Friday, May 24, 2024

Proposal would let parishes keep more oil and gas taxes

by BIZ Magazine

By Wes Muller, Louisiana Illuminator

A Louisiana lawmaker has proposed a constitutional amendment to allow parish governments to keep a larger share of oil and gas taxes. 

House Bill 278, sponsored by Rep. Jack McFarland, R-Winnfield, would apply to severance taxes on all natural resources other than sulfur, lignite or timber. It proposes that parish governments get to keep the lesser of either $2.85 million or the aforementioned tax revenue.

Severance taxes are levied on natural resources when they are taken from the earth. Oil and gas collections account for almost 92% of all severance tax collections in Louisiana, according to the state Department of Natural Resources.

The bill proposes that the $2.85 million limit shall be adjusted annually for inflation according to the average annual increase in the Consumer Price Index. 

Currently, the Louisiana Constitution allows parishes to keep a maximum of roughly $1.14 million in severance taxes and allows annual inflation adjustments. Current law also has triggers that could potentially increase the amount to $2.85 million if revenue forecasts reach a certain threshold. McFarland’s bill would repeal those triggers. 

“When all these severance taxes were passed, the original intent was to help with roads, bridges and schools,” McFarland said in a phone interview. “Over the years, the state started depending on the revenue.” 

McFarland’s proposal would also require parish governments to use 100% of any excess severance tax remittances on transportation and infrastructure projects, up from the current 50% requirement. The bill defines excess remittances as any amounts greater than the amount in the 2022-23 fiscal year. 

“To me, it’s a tradeoff,” he said. “The more severance tax parishes can keep, the less money we have to give to them in capital outlay for roads and bridges.”

Louisiana collected about $302 million in severance taxes during the fiscal year that ended June 2021. McFarland said the state forgoes a lot of oil and gas revenue because it suspends the severance taxes on the first two years of a well’s life, which are the most productive years. 

As a constitutional amendment, the bill faces a difficult journey to enactment. It must receive a two-thirds vote in both chambers of the legislature and then receive voter approval in the fall election.

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