North Dakota considers removal of ‘trigger’ oil tax

When oil prices go up,so do the oil and gas taxes in North Dakota. But a move is underway to eliminate the so-called “trigger” tax.

The trigger tax was created in 2015 when legislators reduced the overall tax charged on oil production from 11.5 percent to 10 percent. The trigger was added to increase the tax to 11 percent if the price of West Texas Intermediate oil reached $90 a barrel for three consecutive months.

This week, the Senate Finance and Taxation Committee voted 4-1 to recommend removing the $90 trigger and keep the oil tax at 10 percent.

Sen. Jim Dotzenrod, D-Wyndmere, voted against the amendment, calling it “a little bit of a contentious thing” and voicing concern that the public has not been able to weigh in on removing the trigger according to the Grand Forks Herald.

“I don’t remember discussing this in the hearing,” Dotzenrod said

Sen. Dwight Cook, R-Mandan, chairman of the committee, introduced the amendment to Senate Bill 2312, which seeks to resolve a dispute with the Mandan, Hidatsa and Arikara Nation over how oil tax revenue is shared.

The bill would shift a greater portion of oil tax revenue to the tribe for oil produced on trust lands, while shifting a greater portion to the state for oil produced on fee lands. Trust lands are held by the federal government in trust for the benefit of the tribes and fee lands are private lands within the reservation. The proposal is estimated to increase tribal oil tax revenue by $33 million for 2019-21.

Cook said some legislators have wanted to remove the $90 trigger, and he proposes to resolve that issue before a new tribal tax agreement is signed to prevent a change from disrupting the deal in the future.

In addition, Cook said removing the trigger creates certainty in the state’s oil tax policy.

In 2015, the MHA Nation opposed lowering the oil extraction tax and advocated unsuccessfully for the trigger to be set at $70.

On Monday, Chairman Mark Fox said leaders of the MHA Nation are willing to negotiate removing the $90 trigger but want lawmakers to consider two other amendments.

The bill as proposed would apply to new wells drilled within the Fort Berthold Reservation. The tribe is advocating for the new tax policy to also apply to existing wells that are improved with new technology to increase the oil production, such as new hydraulic fracturing methods.

Another amendment would affect wells drilled outside the reservation that extend horizontally into Fort Berthold. The state Tax Department is still estimating the potential impact of those two amendments.

Members of the Senate are expected to vote on removing the $90 trigger during Tuesday’s 1 p.m. floor session. The overall bill received a 5-0 “do pass” recommendation from the committee.

The House and Senate each rejected bills this session that would have raised the overall tax on oil from 10 percent to 11.5 percent. One argument against those bills was that companies would pay a higher rate if oil prices reach $90.