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Bill would put a tax on industrial water sales

FARGO - North Dakota lawmakers are considering a proposal to impose a water extraction tax for industrial water use in light of significant water demand in the Oil Patch.

House Bill 1398 would levy a tax of 11½ percent for industrial water use. The tax would not apply to water used for irrigation.

North Dakota officials have estimated the water industry generates annual sales of between $45 million and $100 million for water drawn from aquifers and surface sources.

By law, waters in North Dakota belong to the public and are subject to an allocation process for "beneficial use" called appropriation that is performed by the State Water Commission.

"The main thing, it is one of our natural resources and at this point in time we don't require any reimbursement for its use," said Rep. Curt Kreun, R-Grand Forks, one of the bill's sponsors.

Water is in heavy demand throughout the Oil Patch. The process of hydraulic fracturing, also known as fracking, injects water mixed with chemicals and other additives under pressure to force oil and gas from deep underground.

As of last year, the oil industry was using an estimated 9,300 acre-feet of water, or a volume that would fill 9,300 acres with a foot of water. Future demand was projected to increase to as much as 22,400 acre feet.

Much of that water is hauled by truck, and the heavy loads take a toll on roads and highways, said Kreun and Rep. Bob Skarphol, R-Tioga.

It might be appropriate for the state to levy a tax on industrial water use to help maintain roads and other infrastructure and services, Kreun and Skarphol said.

"There's that concern about which the entities that are selling water are contributing enough to pay for the infrastructure," including roads, Skarphol said.

Industrial water for the petroleum industry is sold at the rate of about $488,775 for 100 acre feet of water, according to state water officials.

The state imposes a 6½ percent extraction tax and 5 percent production tax for oil. The two combined is what resulted in the proposed 11½ percent water extraction tax, Kreun said.

If passed, collection of the tax would apply after June 30. As of Monday, the bill hasn't yet been heard, but has been referred to the House Energy and Natural Resources Committee.