 3% of the excess over $24,999 for income $25,000-$99,999
    • $2,750 plus 4% of the excess over $99,999 for income $100,000-$299,999
    • $10,750 plus 5% of the excess over $299,999 for income over $300,000
    • 4% tax on oil shale gross proceeds
  • Oil produced from any well that produces 15 barrels per day or less of oil, and gas produced from wells that produce 90,000 cubic feet or less of gas per day exempt
  • For oil and gas, tax revenues deposited in the state general fund
    • $1.5 million transferred into the innovative energy fund
    • Of remaining revenues
      • 50% credited to the state severance tax trust fund
      • 50% credited to the local government severance tax fund
  • For oil shale:
    • 40% of revenues deposited in state general fund
    • 40% of revenues deposited in state severance tax trust fund
    • 20% of revenues deposited in local government severance tax fund

 

Ad Valorem tax
  • Rates vary by county
  • Severance tax can be reduced to credit 87.5% of ad valorem taxes
  • Revenues go directly to Colorado local governments

 

Oil and Gas Conservation Levy
  • Maximum $0.0017 of market value at wellhead
  • Revenues deposited in the Oil and Gas Conservation Environmental Response Fund
  •  Fund may not to exceed $4,000,000

Florida

Oil, Gas, and Sulfur Production Tax
  • Oil Rates (on gross value of oil):
    • 12.5% on escaped oil
    • 8% on ordinary oil production
    • 5% on small well oil
    • Tertiary oil based on tiered formula
  • $0.345 per MCF for gas (rate adjusted annually)
  • After refunds distributed:
    • Revenues deposited in the Oil and Gas Tax Trust Fund and distributed to:
      • General revenue fund of state
      • General revenue fund of board of county commissioners of oil or gas producing county
      • Mineral Trust fund
    • Distribution to funds based on gas and oil rate classification

Idaho

Oil and Gas Conservation Tax
  • 2.5% of market value of gas and oil
  • After refunds distributed:
    • 60% into Oil and Gas Conservation Fund
    • 40% to state tax commission:
      • 28% to oil or gas producing county
      • 28% to cities from oil or gas producing county
      • 28% to the public school income fund
      • 16% to the local economic development account

Illinois

Oil and Gas Production Assessment
  • 0.1% of gross revenue of oil and gas from each well in production
  • After refunds distributed, revenues go to Illinois Petroleum Resources Board

 

Oil and Gas Severance and Production Tax
 
  • Beginning July 1, 2013
  • 3% tax on value of oil or gas severed during first 24 months of well production
  • 6% value of gas severed
  • Oil (tax on value):
    • 3% for wells producing less than 25 barrels per day
    • 4% for wells producing 25 or more but less than 50 barrels per day
    • 5% for wells producing 50 or more but less than 100 barrels per day
    • 6% for wells producing 100 or more barrels per day
    • Wells producing 15 or less barrels per day exempt
    • Tax rate reduced by 0.25% for wells at least 50% of workforce hours performed by Illinois construction workers
  • Revenues deposited in the General Revenue Fund

Indiana

Petroleum Severance Tax
  • Tax at a rate equal to the greater of:
    • 1% of the value of petroleum
    • $0.03 per MCF  for natural gas
    •  $0.24 per barrel of oil
  • Revenues deposited in the Oil and Gas Fund

Kansas

Mineral Severance Tax
  • $1 per ton of coal
  • 8% on gross value of oil or gas
  • Exemptions for gas wells with gross value less than or equal to $87 per day
  • Exemptions for low-producing oil wells
  • Money for refunds distributed into mineral production tax refund fund. Of remaining revenues:
    • 7% deposited in the special county mineral production tax fund
    • Remaining revenues deposited in general state fund. However, if monthly revenue is greater than that forecast:
      • 14.63% of surplus is deposited in the incentive for technical education fund. Amount deposited not to exceed $1,500,000.
      • 85.37% of surplus is deposited in the technical education fund. Amount deposited not to exceed $8,750,000.

 

Oil and Gas Conservation Fee
  • Oil: 91 mills per barrel
  • Gas: 12.9 mills  per MCF
  • Revenues deposited in the Conservation Fee Fund

Kentucky

Natural Resources Severance and Processing Tax
  • 4.5% of gross value of natural gas and other resources, except coal
  • Tax credit of 4.5% of gross value available for natural gas severed from a recovered inactive well
  • 50% deposited in Local Government Economic Assistance Fund
  • 50% deposited in state general fund.

