North Dakota voters may decide in November whether to raise the state’s oil extraction tax and reverse a central piece of the overhaul state lawmakers passed nearly three years ago.
A ballot measure that would boost the oil extraction tax from 5 percent to its previous rate of 6.5 percent is in the works. The Republican-led Legislature in 2015 lowered the tax and eliminated price-based tax breaks known as triggers in an effort to make North Dakota’s tax revenues more predictable.
“It would restore it back to where it was,” Ed Gruchalla, a former Democratic state lawmaker from Fargo who’s chairing the measure’s sponsoring committee, said Tuesday. “And it would bring money back to the citizens of North Dakota that was stolen in a shady last-minute deal in the final days of the (legislative session).”
The proposed ballot measure would also eliminate a mechanism that boosts the tax rate from 5 percent to 6 percent when oil prices are high. It wouldn’t reintroduce the so-called “large trigger” that would have reduced the tax rate while oil prices were low, according to a draft shared with Forum News Service.
Republicans and Democrats have long disagreed about the 2015 legislation’s effect on the state’s finances.
State Sen. Merrill Piepkorn, a Fargo Democrat involved in the measure effort, said the state would be collecting about $200 million more per year if lawmakers would have eliminated the triggers but maintained the 6.5 percent tax rate. Republican state Sen. Dwight Cook, chairman of the Senate Finance and Taxation Committee, said that would have amounted to a tax increase on the oil industry.
North Dakota is the country’s No. 2 oil producer behind Texas.
“This industry is driving our economy,” Cook said. “You want to keep it driving the economy.”
Republican Tax Commissioner Ryan Rauschenberger said the state would have collected $1 billion less if the Legislature did nothing in 2015. The change didn’t affect the 5 percent gross production tax, giving the state an overall rate of 10 percent.
“As a result of that legislation, we have paid $1 billion of extra tax revenue at a time in which the state of North Dakota critically needed it,” said Ron Ness, president of the North Dakota Petroleum Council. He said his organization would be “adamantly opposed” to the measure, arguing it would discourage investment and hiring and make North Dakota less competitive.
Gruchalla, who wasn’t in the Legislature during the 2015 session, hopes to submit the petition to the Secretary of State’s Office for review in the coming days. Supporters would have about five months to collect 13,452 signatures to get the measure on the November ballot.
North Dakota voters approved an initiated measure in 1980 creating the oil extraction tax at a rate of 6.5 percent.
“And now the Legislature went back and they kind of took away that vote,” Gruchalla said.
Republican Gov. Doug Burgum said it would be up to voters if the issue makes the ballot again, but he tossed some cold water on the idea of raising the tax.
“We need to ensure that North Dakota is competitive with other oil plays when it comes to our tax rates and regulatory policies, because higher taxes won’t yield higher tax revenue if companies choose to do business elsewhere,” he said in a statement.
Mark Fox, chairman of the Three Affiliated Tribes located on the oil-rich Fort Berthold Reservation, has accused the state of breaking its oil tax agreement when it lowered the rate in 2015. Meanwhile, tribal leadership has asked for a greater share of oil tax revenues generated on the reservation, Rauschenberger said, a subject being tackled by a legislative committee chaired by Burgum.
Fox didn’t return a message Tuesday.