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ND House defeats oil tax cut

BISMARCK (AP) -- North Dakota's oil taxes should be left alone in the face of high oil prices and a drilling boom, the state House decided Tuesday.

Representatives defeated a proposed tax cut, sponsored by two Democratic lawmakers, that would have shaved North Dakota's top oil tax rate from 11.5 percent to 9.5 percent on production from newly drilled wells. The vote was 76-18 against.

Separately, the House unanimously endorsed keeping a contingent oil tax break that was scheduled to expire in July. The change extends the incentive until July 1, 2013.

The "triggered" tax break would lower rates on much of the state's oil production if average prices fall below a set benchmark price for five consecutive months.

The benchmark price, which is set each year, is now $46.78 a barrel. Recent oil prices have been well above $80 a barrel, and the state Tax Department said the tax breaks were not expected to kick in during the next two years. Gov. Jack Dalrymple's budget recommendations to the Legislature assume oil prices will average $75 a barrel during that period.

Rep. Shirley Meyer, D-Dickinson, who sponsored the tax-cut measure along with Rep. Kenton Onstad, D-Parshall, said her legislation would also greatly simplify North Dakota's complex oil tax system. The lawmakers represent oil-producing districts in western North Dakota.

"When we hear about tax breaks for everybody else, the one industry that put us in the position to give those tax breaks? Well, guess what. Nobody's talking about dropping their tax at all," Meyer said.

Statistics from North Dakota's Department of Mineral Resources say the state's oil production has risen from about 92,000 barrels a day in February 2005 to almost 344,000 barrels daily last December, the most recent month for which figures are available. The increase is spurred by new drilling techniques that are able to extract oil from a shale rock formation called the Bakken, and other formations are being developed.

North Dakota is expecting to collect more than $2 billion in oil taxes during the next two years, of which more than $600 million will be reserved for a recently established trust fund. The revenues have helped insulate North Dakota government from the spending reductions that have been necessary in other states.

Whittling North Dakota's top oil tax rate from 11.5 percent to 9.5 percent would cause the state to forgo about $371 million in taxes, the Tax Department estimated.

Meyer said for the forecast to be true, newly drilled wells would have to produce about $4 billion worth of oil in the next two years.

"This isn't going to be a reduction," she said.

Tax-cut bill is HB1420.