The Oklahoma Senate approved a tax increase by eliminating a rebate for economically at-risk oil and gas wells.
That rebate program has ballooned in cost as a result of low oil and gas prices.
Senate Bill 1577, authored by Senate President Pro Tempore Brian Bingman, would eliminate a tax rebate for economically at-risk wells for any oil and gas production occurring after 2014. The rebate was originally meant to help smaller producers continue to operate older, unprofitable wells. As commodity prices have tanked, many newer, more expensive horizontal wells have become unprofitable and eligible for the tax credit.
“With the state facing a $1.3 billion budget shortfall, lawmakers must examine every tax credit, rebate and incentive on the books to make sure they still make economic sense for Oklahoma,” Bingman, R-Sapulpa, said.
The cost of the tax credit totaled $11 million two years ago, and cost the state $41 million in the current fiscal year. The tax credit is expected to cost the state approximately $133 million next year.
“Oklahoma is an energy state and the Legislature always will work to ensure state regulations aren’t standing in the way of the industry. But this tax break no longer makes economic sense for Oklahoma. State agency budgets are being cut as a result of the historic financial crisis, and lawmakers need to look at eliminating this tax break and any others that are costing the state too much money to help address the budget shortfall,” Bingman said.
Raising taxes by eliminating this tax credit will generate $133 million next year, including:
- $57 million for General Revenue Fund
- $22.7 million for Common Ed Technology Revolving Fund
- $22.7 million for Higher Ed Capital Revolving Fund
- $22.7 million for OK Student Aide Revolving Fund
- $3.3 million for County Bridge and Road Improvement Fund
- $3.7 million for Oklahoma Water Resources Board REAP Water Projects Fund
- $471,940 for Statewide Circuit Engineering District Revolving Fund.
Also, the Oklahoma Senate Joint Committee on Appropriations and Budget approved reforms that would raise taxes by approximately $190 million to help address the $1.3 billion budget shortfall. The measures approved by the committee reform various tax credits and incentive programs, generating new tax revenues for the state.
“The Senate has said all along that all responsible options are on the table. By approving these measures the Senate is showing its willingness to make tough decisions on reforming tax credits and incentives to help address the $1.3 billion shortfall,” said Sen. Clark Jolley, chairman of the committee.
“The goal isn’t to formulate a budget based on how much money we’d like to spend, as my Democratic colleagues lamented during the committee hearing. The goal is to know how much we have to spend and then adjust our spending priorities accordingly, like Oklahoma families and businesses do every day.”
The measures passed by the committee include:
- SB 1579, which instructs the Oklahoma Tax Commission to step up enforcement efforts to audit sales and use tax reporting. The reform is expected to generate approximately $35.8 million in new taxes for the General Revenue Fund (GRF) and $2 million in new taxes for the HB 1017 fund for education.
- SB 1580, which modifies the amount of credits allocated annually for investment in affordable housing projects. The reform is expected to generate $900,000.
- SB 1581, which limits the amount of tax credits for investment in clean-burning motor fuel equipment. The reform is expected to generate $5.773 million.
- SB 1582, which limits tax credits for investment in depreciable property or net increase in employees. The reform is expected to generate $14.049 million.
- HB 3204, which reduces a tax credit for railroad construction. The reform is expected to generate $136,000.
- HB 3205, which would reduce the time period for filing a sales tax refund claim from three years to one year total. The reform is expected to generate $8.781 million.
- HB 3206, which would authorize OMES to certify any funds remaining in the Cash Flow Reserve Fund in December as available for transfer and appropriation. This measure would yield $125 million.