A Quantitative Description of State-Level Taxation of Oil and Gas Production in the Continental U.S.

Weber, Jeremy G. and Wang, Yongsheng and Chomas, Maxwell (2016): A Quantitative Description of State-Level Taxation of Oil and Gas Production in the Continental U.S. Forthcoming in: Energy Policy

Abstract

We provide a quantitative description of state-level taxation of oil and gas production in the Continental U.S. for 2004 to 2013. Aggregate revenues from production taxes nearly doubled in real terms over the period, reaching $10.3 billion and accounting for 20 percent of tax receipts in the top ten revenue states. The average state had a tax rate of 3.6 percent; nationally, the average dollar of production was taxed at 4.2 percent. The oil-specific rate estimated for the study period is $2.4 per barrel or $5.5 per ton of carbon. Lastly, state-level tax rates are two-thirds higher in states excluding oil and gas wells from local property taxes, suggesting that the policies are substitutes for one another.

• Item Type: MPRA Paper
• Language: English
• Keywords: state policy, oil and gas taxation, effective tax rates
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q38 - Government Policy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q48 - Government Policy

References

Abramzon, S.S., Curtright, C., Litovitz, A., Burger, N., 2014. Estimating the consumptive use costs of shale natural gas extraction on Pennsylvania roadways. J. Infrastruct. Syst. 20.

Brown, C., 2013. State Revenues and the Natural Gas Boom: An Assessment of State Oil and Gas Production Taxes, National Conference of State Legislatures (Accessed May 16, 2016): (http://www.ncsl.org/research/energy/state-revenues-and-the-natural-gas-boom).

Campoy, A., Peters, M., and E.E. Phillips, 2015. Oil States’ Budgets Face Crude Awakening. Wall Street Journal, January 12. (Accessed May 15, 2016): (http://www.wsj.com/articles/oil-states-budgets-face-crude-awakening-1421105642).

Covenant Consulting Group, 2012, “Oil and Gas Taxation Comparison: Analysis of Severance, Production and Ad Valorem Taxes in North Dakota and other Oil Producing States.” Covenant Consulting Group. Accessed May 15, 2016): (http://www.ndnrt.com/image/cache/oil_tax_report_final.pdf).

Chakravorty, U., Gerking, S., Leach, A., 2010. State Tax Policy and Oil Production, in: US Energy Tax Policy, G.E. Metcalf (Ed.) Cambridge University Press: Cambridge.

Deacon, R. T. (1993). Taxation, depletion, and welfare: a simulation study of the US petroleum resource. Journal of Environmental Economics and Management, 24(2), 159-187.

Glaeser, E. L. 2012. The challenge of urban policy. Journal of Policy Analysis and Management, 31(1), 111-122.

Goldsmith, S. “Alaska’s Oil Production Tax: Comparing the Old and the New” Institute of Social and Economic Research, University of Alaska Anchorage. 2014. http://iser.uaa.alaska.edu/Publications/webnote/2014_05_01_WebNote17WhereDidthe2BillionGo.pdf

Headwater Economics and Oklahoma Policy Institute, 2013, “Unconventional Oil and Natural Gas Production Tax Rates: How Does Oklahoma Compare to Peers?” http://okpolicy.org/wp-content/uploads/2013/08/State_tax_comparison_study_final.pdf

Hotelling, H., 1931. The Economics of Exhaustible Resources. The J. of Political Economy. 39, 137-175.

Independent Fiscal Office (IFO) of Pennsylvania, 2014, “Natural Gas Extraction: An Interstate Tax Comparison,” (Accessed May 15, 2016): (http://www.taxadmin.org/fta/severance/papers/pa_gastaxstudy_0314.pdf).

Interagency Working Group on the Social Cost of Carbon, 2015, “Technical Support Document: - Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis – Under Executive Order 12866,” (Accessed May 24, 2016): (www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf).

Jenner, Steffen, and Alberto J. Lamadrid. 2013. Shale gas vs. coal: Policy implications from environmental impact comparisons of shale gas, conventional gas, and coal on air, water, and land in the United States. Energy Policy 53: 442-453.

Kunce, Mitch. 2003. Effectiveness of severance tax incentives in the US oil industry. International Tax and Public Finance 10(5), 565-587

Kunce, M., Gerking, S., Morgan, W., & Maddux, R. 2003. State taxation, exploration, and production in the US oil industry. Journal of Regional Science,43(4), 749-770.

Kunce, M., Morgan, W.E., 2005. Taxation of Oil and Gas in the United States 1970-1997. Nat. Resources J. 45, 77-103.

Marchand, J. and Weber, J. 2015. The Labor Market and School Finance Effects of the Texas Shale Boom on Teacher Quality and Student Achievement. Working Paper.

McKenzie, L. M., Witter, R. Z., Newman, L. S., & Adgate, J. L., 2012. Human health risk assessment of air emissions from development of unconventional natural gas resources. Science of the Total Environ. 424, 79-87.

Metcalf, G. E., 2009. Taxing Energy in the United States: Which Fuels Does the Tax Code Favor. The Manhattan Institute Energy Policy and the Environment Report, No. 4.

Metcalf, G. E., 2010. Investment in energy infrastructure and the tax code. In Tax Policy and the Economy, Volume 24, 1-33. The University of Chicago Press.

Newell, R. G. and D. Raimi., 2015. Shale Public Finance: Local Government Revenues and Costs Associated with Oil and Gas Development. NBER Working Paper No. w21542.

O’Sullivan, S., Pustejovsky, R., Pome, E., Wongus, A., and J. Wilhide, 2014, “State Government Tax Collections Summary Report: 2013” U.S. Census Bureau (Accessed May 23, 2016): (http://www2.census.gov/govs/statetax/2013stcreport.pdf).

Pigou, A., 1920. The Economics of Welfare, fourth ed. Macmillan and Co., London.

Raimi, D and Newell, R., 2014. “Oil and gas revenue allocation to local governments in eight states.” Duke University Energy Initiative.

U.S. Environmental Protection Agency (U.S. EPA), 2015, “Frequently Asked Questions: How much carbon dioxide is produced when different fuels are burned?” (Accessed May 10, 2016): (www.eia.gov/tools/faqs/faq.cfm?id=73&t=11).

U.S. Energy Information Administration (U.S. EIA), 2015, “Major fossil fuel-producing states rely heavily on severance taxes.” Today in Energy, August 21. Available at www.eia.gov/todayinenergy/detail.cfm?id=22612.

____ 2016a. Hydrualically fractured wells provide two-thirds of U.S. natural gas production (accessed May 2016): (http://www.eia.gov/todayinenergy/detail.cfm?id=26112).

____ 2016b. Hydrualic fracturing accounts for about half of current U.S. crude oil production (accessed May 2016): (http://www.eia.gov/todayinenergy/detail.cfm?id=25372).

Weber, J. G., Burnett, J., and Xiarchos, I. M., 2016. “Broadening Benefits from Natural Resource Extraction: Housing Values and Taxation of Natural Gas Wells as Property.” Journal of Policy Analysis and Management forthcoming.

Walls, Margaret A., 1993. Federalism and Offshore Oil Leasing Resources. Nat Resources J. 33, 777-97.

Yücel, M. K., 1989. Severance taxes and market structure in an exhaustible resource industry. Journal of Environmental Economics and Management. 16(2), 134-148.