Colorado Legislative Council Staff
Room 029 State Capitol, Denver, CO 80203-1784 (303) 866-3521 • FAX: 866-3855 • TDD: 866-3472 www.colorado.gov/lcs E-mail:
[email protected]
MEMORANDUM October 8, 2013
TO:
Interested Persons
FROM:
Marc Carey, Principal Economist, 303-866-4102
SUBJECT:
Oil and Gas Severance Tax Information
Summary This memorandum provides information about oil and gas severance taxes paid by producers in Colorado and other western states. First, county level estimates of severance taxes paid in Colorado on oil and natural gas production are provided for FY 2003-04 through FY 2012-13. Second, estimates of the value of the two primary tax benefits that Colorado producers receive are presented. Third, the difference between statutory and effective severance tax rates is defined and discussed. Estimated effective severance tax rates are presented for Colorado and eight other western states. In Colorado, oil and gas operators receive two tax benefits that reduce their severance tax liability: (1) an ad valorem property tax credit and (2) a stripper well severance tax exemption. This research estimates that the average annual value of the ad valorem credit and the stripper well exemption was $177 million and $89 million, respectively, over the last 10 years. Over this period, the value of the ad valorem credit ranged from $102 million to $262 million, while the value of the stripper well exemption ranged from $63 million to $135 million. The existence of tax benefits causes a divergence in the statutory and effective tax rates. While Colorado's statutory severance tax rate varies between 2 and 5 percent, this research estimates that the effective severance tax rate averaged 1.6 percent over the last 10 years, ranging from 0.4 percent to 2.4 percent. In FY 2010-11, Colorado's effective rate was estimated to be 1.5 percent, the lowest among the nine western states evaluated. Effective rates in other states ranged from 1.6 percent in Utah to 10.6 percent in North Dakota.
Open records requirements: Pursuant to section 24-72-202 (6.5)(b), C.R.S., research memoranda and other final products of Legislative Council Staff are considered public records and subject to public inspection unless: a) the research is related to proposed or pending legislation; and b) the legislator requesting the research specifically asks that the research be permanently considered "work product" and not subject to public inspection. If you would like to designate this memorandum to be permanently considered "work product" not subject to public inspection, or if you think additional research is required and this is not a final product, please contact the Legislative Council Librarian at (303) 866-4011 within seven days of the date of the memorandum.
This memorandum responds to your request for information related to the severance taxes that Colorado oil and gas producers pay to the state. Specifically, your requested information on: • • • • •
oil and gas severance tax collections by county; the value of the ad valorem property tax credit; the value of the stripper well tax exemption; the effective severance tax rate on Colorado producers; and the effective severance tax rate on producers in other states.
This memorandum addresses each of these topics in turn. Severance Tax Collections by County. Over the last 10 years, oil and gas severance tax collections have averaged $148.2 million, ranging from a high of $307.0 million in FY 2008-09 to $28.4 million in FY 2009-10. Based on Legislative Council Staff estimates, the top five counties for average oil and gas severance tax collections over this period in order were: La Plata, Garfield, Las Animas, Rio Blanco, and Weld. Table 1 provides estimated oil and gas severance tax collections during this 10-year period.