Louisiana

Natural Resources Severance Tax
  • Gas (per MCF):
    • Full Rate ( 7/1/12 to 6/30/13): $0.148
    • Incapable oil-well gas: $0.03
    • Incapable gas-well gas: $0.013
    • Produced water-full rate (7/1/12 to 6/30/13): $0.118
    • Produced water-incapable oil-well gas: $0.024
    • Produced water-incapable gas-well gas : $0.0104
  •  Oil (percent of value):
    • Full rate oil/condensate 12.5
    • Incapable oil rate 6.25
    • Stripper oil rate: 3.125
    • Reclaimed oil: 3.125
    • Produced water-full rate: 10.0
    • Produced water-incapable oil rate: 5.0
    • Produced water-stripper oil rate : 2.5
  • Severance taxes on new discovery oil and natural gas wells suspended 24 months or until payout of well
  • 20% severance tax revenues, up to $500,000, allocated to producing parish
  • Remaining funds, up to base level determined by revenue estimates, allocated to Bond Security and Redemption Fund
  • Revenues exceeding base level:
    • 50% allocated to Louisiana Investment Fund for Enhancement
    • 50% to state general fund

 

Oil Field Restoration Fee
  • $0.015 for every barrel of oil and condensate produced
  • $0.003 for every MCF of gas produced
  • Revenues deposited in oilfield site restoration fund

Michigan

Oil and Gas Severance Tax
  • 5% of the gross market value of gas
  • 6.6% of the gross market value of oil
  • 4% of the gross market value for stripper well crude oil
  • 2% of revenue, a minimum of $1,000,000, deposited in the orphan well fund. Amount in fund may not exceed $3,000,000.
  • Remaining revenue deposited in the state general fund
    • General fund revenue greater than $16,000,000 allocated for the payment of heating fuel costs credits

Mississippi

Oil and Gas Privilege Tax
  • 6% of production value for oil and gas at point of production
  • 3% of production value for oil produced by enhanced oil recovery method
  • Tax exemptions and reduced rates for oil or gas produced from discovery wells, development wells, and 2-year inactive wells
  • Gas Revenues:
    • 66-2/3% of revenues allocated to the state and 33-1/3% to the producing county
  • Oil Revenues:
    • First  $600,000: 66-2/3% to the state and 33-1/3% to the producing county
    • Next $600,000: 80% to state and 20% to producing county
    • Over $1,200,000:  85% to state and 15% to producing county

Montana

Natural Gas and Oil Production Tax
  • Gas rates (percent of gross production value), working interest:
    • First 12 months of qualifying production: 0.5%
    • After 12 months:
      • Pre-1999 wells: 14.8%
      • Post-1999 wells: 9%
    • Stripper natural gas pre-1999 wells: 11%
    • Horizontally completed well production:
      • First 18 months of qualifying production: 0.5%
      • After 18 months: 9%
 
  • Oil rates (percent of gross production value), working interest:
    • Primary recovery production:
      • First 12 months of qualifying production: 0.5%
      • After 12 months:
        • Pre-1999 wells: 12.5%
        • Post-1999 wells: 9%
    • Stripper oil production:
      • First 1 through 10 barrels a day production: 5.5%
      • More than 10 barrels a day production: 9%
      • Stripper well exemption production: 0.5%
      • Stripper well bonus production: 6%
    • Horizontally completed well production:
      • First 18 months: 5.5%
      • After 18 months:
        • Pre-1999 wells: 12.5%
        • Post-1999 wells: 9%
 
  • Non-working interest: oil and gas wells subject to 14.8% tax
  • Revenues  allocated to counties in varying amounts
  • Of remaining revenues:
    • 2.16% deposited in the natural resources projects state special revenue account
    • 2.02% deposited in the natural resources operations state special revenue account
    • 2.95% deposited in the orphan share account
    • 2.65% deposited in the state special revenue fund to be appropriated to the Montana university system
    • All remaining revenues deposited in the state general fund

 

Privilege and License Tax
  • Not more than 0.3% of market value per barrel of oil or 10,000 cubic feet of natural gas produced, saved, marketed, or stored
  • Revenues credited to special revenue account for oil and gas board expenses

