Report: Colorado's oil industry tax rates hit a low

By: Mary Shinn
June 20, 2012

A report released Wednesday found Colorado had the second-lowest effective tax rate for the gas and oil industry among comparable western states.

Headwaters Economics, a nonprofit research group that released the report, found that once all deductions and incentives were taken into account Colorado’s effective tax rate in 2011 was 4.4 percent, down from an effective tax rate of 8.5 percent in 2009 because of the recession and lower oil and gas prices.

The report found that North Dakota, Montana and Wyoming all had effective tax rates of more than 10 percent in 2011.

Doug Flanders, a spokesman for the Colorado Oil & Gas Association, said the Headwaters study did not take into account all of Colorado’s oil and gas taxes. He said other reports have found that Colorado is on the high end of overall taxes on the industry.

Oil and gas taxes are a hot topic in Colorado Springs. After months of study, the City Council will begin debating regulations on the industry on June 26 and impact fees are a major topic of discussion.

Mark Haggerty, a spokesman for Headwaters Economics, said when a drilling boom starts, a town needs greater infrastructure and more city staff to provide services to the industry and new residents, but that Colorado’s tax structure will not return money to the community for a year or two after the wells are drilled. Impact fees, he said, are a possible solution.

“It’s a good tool to raise the money where it’s needed,” he said.

Haggerty said Montana simplified its oil and gas industry tax to a single production tax assessed quarterly, which allowed communities to receive funds much faster. That’s compared to Colorado’s tax structure, which includes a state severance tax, property taxes, sales taxes and others.

Local governments also have to keep an eye on how oil and gas taxes will affect them under the Taxpayer Bill of Rights, or TABOR, said Fred Crowley, senior economist for the Southern Colorado Economic Forum.

Businesses can also take on part of the infrastructure burden and agree to build roads and maintain roads they need for a certain number of years, Crowley said.

Crowley agreed that more tax efficiency would help local governments.  

“There is always a more equitable way,” he said.

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