Serious efforts are underway at our state Capitol to raise taxes on job creators who drill for crude oil and natural gas within Oklahoma’s borders. Yes, in a state with Republican supermajority control, tax increases are in play.
This is puzzling since, in Oklahoma, total state tax collections and total state government spending are already at all-time highs.
The tax in question is Oklahoma’s gross production tax, also called a severance tax, assessed on those who drill for oil and natural gas. Oklahoma’s severance tax is 7 percent, based on how many barrels of oil or thousand cubic feet of natural gas are extracted.
For horizontal and deep wells, the tax is 1 percent the first four years of production. This lower rate expires periodically and must be renewed by the Legislature. It’s due to expire July 1, 2015. Lawmakers are considering raising it even earlier.
Oklahoma’s economic resurgence has tracked closely with the rise of horizontal drilling, combined with hydraulic fracturing, as a method for pulling oil and natural gas from previously untapped geological formations.
Many Oklahoma employers have been at the forefront of these innovations. Their successes have resulted in robust job creation statewide and helped insulate Oklahoma from the worst of the global recession.
For better or worse, research suggests Oklahoma is as reliant on energy sector activity today as it was in 1982, prior to the oil bust that set our state’s economy back a generation.
Oil and gas drillers in Oklahoma carry more of the state’s tax burden than any other industry. In 2012, direct state taxes paid by Oklahoma oil and gas producers, proprietors and employees equaled 22 percent of total tax collections.
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