Nebraska

Oil and Gas Severance Tax
  • 3% on value for natural gas and non-stripper oil severed
  • 2% on value for stripper oil severed
  • 1% of revenues deposited in Severance Tax Administration Fund
  • Balance of revenues:
    •  Received from school lands deposited in the Permanent School Fund
    • Received from non-school lands:
      • Up to $300,000 per year deposited in the State Energy Office Cash Fund (determined by legislature through appropriation process)
      • Up to $30,000 per year allocated to the Public Service Commission for administration of the Municipal Rate Negotiations Revolving Loan Fund (determined by legislature through appropriation process)
      • Remainder is deposited in the Permanent School Fund

 

Oil and Gas Conservation Tax
  • 0.2% tax on value of oil or gas at wellhead
  • Revenues deposited in the Oil and Gas Conservation Fund

Nevada

Oil and Gas Conservation Fee
  • Up to $0.20 per 50,000 cubic feet of natural gas or barrel of oil
  • Revenues credited to the Oil and Gas Conservation Fund

New Hampshire

Refined Petroleum Products Tax
  • 0.1% tax on fair market value per barrel of oil
  • Revenues deposited in the state general fund

New Mexico

Oil and Gas Severance Tax
  • 3.75% of taxable value of oil or gas severed and sold
  • 1.875 % of taxable value for enhanced recovery project oil and gas
  • 2.45% of taxable value for well workover projects in excess of production projection
  • 1.85% or 2.8125% of taxable value for stripper wells
  • Revenues deposited in the severance tax bonding fund
  • Remaining revenues deposited in the severance tax permanent fund.

 

Oil and Gas Conservation Tax
  • $0.19% of taxable value of sold oil or gas
  • Revenues deposited in the Oil and Gas Reclamation Fund and the state general fund

 

Oil and Gas Emergency School Tax
  • Oil:
    • 3.15% of taxable value
    • 1.58% for stripper wells producing less than or equal to $15 per barrel
    • 2.36% for stripper wells producing oil greater than $15 but less than $18 per barrel
  • Gas:
    • 4% of taxable value
    • 2% for stripper well with annual value less than $1.15 per MCF
    • 3% for stripper wells with annual value greater than $1.15 but less than $1.35 per MCF
  • Revenues distributed to the state general fund

 

Oil and Gas Ad Valorem Production Tax
  • Rate based on assessed value of property
  • Revenues deposited in the oil and gas production fund

 

Natural Gas Processor’s Tax
  • $0.0065 per mmbtu of natural gas multiplied by adjustment factor
  • Adjustment factor equal to  the annual taxable value per MCF of natural gas divided by $1.33
  • Revenues distributed to state general fund

North Carolina

Oil and Gas Conservation Tax
  • Up to 5 mills per barrel of oil
  • Up to 5 mills per MCF of gas
  • Revenues used to carry out expenses associated with Oil and Gas Conservation Act

North Dakota

Oil and Gas Gross Production Tax
  • $0.1143 per MCF of gas (changes annually on July 1)
  • 5% of gross value of natural gas or oil
  • 30% of revenues deposited in the state Legacy Fund
  • Remainder distributed, via formula, to Oil and Gas Impact Fund and political subdivisions within state, including state general fund

 

Oil Extraction Tax
  • 6.5% of gross oil value
  • 4% of gross oil value if well qualifies for reduced rate
  • 2% of gross oil value for qualifying wells in Bakken formation
  • 30% of revenue credited to Legacy Fund
  • Remaining revenues:
    • 20% credited to Resource Trust Fund
    • 10% credited to Common Schools Trust
    • 10% credited to Foundation Aid Stabilization
    • 60% credited to state (distributed via formula)

Ohio

Severance Tax
  • $0.025 per MCF of natural gas
  • $0.10 per barrel of oil
  • 10% of revenue deposited in the Geological Mapping Fund
  • 90% of revenue deposited in the Gas Well Fund

Oklahoma

Gross Production Severance Tax
  • Tax on gross production and based on monthly average crude oil and gas prices:
    • 7% if oil price equal to or greater than $17 per barrel, gas price equal to or greater than $42.10 per MCF
    • 4% if oil price less than $17 but greater than or equal to $14 per barrel, gas price less than $2.10 and greater than or equal to $1.75 per MCF
    • 1% if oil price less than $14 per barrel, gas less than $1.75 per MCF
  • Revenues distributed to:
    • General Revenue Fund
    • County Highway Fund
    • Counties based on an average daily attendance per capita distribution basis
  • Revenue distribution to these funds varies based oil or gas tax rates

 

