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Revenues from state tax hikes exceed expectations

 The Journal Record | July 11, 2019

OKLAHOMA CITY – A year into a measure increasing taxes on motor fuel, oil and gas production and cigarettes, state revenue from the measure increased more than expected.

The rate increases were projected to bring in an additional $475 million, but state revenue from the taxes increased by $692.9 million instead.

The tax rate changes were part of House Bill 1010xx, which passed March 29, 2018, and was among revenue measures intended to fund teacher pay raises.

The bill increased motor fuel tax by 3 cents per gallon for gasoline and 6 cents per gallon for diesel fuel, increased the cigarette tax by $1 per pack and raised the initial gross production tax rate from 2 percent to 5 percent for the first 36 months of production.

State revenue from the gasoline tax increased by $46.8 million to $365.2 million, revenue from the diesel tax increased by $43.6 million to  $172.9 million, revenue from GPT increased by $469.1 million to $1.1 billion and revenue for the cigarette tax increased by $133.3 million to $336.6 million.

The bill brought the state motor fuel tax from 16 cents per gallon to 19 cents per gallon for gasoline and from 13 cents per gallon to 19 cents per gallon for diesel.

The national average state motor fuel tax is 24.85 cents per gallon on gasoline and 25.62 cents per gallon on diesel.

In July, Oklahoma tied Texas for sixth-lowest total taxes and fees (including local, state and federal rates) on gasoline at 38.4 cents a gallon. It tied Texas for fourth lowest in total taxes and fees on diesel fuel at 44.4 cents per gallon, according to the American Petroleum Institute.

Meliora Capital President Chas Craig said the prominence of the oil and gas industry can be largely credited for the state’s low motor fuels tax.

“A big part of our employment picture is oil and gas and the state wants to be supportive of the industry and not give people a reason not to drive their cars,” Craig said.

Taxes on the state’s largest industry, specifically GPT and ad valorem tax rates, are often a topic of debate for policymakers and interest groups.

In March, the State Chamber Research Foundation and economic research firm RegionTrack published an assessment showing a reduction of $1 billion in oil and gas industry GDP would cause an average reduction of $102 million in state tax revenue.

The assessment and its author, Mark Snead, argued policy focuses too heavily on GPT and did not consider enough other taxes paid by the industry, such as income tax.

“What it highlighted was that not only is severance tax not the primary or single source of revenue in the industry when the industry is growing, it is also not the primary or single source of falling tax revenue when the industry is under pressure and shrinking,” Snead told The Journal Record.

Craig said a 3% GPT rate increase is not a large enough jump to make a scale impact on the industry.

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