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Table 1 Estimated County-Level Oil and Gas Severance Tax Collections FY 2003-04 ADAMS
FY 2004-05
FY 2005-06
FY 2006-07
FY 2007-08
FY 2008-09
FY 2009-10
FY 2010-11
FY 2011-12
FY 2012-13
$12,345
$66,257
$-
$-
$-
$6,810
$-
$-
$-
$-
ALAMOSA
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
ARAPAHOE
$-
$2,238
$-
$1,631
$-
$789
$-
$1,283
$45,554
$53,604
ARCHULETA
$71,971
$133,682
$447,630
$418,327
$576,326
$1,710,616
$251,351
$1,132,434
$961,112
$608,069
BACA
$89,657
$91,754
$95,388
$16,625
$-
$40,708
$-
$-
$29,361
$59,738
BENT
$-
$16,682
$22,391
$-
$-
$-
$-
$9,788
$6,330
$-
BOULDER
$-
$43,521
$109,420
$-
$37,220
$67,357
$-
$37,398
$-
$2,333
$6,562
$5,732
$-
$-
$1,853
$108,026
$-
$42,851
$62,463
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$150,799
$167,872
$210,053
$64,595
$61
$73,697
$-
$-
$580,038
$229,212
CLEAR CREEK
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
CONEJOS
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
COSTILLA
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
CROWLEY
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
CUSTER
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
DELTA
$-
$3,678
$99,932
$7,072
$-
$-
$-
$-
$158
$3,396
$19,319
$16,723
$11,960
$6,412
$66,988
$60,490
$9,609
$50,210
$28,323
$21,810
DOLORES
$-
$26,796
$113,923
$107,361
$13,272
$15,078
$-
$-
$23,177
$27,313
DOUGLAS
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
EAGLE
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$4,892
$-
$-
$41
$-
$-
$-
$-
$-
$-
EL PASO
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
FREMONT
$-
$-
$14,126
$14,567
$-
$-
$-
$182,809
$255,818
$-
GARFIELD
$15,381,831
$28,350,180
$53,873,807
$27,141,137
$34,823,856
$117,867,176
$6,235,564
$23,777,137
$71,503,774
$20,837,414
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
BROOMFIELD CHAFFEE CHEYENNE
DENVER
ELBERT
GILPIN
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Table 1 (Cont.) Estimated County-Level Oil and Gas Severance Tax Collections FY 2003-04
FY 2004-05
FY 2005-06
FY 2006-07
FY 2007-08
FY 2008-09
FY 2009-10
FY 2010-11
FY 2011-12
FY 2012-13
GRAND
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
GUNNISON
$-
$-
$-
$67,142
$202,202
$355,479
$17,364
$102,333
$217,581
$-
HINSDALE
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$216,279
$215,927
$316,901
$165,104
$209,276
$-
$-
$-
$44,575
$43,293
JACKSON
$-
$-
$1,114
$2,702
$12,869
$113,454
$7,874
$4,645
$144,833
$2,121
JEFFERSON
$-
$-
$-
$-
$-
$1,627
$319
$-
$924
$2,189
KIOWA
$-
$9,106
$-
$-
$-
$-
$-
$-
$35,734
$-
$40,629
$32,616
$64,513
$32,428
$-
$-
$29
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
LA PLATA
$78,184,168
$79,853,212
$125,218,801
$70,109,097
$81,633,512
$128,291,637
$18,618,923
$88,729,748
$67,426,646
$52,692,300
LARIMER
$1
$196
$-
$364
$4,235
$63,422
$-
$-
$62,684
$3,549
$7,216,151
$8,946,236
$13,397,262
$8,441,800
$10,291,292
$24,667,988
$1,363,127
$5,534,309
$10,302,036
$5,306,986
LINCOLN
$-
$-
$-
$-
$-
$-
$-
$11,089
$-
$50
LOGAN
$-
$25
$13,929
$311
$18,047
$3,191
$-
$18,808
$10,442
$-
$646,243
$681,637
$1,746,322
$1,200,451
$2,695,458
$7,477,040
$-
$44,475
$2,509,680
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
MOFFAT
$3,290
$1,590,623
$1,419,798
$-
$-
$1,694,363
$-
$-
$720,409
$162,843
MONTEZUMA
$7,757
$81,933
$52,214
$-
$-
$11,253
$8,268
$-
$153,075
$62,118
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$5,989
$12,794
$15,009
$-
$-
$-
$-
$-
$18,740
$26,057
OTERO
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
OURAY
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
PARK
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
HUERFANO
KIT CARSON LAKE
LAS ANIMAS
MESA MINERAL
MONTROSE MORGAN
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Table 1 (Cont.) Estimated County-Level Oil and Gas Severance Tax Collections FY 2003-04
FY 2004-05
FY 2005-06
FY 2006-07
FY 2007-08
FY 2008-09
FY 2009-10
FY 2010-11
FY 2011-12
FY 2012-13
PHILLIPS
$-
$-
$97,053
$53,723
$-
$275,863
$-
$-
$34,264
$-
PITKIN
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
PROWERS
$-
$-
$81,161
$78,049
$-
$118,151
$2,754
$-
$22,929
$-
PUEBLO
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
RIO BLANCO
$3,384,648
$4,593,049
$8,751,645
$5,134,138
$7,636,059
$14,147,244
$1,893,531
$11,268,628
$16,119,889
$12,123,782
RIO GRANDE
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$1,400
$1,738
$57,093
$27,737
$4,155
$7,027
$-
$15
$40,085
$-
SAGUACHE
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
SAN JUAN
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$3,240,937
