No Income Tax for North Dakota?

Dalrymple cuts state income tax
Dalrymple cuts state income tax

In a few short days, the North Dakota legislature heads back into session. Expected to take center stage are several key funding issues recently made more crucial by the continued decline in oil prices

First is an initiative by GOP members that would effectively wipe out the state income tax. A new bill that is expected to be introduced early in the session will reduce the income tax rate to zero. This is a counter to Gov Dalrymple’s proposal for a 10% decrease in personal and corporate income tax that was made in an effort to draw more people to the region. This issue is highly contested since there is great concern over the potential lost revenue due to plummeting oil prices.

North Dakota's state funding is tightly tied to taxes on oil and gas production and was responsible for more than half the state’s revenues for 2013. So as oil prices decline, legislators have reason to be nervous. In addition to expected lower production, there is a quirky law from 2001 that allows tax exemptions when oil hits a certain low price point. Though the formula is a bit complicated, basically if oil stays below $52.58 (2015) for five consecutive months, the percentage of tax decreases, potentially resulting in untold millions in lost revenue.

Reduced tax revenue brought on by low oil prices has already put many services at risk, so reducing state income tax is making many lawmakers nervous.

Senate Majority Leader Mac Sneider told a teh Jamestown Sun that “I think at a time when we’re seeing warning signs of not wanting our budget to be dependent on the price of a commodity, I think eliminating the income tax is shortsighted. We’ll be focusing on tax relief, but it’ll be on the tax that people are most concerned about, and that’s property tax.

Another funding issue that ND legislators will be deciding is the way the state divides tax revenues. When Gov. Dalrymple rolled out his proposed budget, it included a change in the state’s oil production tax distribution formula that would shift the way funds are split and allow more money to be funneled back to the county level. Currently local governments receive 25 percent of these funds but this would increase that 60 percent, which would be vitally important to improve local infrastructure (including roads, water plants and housing) that has not caught up with the demand.

Read more at washingtonpost.com

(photo credit: North Dakota National Guardcc

Bakken Oil Revenue Could Push North Dakota's Legacy Fund to $3 Billion

Bag of Cash
Bag of Cash

North Dakota first proposed the Legacy Fund in 2008 and legislators approved its creation in 2010. The legislature expected deposits might reach $600 million dollars by the summer of 2013. Instead, the fund is sitting on $1.3 billion and could very well surpass $3 billion by the time lawmakers determine the best use of the funds.

30% of annual oil extraction and production taxes are directed to the fund and spending is restricted through 2017. Even then, spending has to be approved by a two-thirds vote and no more than 15% of the fund can be spent in any two year budget cycle.

It is growing very fast. It’s going to become much bigger.
— Republican Gov. Jack Dalrymple

Add the $583 million rainy day fund and the $342 million property tax relief fund and it becomes very clear the North Dakota oil boom is setting the state up for a long and prosperous future.

Read the full article at thefiscaltimes.com