Petroleum Excise Tax
  • 0.095% of taxable oil or gas value
  • Revenues from oil:
    • 82.634% deposited to the General Revenue Fund
    • 10.526% deposited to Corporation Commission Plugging Fund
    • 6.84% deposited to the Interstate Oil Compact Fund of Oklahoma
  • Revenues for Gas:
    • 82.6045% deposited to the General Revenue Fund
    • 10.5555% deposited to  the Corporation Commission Plugging Fund
    • 6.84% deposited to the Interstate Oil Compact Fund of Oklahoma

 

Oil and Gas Production Fee
  • $0.0035 per barrel of petroleum liquid produced
  • $0.00015 per MCF of natural gas produced
  • Oil and gas exempt from oil and gas production tax exempt.
  • 3% of revenues deposited in the Oklahoma Tax Commission Revolving Fund
  • Remaining revenues, before July 1, 2013, deposited in the Commission on Marginally Producing Oil and Gas Wells Revolving Fund
  • Remaining revenues, after July 1, 2013, deposited in the Sustaining Oklahoma’s Energy Resources Revolving  Fund

Oregon

Oil and Gas Production Tax
  • 6% of gross value of oil or gas well production
  • First $3,000 in gross sales values from each calendar quartile exempt
  • Credits for ad valorem taxes on oil or gas production
  • After refunds distributed and after funds distributed to Department of Revenue for expenses related to tax:
    • Revenue deposited in Common School Fund

Pennsylvania

Unconventional Gas Well Fee
(no severance tax)
  • Fee on oil or gas well. Fee changes annually with price of natural gas.
  • Revenue deposited in the Unconventional Gas Well Fund with the following earmarks:
    • County Conservation Districts: $7,500,000
    • Pennsylvania Fish and Boat Commission: $1,000,000
    • Public Utility Commission (PUC): $1,000,000
    • Department of Environmental Protection: $6,000,000
    • PA Emergency Management Agency: $750,000
    • Office of State Fire Commissioners $750,000
    • Dept. of Transportation $1,000,000
    • Marcellus Legacy Fund (Natural Gas Energy Development Program): $2,500,00
  • After earmarks:
    • 60% revenues given to counties and municipalities through the unconventional gas well fund
    • 40% of revenues allocated for statewide initiatives through the Marcellus Legacy Fund

South Dakota

Energy Minerals Severance Tax
  • 4.5%  of taxable value of energy minerals (including oil and gas)
  • 50% of revenues distributed to County Trust and Agency Account
  • 50% to General Fund

 

Conservation Tax on Severance of Energy Materials
  • Excise tax of $0.0024 of taxable value
  • Revenues from oil and gas deposited in the Environment and Natural Resources Fee Fund for gas and oil conservation

Tennessee

Gas and Oil Severance Tax
  • 3% of sale price of natural gas and crude oil
  • 1/3 of revenues allocated to producing county
  • 2/3 of revenues deposited in the state general fund

Texas

Gas and Oil Production Tax
  • 7.5% tax of gas market value
  • 4.6% tax of oil market value
  • 4.6% tax of gas condensate market value for gas condensate
  • Incentives and exemptions for inactive wells, marginal wells, and high cost gas wells
  • 0.5% of revenues used for enforcement of production tax and tax provisions
  • Remaining revenues:
    • 25% deposited in the Foundation School Fund
    • 75% deposited in the General Revenue Fund

 

Oil and Gas Field Clean-Up Regulatory Fee
  • $0.06625 per barrel of crude oil
  • $0.000667 per MCF of gas
  • Revenues deposited in the Oil and Gas Regulation and Cleanup Account
  • Revenue in account may not exceed $20 million or fall below $10 million

Utah

Oil and Gas Severance Tax
  • Oil (percent of market value):
    • 3% if valued at $13 or less per barrel
    • 5% if valued above $13 per barrel
  • Gas (percent of market value):
  • 3% if valued at $1.50 or less per MCF
  • 5% if valued above $1.50 per MCF
  • 4% of value for natural gas liquids
  • Taxes not imposed on oil and gas stockpiled for over 2 years, stripper wells, and the first 6 months of production for development wells. Enhanced recovery projects receive a 50% tax reduction
  • Revenues earmarked (via formula) to:
    • Uintah Basin Revitalization Fund for revenues produced from oil or gas on Ute land
    • Navajo Revitalization Fund for revenues produced from Navajo Nation land
  • After earmarks:
    • Revenues deposited to  the general fund
    • Revenues exceeding $27,600,000 deposited in state permanent trust fund

 

