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Wyoming has not raised its basic severance tax for oil, gas, and coal for 28 years.
WyoFile would like to see that change.
Right now, Wyoming seems to be pretending that the energy world of 2009 is the same as the energy world of 1981. It’s not.
The era of cheap carbon-based energy is over. Wyoming gets this part. It happily takes the cash, but imagines that it can do this in perpetuity.
Wyoming has been very slow to recognize, however, the ramifications of another development: the era of energy uncertainty.
For economic and environmental reasons, the entire globe is doing its best to wean itself from oil, gas, and most especially, coal. Inventors and corporations are making inroads, however narrow, into energy demand. Eventually, these changes will affect Wyoming and its energy ace-in-the-hole: our vast coalfields.
When that happens, the glory days of collecting severance taxes are over. You can’t put a severance tax on conservation, or on solar, geothermal or wind energy.
For example, this week British Petroleum announced plans to build the world’s largest biofuels refinery in Florida. The feedstock: inedible plants. Try putting a severance tax on switch grass.
The rest of the world, including Alaska, has recognized this change. In 2007 Alaska raised its basic severance tax to 25 percent of taxable income, and also takes a state royalty.
Wyoming’s basic severance tax is 6 percent. It takes no royalty, although counties assess a tax on energy -producing properties.
We think Wyoming should follow Alaska’s lead. Not blow-for-blow, of course. There are differences between the two states. Alaska produces five times more oil than Wyoming. There are many similarities, however. Most importantly, the federal government owns roughly the same percentage of the mineral estate in each state, 61 percent for Wyoming and 64 percent for Alaska.
This has not stopped Alaska from seeing itself as a state with sovereign powers over oil and gas taxation.
WyoFile thinks Wyoming should closely examine Alaska’s floating, or progressive, severance tax. When the price of oil and gas goes up, so does the severance tax. When it the price drops, so does the tax.
Secondly, Alaska gives big tax incentives for companies to explore and develop minerals. The state issues tax credits to encourage small producers. We don’t.
Lastly, we commend Alaska’s attitude. The state has embraced a reality-based approach to severance taxes and state finance. Alaska, like Wyoming, critically depends on oil and gas revenues. Also like Wyoming, Alaska has a permanent mineral trust fund.
With its small population and lack of industrial diversification, Wyoming lacks the critical tax base to pay for roads, schools, water projects, and healthcare. Unless our children’s children are to become wards of the federal government, this generation needs to put a lot of money aside for the future.
The best time to make changes is now, when energy prices are in decline. Since July 2008, the price of natural gas, currently our cash cow, has dropped from $14.00 to $4.50 per mcf.
We think its time to start talking.
Contact Your Local Representative Here
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Related WyoFile Items On Tax Severance:
Get Involved! Ask Your Lawmaker For Change
Does Wyoming Get Enough for Its Mineral Riches? Severance Tax Reform in the Cowboy State, article by Samuel Western, February 8, 2009
Samuel Western discusses severance taxes with Wyoming Public Radio, audio interview, February 13, 2009
Bill Sniffin On Severance Taxes, Article February 23, 2009.