Texas Natural Gas Tax Breaks under Fire
The State of Texas already generates a fortune from taxes on mining for oil, gas, and minerals. But some legislators are out to scrap a special tax incentive for high-cost natural gas drilling, the kind that bores deeply into natural gas wells and then drills sideways.
Texas has given a tax break to companies that perform high-cost natural gas drilling since 1989. This break was intended to kick-start the natural gas industry, but the legislature has renewed it every few sessions.
According to State Rep. Mike Villarreal (D-San Antonio), in 2003, “Somebody snuck a provision that made the exemption permanent. They buried it inside of a large omnibus bill that had nothing to do with this exemption.”
Since omnibus bills contain many smaller bills and are voted all at once, the extension of the natural gas tax break didn’t got noticed…until the legislative session was over. Rep. Villarreal has authored a bill that would establish a commission to review current tax exemptions and recommend which ones the Legislature should change or eliminate.
“Today it’s costing our state approximately $1.2 billion,” says Villarreal. “Had this tax exemption been allowed to expire, we would not be having to cut our schools so severely or see nursing homes close on the scale that they will likely close because of this austere budget.”
But with more than half of the natural gas produced in Texas coming from these high-cost wells, repealing the tax break would have a big impact on the natural gas industry. Bill Allaway, a senior advisor with the Texas Taxpayers and Research Association says taking away incentives will drive natural gas drillers and refiners out of the state.
“Particularly in times like today, when the price of natural gas is relatively low, it doesn’t take a whole lot of change in the economics to have people shift where they expend their money. The same operator that might be working in Northeast Texas could just simply shift over the line into Louisiana or Arkansas.”
Revenue generated from taxes on mining for oil, gas, and minerals goes directly into the state’s Rainy Day Fund, which some lawmakers have been flirting with to help close the budget gap. Legislators in the Texas Senate have put forward a bill that would repeal the natural gas tax break. It’s currently in committee.