Oil and Gas Conservation Fee
  • $0.002 of the value of gas or oil
  • Revenues credited to the Oil and Gas Conservation Account of the General Fund

Virginia

City and County License Taxes on Severed Materials
  • County or city governing bodies authorized to impose:
    • 1.5% gross severance tax on oil
    • 1% gross severance tax on coal or gas
  • Counties and cities can levy additional maximum 1% gross tax on gas
  • Cities and counties may adopt a maximum 1% gross tax on every person engaged in the business of severing coal or gas
  • Revenue from additional gas tax deposited to the general fund of producing  county or city
  • Revenues from additional gas and coal tax deposited in the Coal and Gas Road Improvement Fund. Localities that comprise the Virginia Coalfield Economic Development Authority distribute 75% of revenues to the Coal and Gas Road Improvement Fund, and 25% to the Virginia Coalfield Economic Development Fund.

West Virginia

Oil and Gas Severance Tax
  • 5% of gross value of natural gas or oil
  • Natural gas from wells producing less than 5,000MCF per day and oil wells producing less than 0.5 barrels per day exempt. Wells not producing marketable quantities for 5 consecutive years exempt for up to 10 years.
  • 90% of revenue deposited in the general fund
    • First $24 million of the severance taxes collected, including those from coal and other minerals, allocated to debt service for infrastructure bonds
  • 10% allocated to counties and municipalities
    • 75% distributed to oil and gas producing counties
    • 25% distributed to all counties and municipalities, based on population densities
  • First $4 million in revenues attributable to coalbed methane:
    • 75% distributed to oil and gas producing counties
    • 25% distributed in equal shares to non-oil and gas producing counties, with no producing county receiving less  than a non-producing county

 

Worker’s Compensation Debt Reduction Act Tax
  • $0.47 per MCF of natural gas
  • Tax will be terminated when Governor declares liability provided for in its entirety.
  • Revenues deposited in the Workers’ Compensation Old Fund

Wisconsin

Oil and Gas Severance Tax
  • 7% of market value of total oil or gas production
  • Revenues deposited in state general fund

Wyoming

Oil and Natural Gas Severance Tax
  • 6% of fair market value for natural gas or oil
  • 4% on stripper oil
  • Revenues from 1.5% of tax on fair market value for natural gas and oil, including stripper oil, deposited in the Permanent Wyoming Mineral Trust Fund
  • Remaining revenues collected in Severance Tax Distribution Account to be distributed as follows:
    • 62.26% deposited in state general fund
    • 15.05% deposited in water development accounts
    • 4.33% deposited in the highway fund
    • 3.88% credited to counties
    • 2.9% deposited to road construction and maintenance funds
    • 9.25% credited to cities and towns
    • 2.33% deposited in capital construction account

 

Oil and gas Conservation Fee
  • Up to 8/10 of a mill ($0.0008) of oil and gas market value
  • Revenues credited to the Oil and Gas Conservation Commission

Key:
 
BTU = British Thermal Unit
 
BBL = Barrel
 
MCF = One thousand cubic feet
 
Mill levy = A tax on the assessed value of a property. One mill is one dollar per $1,000 of assessed value.
 
MMBTU = A thousand thousand BTUs (also expressed as MBTU – 1,000 BTUs)
 
Source: Various state websites



Most states with taxes on oil and gas production deposit at least a portion of their tax revenues toward the state’s general fund. Although these funds may differ across states, general funds are usually unobligated revenues used for discretionary state spending.
 
Conservation Fees, Assessments, and Taxes
Oil and gas conservation fees are not classified by states as severance taxes. These fees typically levy a small tax based on oil and gas value or production volume. Such revenues most often feed funds to help pay for the state’s Oil and Gas commission, or equivalent, and help cover expenses related to the administration of oil and gas regulations, well licensing, and road maintenance. These fees are often subject to annual adjustments, as with California’s Oil and Production Assessment. Twelve states have some sort of oil and gas assessment or conservation tax in addition to a larger tax on oil and gas production. Idaho has one of the highest conservation tax rates, but dedicates 40 percent of tax revenues to oil and gas producing counties and cities, public schools, and local economic development funds.
 
