The Oklahoma Legislature passed a bill making tax incentives for oil and gas production permanent.
Governor Mary Fallin is expected to sign the controversial legislation, despite threats of a constitutional challenge posed by an Oklahoma City attorney.
The bill was pushed hard by oil and gas industry lobbyists, while critics say the subsidy is no longer needed, as oil and gas production is already a profitable business, according to StateImpact Oklahoma.
The oil and gas production tax incentive effectively amounts to both a tax hike and a tax cut. The bill increases the temporary 1 percent tax rate for horizontal wells to 2 percent for the first three years of production, after which the rate raises to 7 percent. Tax rates on traditional vertical well drilling will drop from 7 percent to 2 percent for the first three years of production, and then increase to the existing 7 percent.
Had the legislature taken no action, subsidy would have expired in July 2015 and the rate for all oil and gas production would have returned to 7 percent.
Under the approved legislation, both vertical and horizontal drilling would enjoy the reduced 2 percent production tax.