Guest opinion: Oil, gas tax holiday is unfair – The Montana Standard, March 29, 2013

March 29, 2013

Categories: Legislature, Oil and gas, Plains Speaking

By Julie French

I’ve lived in eastern Montana my whole life, seeing how frustrating economic development is for entire communities. So, nobody has to convince me that the Bakken oil boom is a welcome form of economic development.

But does my support for oil and gas development mean I ignore a fundamental Montana value – fairness? Yet there’s no question that Montana’s existing tax code is grossly unfair as it applies to oil and gas production.

I’m a mineral owner. I, along with family members, own the mineral rights in Daniels County. If a company were to strike oil where my minerals lie, I’d pay an oil-production tax of over 15 percent immediately!

Meanwhile, the oil company that extracts the oil would pay almost no tax on oil-production for the first year to year and a half. Montana has an oil production tax for companies of 9.26 percent – one of the lowest in the West – but current law suspends collection of all but 0.76 percent of the tax for the first year for all wells and the first 18 months for horizontal wells.

As a resident Montanan, I feel this isn’t fair. And to understand just how unfair it is, you have to know that Bakken wells typically produce more than half their total output of oil within the first 18 months. The so-called “tax holiday” is a huge tax giveaway totaling hundreds of millions of dollars in recent years – a tax break not available to mineral owners or other businesses.

We have a lot of different taxes in Montana, but they all amount to the same pool of money. So, a major tax break for oil companies means other taxpayers have to shoulder more of the burden.

And that burden is increasingly apparent. Along with the economic development that comes from oil production are significant community impacts to roads, schools and public services. Just one example: Communities in my part of the state have long relied on volunteer ambulance services. I’ve served as an ambulance volunteer. With oil development come more people, more accidents and new demand for a paid, full-time ambulance service. This is just one small example of the growing demands for services and expanded infrastructure across many counties.

Such expenses are a price of success, but somebody has to pay for them. If the oil companies are on tax holiday, taxes from the rest of us have to work harder. A dominant theme of this year’s legislative session has been how best to pay for these impacts. This challenge would be a lot easier to meet if oil companies were paying their fair share.

A recent report from Montana State University Extension’s Local Government Service calculated that the average Montana oil well generates $800,000 less in tax revenue during the first three years than a comparable well in North Dakota. No one should underestimate the positive impact of $800,000 in places like Fairview, Bainville and Culbertson.

That comparison with North Dakota is inevitable. In my part of the state, any discussion of oil development inspires comparisons with North Dakota. Around here, North Dakota, epicenter of the Bakken Boom, stands as the shining example of enlightened oil policy.

As it turns out, North Dakota also has an oil and gas tax holiday. But North Dakota’s tax holiday kicks in only at times when oil prices drop below a trigger price, set at about $60 a barrel. When oil prices are high – as they are today – companies don’t need tax breaks to stimulate development. If oil prices fall past the trigger point, the tax holiday kicks in to encourage development.

If that works in North Dakota, it would work in Montana. Tying the oil and gas tax holiday to a trigger would certainly be fairer than what we have today.

— Julie French is a former state representative from Scobey.


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