$3,385,492
$4,206,035
$2,592,566
$1,087,877
$2,573,124
$136
$-
$755,894
$386,696
SEDWICK
$-
$8,176
$24,090
$-
$-
$-
$-
$615
$-
$-
SUMMIT
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
TELLER
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
WASHINGTON
$-
$10,864
$43,025
$4,650
$-
$-
$-
$629
$21,982
$4,549
WELD
$1,488,427
$3,622,924
$-
$-
$409,805
$5,977,944
$-
$-
$14,486,142
$25,609,273
YUMA
$208,574
$343,459
$739,925
$893,348
$186,353
$1,273,950
$-
$-
$507,558
$-
$110,381,868
$132,315,123
$211,244,521
$116,581,375
$139,910,717
$307,003,505
$28,408,847
$130,949,204
$187,132,214
$118,268,697
ROUTT
SAN MUGUEL
TOTAL
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The Department of Revenue collects information on statewide oil and gas severance tax collections; it does not differentiate these collections by mineral or by the location where the production occurred. The Colorado Oil and Gas Conservation Commission (COGCC), however, does maintain county-level production data for both oil and natural gas, at the wellhead level. It is therefore possible to estimate county-level severance tax collections for both oil and natural gas by combining these production data with historical price data and county-level data on the historical assessed value of production and average mill levies. Legislative Council Staff maintains a forecasting model that uses these data to estimate county-level oil and gas severance tax collections. It is important to recognize that these estimates are not actual collections. Statewide aggregate estimated totals are calibrated to actual collections as they are reported at the end of the fiscal year on an accrual accounting basis. Table 1 contains county-level estimates from the model. Value of Ad Valorem Tax Credit. Each year Colorado operators are allowed a tax credit equal to 87.5 percent of the property taxes paid or assessed on the prior year's oil or natural gas production as an offset to their current year's severance tax liability. This property tax credit is often referred to as the ad valorem credit, and is available on all oil and gas wells that are not classified as stripper wells. Because the credit is based on the prior year's production value, the existence of the credit increases the volatility of oil and gas severance tax revenue. If prices rise from one year to the next, operators will have a relatively higher severance tax liability in the current year, and a relatively lower property tax offset. Conversely, if prices are falling, operators have a relatively lower current year severance tax liability and a relatively higher property tax credit. The LCS severance tax model estimates the value of this credit for oil and gas operators. Operators receive these credits on a well-specific basis and are able to offset severance tax liability with credits for prior year's production, regardless of the mineral. However, the model produces only county level estimates and treats oil and natural gas separately. As a result, the model may underestimate the actual value of the tax credit to producers. Over the last 10 years, the estimated value of the ad valorem tax credit to oil and gas operators has averaged $177 million annually, ranging from a high of $262 million in FY 2008-09 and as low as $102 million in FY 2009-10. Value of the Stripper Well Exemption. Colorado statute also contains a severance tax exemption for oil and gas production from small, marginal wells. Specifically, oil wells with an average daily production of less than 15 barrels per day and gas wells with an average daily production of less than 90 MCF (thousand cubic feet) per day are exempt from severance tax. Over time, as production fields mature and production in older wells declines, you would expect to see a higher share of wells classified as stripper wells. In 2012, about 69 percent of oil wells and 50 percent of gas wells statewide (up from 67 percent and 48 percent, respectively in 2003) had average daily production below these thresholds, and were thus exempt from severance tax. In Weld county, however the share of oil wells classified as stripper wells dropped from 70 to 61 percent over this time period due to the increased use of horizontal drilling techniques. The LCS severance tax model estimates the value of this tax exemption for oil and gas operators using production data from the COGCC. Over the last 10 years, the estimated value of the stripper well tax exemption for oil and gas operators has averaged $89 million annually, ranging as high as $135 million in FY 2012-13 and as low as $63 million in FY 2003-08.
