Idaho's effective tax rate on oil and natural gas is less than half the average in eight producing states spread around the West, according to a report released Thursday by the state Department of Lands' Oil/Gas Conservation Commission (OGCC).
Idaho's rate turns out to be 4%, while the average in the eight producing states is 9.5%, according to a $37,000 third-party study requested by county and state lawmakers. Oklahoma is the only state with a lower rate (3.2%). The other states included in the study are Alaska, Louisiana, Montana, North Dakota, Texas, Utah and Wyoming.
A caveat offered by the authors noted that in Idaho related companies own both production equipment, associated gas pipelines and a gas processing plant, so the property taxes paid on the combined operations of the companies creates much bigger effective tax rates (effective property tax of 8.8% and total effective rate of 11.3%).
Conducted by North Dakota-based Covenant Consulting Group and completed last month, the study noted that rates of oil/gas taxation are "an important issue" to royalty owners, production companies, state/local governments, and the general public. Its authors acknowledged that because of the differences state-by-state, it is difficult to make "apples-to-apples" comparisons.
Government officials in Idaho, where a potentially growing natural gas industry is developing in the southwest part of the state, increasingly have talked about fossil fuel production potentially bringing "huge amounts of money" into Idaho. And several state legislators asked the state agency to pursue the study.
Idaho taxes oil/gas production at a 2.5% rate of its value, and for the purposes of the report, the state's property tax was assessed at an equivalent 1.5% rate of the value of the production. "Some states assess a severance or production tax in lieu of property taxes, and others (or local jurisdictions) assess an ad valorem property tax in addition to severance or production type taxes," the report said.
The report analyzed severance/production taxes of states, along with property taxes imposed on production equipment and on mineral reserves. In addition it said some states that assess taxes on gas production do so on a flat rate (per-Mcf) basis.
Wyoming turned out to be the highest at 13.4%, followed by Louisiana (13.3%) and Alaska (12%) at the top. Utah (6.1%) and Texas (8.3%) were at the bottom, in addition to Oklahoma and Idaho, the two lowest.
"Creating a true comparison among states is virtually impossible," the study authors said. "While the method of dividing total taxes by production value provides a comparison, it does not fully account for all the differences among the states."
As an example, the report said that in Alaska only about 1% of royalties are subject to taxes because either the state or federal government owns most of the minerals.