Tribes threaten to pull out of oil tax agreement with North Dakota

A Native American tribe whose land accounts for about a fifth of North Dakota's oil production has renewed threats to pull out of a revenue-sharing agreement with the state, saying a reduction in taxes on the industry violates the accord.

"We're not bluffing," Three Affiliated Tribes Chairman Mark Fox told the North Dakota House's Finance and Taxation Committee on Tuesday.

The panel is examining legislation, introduced by Republican House Majority Leader Al Carlson that would cut tax increases for producers if oil prices rebound above $90 a barrel, which is nearly twice was North Dakota sweet crude was fetching Tuesday.

Fox said the measure "perpetuates an ongoing violation" of the tax agreement, and shortchanges the tribes in revenue. About 20 percent of the 1 million barrels of oil produced daily in North Dakota come from the Fort Berthold Reservation, occupied by the Mandan, Hidatsa and Arikara tribes.

The Legislature passed a measure in 2015 that abolishes some price-based incentives for the oil industry in exchange for a lower oil tax rate -- from 11.5 percent to 10 percent. Three Affiliated Tribes officials said they're not happy with the tax cut because more money is needed to pay for oversight, road repairs and other consequences of oil development.

Tribal leaders have threatened since then to pull out of the oil tax revenue-sharing agreement that has raised nearly $2 billion for the state and the tribes since 2008.

Tax Department data show that since the agreement was adopted, the state has collected $973 million in oil revenue, with the tribe getting $844 million. The state's share of oil taxes from reservation land is divided among counties, cities, school districts and a number of state funds and programs.

Prior to that agreement, only one well had been drilled in the prior 20 years on the reservation due to complex tribal rules and uncertainty about taxes. Since the regulatory and revenue-sharing agreement was signed, more than 1,500 wells have been drilled.

The prospect of big tax cuts due to declining oil prices had North Dakota lawmakers scrambling in the 2015 session to modify the tax framework. It was the most contentious bill of the session and passed just a few days before lawmakers adjourned.

Carlson and Tax Commissioner Ryan Rauschenberger said if the triggers had gone into effect, the state would already have lost about $450 million in the past year.

The measure to be considered this session would scrub the final trigger that would raise the tax rate by 1 percent if the price of oil exceeds $90 a barrel.

Carlson said while the price of oil is unlikely to reach that threshold any time soon, the measure does away with what he believes punishes oil producers when times are good.

"It's not good tax policy: If you make more, we tax you more," Carlson said.

But Fox said lowering tax rates does nothing to spur oil drilling.

"Oil production is driven by the price of oil," Fox said. "In the two years since the Legislature lowered the tax rate, production has not increased but, in fact, has decreased."