The 2017 Montana Legislature has been marked with concern over massive budgetary cuts and the major shortfall in revenue. While not all cuts can be avoided, the legislature should take a balanced approach to ensure the state can continue to invest in our families and communities. This includes ensuring we have adequate revenue in the state by putting in place common sense measures to ensuring wealthy corporations are paying their fair share.
Earlier this session, the House Taxation Committee heard House Bill 215, an act revising the rate of tax for certain oil and natural gas production. Reducing or even eliminating this tax break, called the oil and gas tax holiday, is one step toward balancing the budget and making sure corporations are paying their fair share. Unfortunately, the House Taxation Committee tabled HB 215 earlier this week.
The oil and gas tax holiday is a policy that allows newly drilled wells to be taxed at a substantially lower tax rate during the beginning of production. Wells, however, produce significantly higher amounts of oil and gas at the start of usage, which means these oil companies receive this tax break during the most profitable period of extraction. While some argued these tax holidays attract developers and increase revenue, the data clearly shows such tax holidays only suppress potential state revenue and does little to increase developer interest.
Montana, despite its lower tax policies, is not outperforming neighbors with higher tax policies. Wyoming, New Mexico, and North Dakota all have higher taxation rates for oil companies. All three states have consistently out produced Montana in terms of barrelage. Oil and gas companies do not seek to drill based upon the tax policy of that area. They drill where there are natural resources available.
Montana has lost millions of dollars in revenue due to this tax policy. From 2008 to 2014, the tax holiday cost the state and counties $265 million in revenue. This money could have been used to pay for public services, such as schools and roads. In oil-producing counties, especially those near the Bakken region, they have been forced to deal with increased demand on their infrastructure, but no increased revenue to update such necessary services.
HB 215 proposes to increase in Montana’s production tax would to 4.5 percent, which is still lower than the national standard of 9.26 percent. But even this small step is crucial in insuring our legislature can make strategic investments in Montana communities.
The increased revenue could be used to assist in failing infrastructure, public services, and our schools and universities. Oil and industry should not get a free ride in this state. We all need to pay our fair share especially when so many Montanans are struggling with significant budget cuts.
MBPC is a nonprofit organization focused on providing credible and timely research and analysis on budget, tax, and economic issues that impact low- and moderate-income Montana families.