It's time to end oil and gas tax holiday
Every day brings another example: roads crumbling under heavy truck traffic, schools flooded with new students, water and sewer systems needing immediate and costly upgrades. If the 2013 Legislature has a theme, it's the clear and pressing need to address tremendous impacts to local communities from Montana's oil and gas boom.
Montanans have an opportunity to make our economy stronger, create new jobs and contribute to America's energy security. The benefits are obvious. But Montanans shouldn't enjoy economic activity on the backs of struggling communities.
We need to help communities cope with direct and indirect impacts of development. The costs already run to tens of millions of dollars and mount daily. The expenses are great, but we all know there's no free lunch.
That is, there's no free lunch unless you're in the oil and gas business.
As it happens, Montana has a gaping loophole in oil and gas taxes that slashes resource revenues at the time they're needed most.
It's called the oil and gas "tax holiday." It dates to a time of rock-bottom oil prices — before Bakken was a household word and advancements in technology made it possible to profitably recover the oil and gas beneath eastern Montana.
Here's how the holiday works: Oil and gas production is taxed at the relatively low rate of 9.26 percent. But that rate applies only after the first year of production for a vertical well and after the first 18 months for a horizontal well. During the first 12 to 18 months — the holiday period — the tax rate is less than 1 percent.
This whopping tax break is even sweeter than it sounds. The typical well tapping the Bakken formation produces more than half its total oil output within the first 18 months, meaning most of the oil produced is scarcely taxed at all.
Montana's tax on oil and gas production is one of the lowest in the West. Wyoming, Colorado, Utah and New Mexico all have higher effective tax rates. North Dakota has its own tax holiday for oil and gas, but it applies only when oil prices fall below low levels not seen for many years.
With huge reserves of oil and gas beneath us, and oil selling for near-record-high prices, the tax holiday obviously isn't necessary to stimulate production.
And the tax holiday certainly isn't fair. The oil and gas tax holiday reduces revenues by tens of millions of dollars annually even as Montanans face millions of dollars in costs to address impacts of the oil boom on communities, schools, resources and infrastructure. The tax holiday for oil and gas translates into an extra burden on other taxpayers.
Good tax policy is simple, fair and efficient. Loopholes, tax breaks and tax holidays create complexity and inefficiency — requiring higher taxes overall to generate a given amount of revenue. Our goal should be reasonably low taxes for everyone, and that means making them efficient and fair. The tax holiday doesn't pass the test.
Communities in the oil and gas fields are struggling to deal with increased pressure on local services, and we need to help them. We should repeal the oil and gas tax holiday and use the proceeds to help Montana communities beef up their police, school and streets and roads budgets to deal with the impacts of the oil boom. Doing so is only fair, and is the right thing to do.
It's time to repeal the oil and gas tax holiday.
Christine Kaufmann, a Democratic state senator from Helena, is sponsor of Senate Bill 295, which would repeal the oil and gas tax holiday.