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Oklahoma tax collections see boost despite declines

While income and sales tax collections helped Oklahoma's main operating fund, a steep decline in oil and natural gas gross production taxes resulted in tax revenues for the 2013 fiscal year, which ended June 30, to come in below budget estimates.
BY MICHAEL MCNUTT Modified: July 11, 2013 at 6:00 pm •  Published: July 10, 2013

“Really, the big thing is all the other taxes that are paid from economic activity and all the jobs that come about from the increased drilling,” he said.

Income and sales tax collections this past fiscal year helped boost receipts for Oklahoma's main operating fund ahead of a year ago, despite steep declines in oil and natural gas gross production tax receipts for the state, according to financial reports released Wednesday by the state Office of Management and Enterprise Services.

Drop in oil, natural gas collections

During the 2013 fiscal year, which ended June 30, the state's general revenue fund saw a $248.4 million gain in income and sales tax collections over the previous year, the reports show. Those collections helped offset a $208.9 million, or 48.5 percent, drop in oil and natural gas collections.

Total general revenue fund receipts for the 2013 fiscal year were $5.6 billion, an increase of $10.3 million, or 0.2 percent, over the previous fiscal year. However, that is $26.5 million, or 0.5 percent, below the estimate upon which the 2013 fiscal year budget was based.

The reduced gross production revenue is due in large part to how horizontal wells are taxed under a 2010 law and payment of deferred rebates to the oil and gas industry.

The deal came when the state, faced with a second year of revenue shortfalls and draining virtually all of its savings account, owed oil and gas producers an estimated $150 million in rebates. With the state unable to pay the incentives, oil companies agreed to delay payment.

But horizontal drilling increased, and it was determined last year that the state owed $294 million in rebates on oil from horizontal and deep wells; the state agreed to pay back nearly $98 million a year for three years beginning with the 2013 fiscal year, which ended June 30. That is in addition to the current incentives they are receiving.

In 2010, legislation was signed into law reducing the gross production tax rate on horizontal wells from 7 percent to 1 percent for 48 months after the start of production. The 2010 law removed a stipulation in the previous rebate law that ended the tax break once the cost of the well was recovered.