Figure 2 shows states with severance taxes that allocate revenues to their state’s general fund or towards oil and gas development, conservation or related activities.
revenue allocation map























Revenue Allocations to Counties and Local Governments
Many states redistribute tax revenues to assist local governments, especially oil- and gas-producing municipalities. After depositing 90 percent of revenues to the state general fund, West Virginia allocates 75 percent of remaining revenues to oil- and gas-producing counties and the rest to all counties, based on population density. No producing county may receive less than a non-producing county. Kentucky deposits half of its severance tax revenues to its Local Governmental and Assistance Fund. Local governments in areas where minerals are extracted and subject to the severance tax may apply for assistance from the fund.

While many states allocate funds to local governments, they vary in the control given to municipalities over the use of funds. Rather than a state-administered severance tax, Virginia authorizes county and city governments to impose severance taxes but legislates the maximum tax rates and dictates the funds to which the tax revenues may be credited..

Figure 3 below shows states with severance taxes that allocate revenues directly to city or county governments.
revenue allocations counties and local map






















Revenue Allocations for Education and Transportation-Related Expenses
A growing number of states earmark a portion of severance tax revenues for transportation or education related expenses. Ninety five percent of Arkansas’ severance tax revenue is distributed according to its Highway Distribution Law. Kansas currently allocates surplus revenues (i.e. revenues above monthly estimates) to several education funds. California’s proposed severance tax (CA SB 241-pending) would allocate 90 percent of revenues towards higher education. Alaska provides tax credits to oil and gas producers that donate to Alaskan universities, rather than allocating revenue directly to education.

Figure 4 shows states with severance taxes that directly allocate funds for transportation or education related expenses.

revenue allocation for school and transportation map






















Table 2 shows pending and recently enacted legislation per state related to severance tax rates and severance tax revenue distribution.

Table 2: Pending and Enacted Bills Relating to Severance Taxes and Severance Tax Revenue Allocation


 Alabama | Alaska | California | Colorado | Illinois | Kansas | Louisiana | Michigan | Minnesota | Mississippi | Montana | North Carolina | North Dakota | Oklahoma | Utah | Virginia | Washington | West Virginia
 

State

Bill

Status

Description

Alabama

AL H 503

Enacted

Specifically expands the authority of the Oil and Gas Board to include oil sand. Authorizes the board to set fees for the recovery of oil from oil sands.

Alaska

AK H 72

Pending-carryover

Amends oil and gas production tax credits.

 

AK H 111
 

Pending-carryover

Amends oil and gas production tax credits and adjusts production tax rates.
 

 

AK H 117

Pending-carryover

Increases amount legislature may appropriate to revenue sharing fund from oil and gas production tax revenues.

 

AK S 50

Pending- carryover

Amends oil and gas production tax credits and adjusts production tax rates.

 

AK S 21

Enacted

Amends tax to 35% of oil or gas value, beginning January 1, 2014

California

CA S 241
 

Pending

Imposes an oil and gas severance tax of 9.5% of the average price per barrel of oil and 3.5% of the average price per unit of gas. The bill exempts oil from stripper wells producing less than 5 barrels of oil per month and oil and gas from land owned by the state or a political subdivision of the state. Revenues will be deposited into the general fund and then into the California Higher Education Fund. 90% of the tax revenues will be distributed equally among  the Regents of the University of California, the Trustees of the California State University, and the Board of Governors of the California Community Colleges. 5% of the revenues will be allocated to the Department of Parks and Recreation for the maintenance and improvement of state parks.

Colorado

CO H 1057
 

Enacted

For severance tax revenues allocated to the severance tax trust fund, allows up to 15% of revenue to be used for the Colorado geological survey and up to 5% for the avalanche information center.

Illinois

IL S 1715

To Governor

Creates the Hydraulic Fracturing Regulatory Act. Creates a severance tax on oil and gas whose proceeds are allocated to General Revenue Fund.

Kansas

KS H 2088

Pending

Changes severance tax revenue appropriations. Legislation would allocate 7% of revenues to the special county mineral production tax fund, 12.41% of revenues to the oil and gas valuation depletion trust fund, and the remainder to the state general fund

 

KS S 76
 
 

Pending

Changes severance tax revenue appropriations. Legislation would allocate 7% of revenues to the special county mineral production tax fund, 12.41% of revenues to the oil and gas valuation depletion trust fund, and the remainder to the state general fund.

 

KS S 206
 

Pending

Changes severance tax revenue appropriations. Legislation would allocate 7% of revenues to the special county mineral production tax fund and the remainder to the state general fund, abolishing the oil and gas valuation depletion trust fund.

 

KS H 2059
 

To Governor

Exempts severance tax from oil wells for which oil first produced after July 1, 2012 and for which daily production does not exceed 50 barrels for day for up to 24 months. A well is no longer exempt if its average daily severance and production exceeds 50 barrels per day over a one month production period.

