Oil rigs in Oklahoma are being taxed through a dual-rate structure that may not be the best method of insuring that oil and gas profits are benefiting the state in the most effective way possible.
As Oklahoma Watch reports, oil rigs are taxed at a much lower rate during their first three years. But half of a well’s lifetime oil and gas production usually occur during those first three years.
Thus, the tax rate is set up in such a way that the state takes its smallest cut during the well’s most prolific period. The information, from an analysis of 3,000 horizontal wells, holds extra weight due to the horizontal drilling boom of recent years.
If tax rates are going to rise on wells that are expected to peter out over time, the situation could spell trouble in a state already beset by a staggering budget shortfall.
State Treasurer Ken Miller said he doesn’t believe the double tax rate is working.
But some oil advocates said they would continue to fight for the dual rate.