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Statutory Versus Effective Severance Tax Rates in Colorado. Because severance tax collections from oil and gas operators are based on an operator's gross annual income, they depend on both the price of the commodity and the amount of the commodity produced during that fiscal year. The statutory severance tax rate for oil and gas varies between 2 and 5 percent depending on an operator's gross annual income. Three provisions, however, create an effective rate lower than the statutory rate. In addition to the ad valorem property tax credit and the stripper well tax exemption discussed above, producers are allowed to deduct from gross income any costs related to transportation, processing, or manufacturing of oil or natural gas incurred prior to sale of the product. The LCS model estimates effective severance tax rates by dividing total oil and gas severance tax collections by the estimated production value in the prior calendar year. Over the last 10 years, the estimated effective severance tax rate for oil and gas operators has averaged 1.6 percent, ranging from a high of 2.4 percent in FY 2007-08 to a low of 0.4 percent in FY 2008-09. Effective Severance Tax Rates in Other States. Thirty-five states have enacted taxes or fees on oil and gas production. States differ in how to impose taxes on oil and gas, generally taxing a fraction of the market value, the volume produced, or some combination of the two. Most states have enacted various tax incentives, credits, and exemptions to encourage production from certain well types. As discussed above, these incentives cause a divergence between the statutory tax rates and the effective tax rates. Table 2 compares the estimated effective severance tax rates for nine western states — Colorado, Kansas, Montana, New Mexico, North Dakota, Oklahoma, Texas, Utah and Wyoming — in FY 2010-11. For each state, estimates of 2010 gross production value for both oil and natural gas are presented, based on data obtained from the Energy Information Administration. Data for oil and gas severance tax collections were obtained directly from state tax administrators or published reports. The final column of Table 2 shows the effective severance tax rate for each state, implicitly accounting for each state's unique tax exemptions, deductions, and credits, which impact the amount of tax actually collected. Among these nine western states in 2010, the effective severance tax rates ranged from 1.5 percent (Colorado) to 10.6 percent (North Dakota). The effective rates in Utah and Kansas were similar to that of Colorado, while the effective rates for the other states ranged from 3.9 percent to 10.6 percent.
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Table 2 Effective Severance Tax Rates for Oil and Gas Producers, FY 2010-11 Total Oil Production Value (gross)*
Total Gas Production Value (gross)*
Total Oil and Gas Production Value (gross)*
Colorado
$2,604.2
$6,250.4
$8,854.5
$131.0
1.5%
Utah
$1,961.2
$1,825.6
$3,786.7
$59.9
1.6%
Kansas
$3,216.4
$1,372.2
$4,588.6
$97.4
2.1%
$33,885.8
$31,535.0
$65,420.8
$2,582.6
3.9%
Wyoming
$4,223.1
$9,913.8
$14,136.8
$633.7
4.5%
Montana
$2,013.5
$318.3
$2,331.8
$104.5
4.5%
New Mexico
$5,196.0
$6,878.6
$12,074.6
$751.3
6.2%
Oklahoma
$5,476.1
$8,606.9
$14,083.8
$964.9
6.9%
State
Texas
Severance Taxes
Taxes/Production Value (Effective Tax Rate)
$8,986.3 $320.8 $10,305.9 $9,307.1 10.6% North Dakota * Production values for oil and gas are for calendar year 2010, and are based on pricing and production data published by the U.S. Energy Information Administration.
Differences in the severance taxes paid by oil and gas producers in different states can be attributed to each state's tax structure. For example, the statutory severance tax rate in Colorado ranges from 2 to 5 percent and is 5 percent in Utah, given current oil and natural gas prices. The effective tax rate in Colorado is lower, however, as the state provides the property tax credit, and has a more generous definition of a stripper well. In contrast, the effective severance tax rate in Wyoming is roughly three times that of Colorado. This is because Wyoming has a higher statutory severance tax rate (6 percent) and also because it allows fewer tax credits, exemptions and deductions. In Oklahoma, the statutory severance tax rate is higher (7 percent at current prices) and the state has minimal tax incentives. The state with the highest effective tax rate is North Dakota. North Dakota imposes a production tax of 11.5 percent and 5 percent on oil and natural gas, respectively. The state has several tax incentives that have been essentially inactive since 2004 due to higher oil and natural gas prices.
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