 

KS H 2262

Pending

Changes severance tax revenue appropriations. Legislation would allocate 7% of revenues to the special county mineral production tax fund, 8.25% of revenues to the oil and gas valuation depletion trust fund, and the remainder to the state general fund

 

KS S 241
 

Pending

Changes severance tax revenue appropriations. Legislation would allocate 6% of revenues to the special county mineral production tax fund, 6% of revenues to the oil and gas valuation depletion trust fund, and the remainder to the state general fund

Louisiana

LA H 520
 

Pending

Proposes a constitutional amendment that would exclude the first $1,000 of the value of severed natural resources from valuation for an ad valorem severance tax.

 

LA H 616
 

Pending

Adjusts oil and gas severance tax rates and changes special tax treatment for certain types of oil and gas production.

 

LA H 474
 

Pending

Changes tax exemption provisions for oil and gas production from wells previously inactive for at least 2 years. Subjects inactive wells to a reduced severance tax rate.

 

LA H 683

Pending

Provides exemptions and other special tax treatment for certain types of oil and gas production.

Michigan

MI H 4609
 

Pending

Changes severance tax revenue allocation, distributing 2% of revenues to the orphan well fund, 50% of the remaining funds to the state general fund, and the other 50% to the state transportation department.

Minnesota

MN H 1336

Pending

Imposes an extraction tax of $1 per ton on fracturing sand. Revenues will be credited to the a special account within the state general fund and appropriated to the Environmental Quality Board. 1/3 of the tax revenues will be appropriated for the maintenance of roads in counties with active fracturing sand mines. 1/3 of the revenues will be appropriated to the commissioner of natural resources to acquire land or interests in land as scientific and natural areas in the areas of the state with industrial silica sand resources likely to be mined. 1/3 of revenues will be appropriated to the Board of Water and Soil Resources.

 

MN S 1487
 

Pending

Imposes an extraction tax of $1 per ton on fracturing sand. Revenues will be credited to the a special account within the state general fund and appropriated to the Environmental Quality Board. 1/3 of the tax revenues will be appropriated for the maintenance of roads in counties with active fracturing sand mines. 1/3 of the revenues will be appropriated to the commissioner of natural resources to acquire land or interests in land as scientific and natural areas in the areas of the state with industrial silica sand resources likely to be mined. 1/3 of revenues will be appropriated to the Board of Water and Soil Resources.

Mississippi

MS H 1698 
 

Enacted

Reduces the natural gas and oil severance tax rate to 1.3% of the value for oil and gas wells beginning production July 1, 2013 for 30 months. Revenue produced from wells subject to the reduced rate will be allocated to county in which gas or oil produced.

Montana

MT H 39

Enacted

Clarifies distribution of funds from the county school oil and natural gas impact fund.

 

MT S 175

Enacted

Redirects oil and natural gas production tax revenue from the state general fund to a new natural resource development K-12 funding payment, beginning in 2014, to support base budgets of school districts.

North Carolina

NC S 76

Pending

Would establish a severance tax of 1% per barrel or MCF for well condensates and up to 1% per barrel or MCF for oil or gas, respectively, from a well. After refunds distributed, 25% of revenues, up to $1,000,000, would be allocated to the Department of Environment and Natural Resources. Of the remaining revenues, 50% would be deposited in the state general fund and 50% would be deposited in the Onshore Energy Management Fund.

North Dakota

ND H 1134

Enacted

Amend gas flaring restrictions. Provides a 2 year and 30 day tax exemption for oil and gas wells that use a system that avoids gas flaring.

 

ND H 1198

Enacted

Defines “stripper well.”  Keeps oil tax extraction exemptions set to expire July 1, 2013 in place.

 

ND H 1278

Enacted

Amends oil and gas gross production tax allocation. Reallocates 1/5 of tax revenue collected from gas and revenue collected from 1% of  the gross value at the well of the oil.  Allocates $500,000 each fiscal year to oil producing cities with populations of at least 75,000 and more than 2 percent of private employment engaged in mining industry. Allocation is doubled if city has more than 7.55% of private employment engaged in mining industry. Credit revenues to the oil and gas impact grant fund, not exceeding $100,000,000 per biennium.  Credits 4% to the North Dakota outdoor heritage fund, not to exceed $15,000,000 per fiscal year. Remainder allocated to state general fund.

