Bill Caption

Relating to the severance tax exemption for oil and gas produced from certain inactive wells.

Fiscal Notes

Bill Analysis

Under current law, hydrocarbons produced from a two-year or three-year inactive well qualify for a 10-year severance tax exemption. HB 3201 would further define the term "two-year inactive well" to narrow the meaning of the term for the purposes of eligibility for a severance tax exemption, strike provisions related to three-year inactive wells, and allow for the indefinite designation of two-year inactive wells. In addition, the exemption would be limited to five years rather than the current ten.

Vote Recommendation Notes

The inactive well tax exemption was limited in nature and only applied to certain wells in certain years for a ten year period. The last wells to have received the tax exemption are coming to the tail end of their ten year exempt period which means the entire exemption is effectively phasing out under the provisions of current law. This legislation would revitalize the incentive program for the purpose of encouraging more two-year inactive wells to come back online which would benefit the overall economy even though the wells themselves would be exempt from the severance tax.

While we understand the attractiveness of this kind of incentive program, it does violate our limited government principle by giving preferential tax treatment to a specific industry to encourage desired economic behavior. This leads us to oppose this exemption as we have opposed others throughout the legislative session.