ND House rejects oil tax restructuring measure

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BISMARCK, N.D. (AP) — North Dakota's House rejected a measure Wednesday aimed at closing an exemption enjoyed by oil companies in exchange for lower tax rates.

The Republican-sponsored bill — one of the most contentious of the legislative session — also would have given the Three Affiliated Tribes a greater share of the taxes collected from reservation oil production.

Representatives crossed party lines and overwhelmingly defeated the measure 71-21.

Democrats, who are the minority in both chambers, have been especially critical of the measure, saying the proposed tax framework would have cost the state hundreds of millions of dollars in lost revenue over the next few years by lowering taxes on oil companies.

Senate Minority Leader Mac Schneider, D-Grand Forks, and other Democrats held a press conference prior to Tuesday's House vote. He called the measure "thoughtless" and said it "short-changed North Dakota's future."

The bill would have lowered tax rates for oil companies in exchange for closing the so-called stripper well loophole that the state Tax Department says is costing the state about $50 million in annual revenue. The exemption for so-called stripper wells was intended to keep low-volume wells producing in times of depressed prices, providing jobs and at least some tax revenue for the state. It also advanced technology in the oil patch over the past three decades by allowing companies to experiment with new drilling techniques. But the 1980s-era law also excuses higher-producing wells from paying extraction taxes because they are near the weaker wells and drilling in the same oil pool.

Stripper wells are exempt from the state's 6.5 percent extraction tax, but not a 5 percent production tax. Attempts to close the loophole have failed in the past three legislative sessions.

Bill sponsors have said the goal of the reworked tax agreement was to be revenue neutral. The bill proposed lowering the extraction tax to 6 percent on new wells, which would have canceled losses to oil companies for losing the stripper well exemption.

Critics have called the exemption a loophole; backers said cutting it amounts to a tax. Both parties have been critical of the stripper well exemption but no proposal was introduced this session aimed at that issue alone.

Rep. Scot Kelsh, D-Fargo, told fellow lawmakers on the House floor that the stripper well exemption, the tribal tax agreement and proposal to lower the extraction tax should each have been introduced in separate bills.

"Lowering the extraction tax is a deal-breaker," he said. "The industry is flourishing under the current tax rate."

Sen. Dwight Cook, R-Mandan, who chairs the Senate Finance and Taxation Committee, helped lead efforts this session to rework the state's oil tax structure.

Cook said there was much confusion about the House bill, especially the modification of a revenue sharing agreement that the state has had with the Three Affiliated Tribes since 2008. The agreement limits oil tax rates on Fort Berthold Reservation land, and spells out how the state and tribal governments will share oil revenues. Its goal when crafted was to enhance oil and gas exploration on the reservation.

North Dakota gets 80 percent of tax collections from private land on the Fort Berthold reservation, and 50 percent of the taxes from tribal trust lands that are held in trust by the federal government to benefit the tribe and individual tribal members. Under the proposed tax structure, a 6.5 percent extraction tax and a 5 percent production tax from private or "fee land" would be split equally between the tribe and the state.

Wednesday was Day 78 of the Legislature, two days short of the 80-day limit imposed by the state constitution. More than a dozen last-minute measures had yet to be resolved late Wednesday.

Senate Majority Leader Rich Wardner, R-Dickinson, said some of the components of the failed House bill could work their way into amendments on pending measures before the Legislature adjourns.

"I know we will address stripper wells," Wardner told The Associated Press. "I'm not saying it's going to be successful."

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