 

ND H 1358

Enacted

Amends oil and gas gross production tax allocation. Reallocates 1/5 of the tax revenue collected from gas and revenue collected from 1% of the gross value of oil. Cities with populations over 12,500 are allocated $375 per fiscal year, and school districts within these cities are allocated $12,500 per fiscal year, for each full or partial percentage point of the city’s private covered employment engaged in the mining industry. Revenues, not exceeding $240 million, are deposited in the oil and gas impact grant fund. Of remaining revenues, $5 million are allocated to the gas or oil producing county. Of the remaining revenues, 25% is allocated to the gas or oil producing county. Of the remaining revenues, 30% is allocated to the legacy fund and the remainder is allocated to the state general fund.

 

ND S 2014

Enacted

Amends oil and gas gross production tax allocation. Changes distribution of revenues from the oil extraction tax development fund. Established the oil and gas research fund. Before depositing oil and gas gross production tax and oil extraction tax revenues in the general fund, property tax relief sustainability, strategic investment and improvements fund, or the state disaster relief fund, 2%  of the revenues must be deposited monthly into the oil and gas research fund, up to $10 million per biennium.

Oklahoma

OK H 2290
 

Pending

Authorizes local counties to impose a shale well gas impact fee. Funds to be used for: construction, reconstruction, maintenance, and repair of roadways, bridges and public infrastructure; water, storm water and sewer systems, including construction, reconstruction, maintenance and repair; emergency preparedness and public safety, including law enforcement and fire services, hazardous material response, 911, equipment acquisition and other services; environmental programs, including trails, parks and recreation, open space, flood plain management, conservation districts and agricultural preservation; preservation and reclamation of surface and subsurface waters and water supplies; projects to increase the availability of safe and affordable housing to residents; records management, geographic information systems and information technology;  delivery of social services; training of workers in the oil and gas industry at technology center schools.

 

OK S 905
 

Pending

Reduces the tax rate on the production of oil, gas or oil and gas from a horizontally drilled well to 1% for 28 months from the month of initial production for production commenced on or after July 1,2011, through June 30, 2013, and 2% for 48 months from the month of initial production for production commenced on or after July 1, 2013.

 

OK H 1764
 

Pending

Apportions $50,000,000 of gross production tax on natural gas to the Teachers' Retirement System Cost-of-Living Adjustment Revenue Fund.

 

Ok H 1769

Pending-Carryover

Enacts the Gross Production Revenue Stabilization Act of 2013. Changes allocation of oil and gas production tax revenues beginning July 1, 2015.

 

OK H 1992

Pending-Carryover

Amends duration of gross production tax incentives.

 

OK S 767

Enacted

Allocates revenues from fee on oil and gas production to a revolving fund for the Committee for Sustaining Oklahoma’s Energy Resources for the purpose of encouraging and funding research and development of new technologies in the oil and natural gas industry and to support activities relating to marginally producing oil and gas wells,

Utah

UT HJR 20

Adopted

Gives the Legislative Management Committee items of study it may assign to the appropriate interim committee during the 2013 legislative interim. Includes a study of whether certain severance tax revenue should be deposited into the education fund and the permanent state trust fund, whether to change or repeal certain oil and gas severance tax exemptions, and whether to adjust certain severance tax rates.

Virginia

VA H 2110
 

Enacted

Allows Coal and Gas Road Improvement Fund to be used towards the construction of natural gas service lines. Such funds may be used to construct, repair, or enhance natural gas service lines or systems and may not exceed ¼ of the revenue paid to the Coal and Gas Road Improvement Fund from the severance tax.

Washington

WA H 1856

Pending-Carryover

Imposes 5% excise tax on oil and gas at point of production. 80% of revenues deposited in the land trust revolving fund. 20% of revenues deposited in the local government severance taxation account. Indicates oil and gas tax exemptions

West Virginia

WV S 638

Enacted

Terminates a severance tax exemption for natural gas or oil produced from any horizontally drilled well that has not produced marketable quantities for five consecutive years immediately preceding the year in which such well is placed back into production and thereafter produces marketable quantities of natural gas or oil.

 
Conclusion

As the oil and gas industries continue to thrive, states are trying to create severance taxes that provide fair economic benefits for the state while promoting resource development. As states increasingly compete to attract oil and gas producers, balancing these goals is proving a delicate process. While local communities will likely remain the primary recipients of earmarked severance tax revenues, more states are looking at using the increasing revenues to meet education, transportation and other needs.
 

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