Oil and gas: Tax now, drill later

A lawmaker is working to make sure that Washington has the same kind of taxes on natural gas drilling that most other states impose.
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A lawmaker is working to make sure that Washington has the same kind of taxes on natural gas drilling that most other states impose.

Should Washington tax the oil and natural gas coming out of its ground?

The Washington state House Finance Committee held a public hearing on that concept Tuesday, specifically on a bill that would charge a 12 percent tax on the oil and gas pumped out of the Evergreen State's soil.

So far, the state has produced little oil and natural gas, according to the Washington Department of Natural Resources. The bill's sponsor, Rep. Jeff Morris, D-Mount Vernon, said some exploratory drilling was conducted years ago in Eastern Washington, and exploratory drilling is underway for coal bed methane in Southwestern Washington.

He wants to have a tax in place if the state starts pumping natural gas or oil in significant amounts . "It's good to talk about this issue before active production begins in this state," Morris said.

The 12 percent tax would be applied to the market value of the natural gas or oil as it is measured shortly after coming out of the ground.

Eighty percent of that tax revenue would go to an account to replace Washington Department  of Natural Resources land that have been sold. However, up to half of that share of the revenue could be redirected to energy efficiency projects tackled by the  Washington Housing Finance Commission. The remaining money would go to local government. 

No revenue predictions have been made because Washington has not yet produced a significant amount of natural gas or oil. Thirty-six states have some type of mineral extraction tax, with 31 of them specifically taxing natural gas and oil.

The Western States Petroleum Association opposes the idea of such a tax, but concedes that it probably cannot fight the tide of 36 other states having similar taxes, said the association's lobbyist Greg Hanon. 

However, he argued that the 12 percent tax rate is too high, noting that New Mexico's rate is 3.75 percent, South Dakota's rate is 4.5 percent, and North Dakota's rates are complicated,ranging from 2 percent to 6.5 percent.

For exclusive coverage of the state Legislature, check out Crosscut's Olympia 2013 page.


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About the Authors & Contributors

John Stang

John Stang

John Stang is a freelance writer who often covers state government and the environment. He can be reached on email at johnstang_8@hotmail.com and on Twitter at @johnstang_8