North Dakota legislators agreed Friday to restructure the state’s oil tax rate to help preserve oil revenues during periods of price volatility.
The state’s House voted to eliminate North Dakota’s price-triggered tax exemption in favor of a reduced tax rate that will drop from its current level of 11.5 percent to 10 percent, the AP said.
North Dakota currently imposes a 5 percent production tax and a 6.5 extraction tax but also allows for a tax exemption if oil prices hit a five month average of $55.09.
The proposed tax measure will get rid of the price-triggered exemption and shave 1 percentage point off the extraction tax rate.
The bill would also raise the total tax rate back up to 11 percent if prices stay at least $90 per barrel for three straight months.
North Dakota budget analysts have warned that current price volatility will trigger the exemption in June and could cost the state $863 million in revenue if the exemption stays in place until next April, the AP said.
If the bill passes the price trigger will be permanently cut on December 1.
Supporters of the measure said the tax cut will stimulate investment and bolster the energy rich state’s economy.
The bill was approved by the state’s Senate last Thursday and will now go to Governor Jack Dalrymple for review.
“Generally speaking, a flat tax offers the advantage of greater economic certainty. But the details of any plan are very important, and we haven’t seen a final proposal,” a spokesman for the governor told the AP.