“No taxation without representation!” the slogan that originated during the 1700s and started a Revolution. In the past 300 years, very little has changed with regards to our view of taxes. Who do we tax? What do we tax? Fair tax, flat tax, internet tax, sales tax, and even a death tax…that’s right, we found a way to tax people even when they are long gone from this world.  My children will even tell you there is an “ice cream tax” – most fathers also know this tax as the giant bite of ice cream we get to steal from our kids whenever they place an order.

For the oil and gas industry, we too have a special tax in Louisiana called the severance tax. The severance tax is levied on the production of oil and natural gas that is “severed” from the land within the territorial boundaries of the state of Louisiana.  Not all states have a severance tax in the same way that Louisiana does, but all states have a method for taxing the production of oil and natural gas.

Louisiana is one of a few states that have different rates for the severance tax of oil and natural gas.  Interestingly, Louisiana not only has different rates, but entirely different methods for calculating the severance tax on oil and gas. The tax rate for natural gas is a flat fee per MCF of production. The fee is set annually by the state of Louisiana and calculated by inputting the previous year’s natural gas prices into a formula.  The formula then spits out a rate that is set for the year and remains in effect until the price is re-set the following year.

While natural gas is taxed with a flat fee per MCF of production, oil is taxed on a percentage of the value of the oil at the time and place of severance. The rate at which we assess severance taxes on oil has us leading the nation, but unfortunately, not in the way one would hope. Louisiana has one of the highest severance tax rates in the country on oil production at 12.5 percent. Texas, the number one oil producer in the US, taxes oil at a rate of 4.6 percent.

It may not be surprising to anyone that the production of crude oil in Louisiana has been in steady decline for some time now. In 2000, Louisiana state crude oil production was almost 76 million barrels. By 2010, that number had fallen to nearly 49 million barrels, a decline of approximately 64 percent. Fast-forward to 2018 with hundreds of legacy lawsuits and dozens of coastal lawsuits, Louisiana is expected to only produce 40 million barrels.

Fortunately, for the industry and people in Louisiana, we have found some relief through legislation and incentives to try and attract more investment. Most recently, in the 2017 Regular Legislative Session, we worked with the House Committee on Natural Resource Chairman Stuart Bishop to craft HB 461 (now known as Act 421), which decreases the severance tax rate on new production in inactive and orphaned wells.  The hope is that our industry will see economic opportunity in these wells with the reduction of the tax burden and bring them back into production.

Leading the nation with the highest severance tax rate for oil production is not the way to lead this state in prosperity and increase outcomes.  We must continue to fight for the success of our industry and elect leaders who celebrate and value to build a better economic environment for the next generation of oilmen and women.

Gifford Briggs is President of the Louisiana Oil & Gas Association.