Tuesday, April 17th, 2018

Texas & Taxes: How much does the Oil and Gas Industry pay?

Oil and Gas Taxes in TexasAs part of one of the most booming sectors in the nation, the Texas oil and gas industry pays a hefty burden in the way of taxes, royalties, and fees to the state as well as to the federal government. In fiscal year 2017, companies drilling and producing in Texas paid a whopping $11 billion plus dollars in taxes and royalties to the state of Texas alone.

More Activity Invites Higher Tax Demand

Oil and gas producers pay a severance tax to the state in which they operate. The more hydrocarbons producers remove from the land, the more they pay in crude oil and natural gas production taxes. Currently, gas and oil producers in Texas pay 7.5% on the market value of gas, 4.6% for oil, and 4.6% for condensate.

Gas and oil producers in Texas also pay many other taxes depending on their operations. For example, producers may have to pay taxes on any or all the following:

  • Insurance
  • Oil and gas well servicing
  • Sales and use
  • Heavy-duty equipment use

Altogether, these taxes quickly add up –– to the tune of billions of dollars a year. And although the State of Texas sometimes offers incentive programs that can change how much a company will pay, these companies also get hit with a tax bill from individual counties, mostly in the form of property taxes.

Where Texas Oil and Gas Royalties and Taxes Go

The Texas oil and gas industry contributes significantly to the Texas budget––even more so lately because severance taxes in Texas are based on value rather than volume. With the Shale revolution is full swing––and commodities pricing on the rise––Texas oil production is booming. In the Permian Basin alone, the oil industry produces and astonishing 2.8 million barrels of oil per day and climbing, up approximately 80,000 barrels a day month-over-month since 2009.

As the volume goes up, so does the tax revenue potential.

In 2017, the Texas state legislature passed a $217 billion two-year budget, making the annual budget approximately $108.5 billion. The $11 billion paid in taxes by the oil industry in 2017, which was an increase on the ~$9.4 billion the industry paid in 2016, accounts for almost 10% of the entire state annual budget. With production steadily going up, that number will likely increase in 2018 as well. The industry has paid over $100 billion in taxes to Texas over the last decade.

The state divides revenue from oil and gas taxes into several funds. 37.5% goes to the Rainy Day Fund, which is held to help with emergencies and disaster relief. An additional 37.5% goes to the State Highway Fund. The rest goes into the Foundation School Program.

Texas oil and gas companies aren’t just doing business and paying taxes. These companies stimulate the local economy. Their tax dollars help build and maintain roads. Those same dollars help to build schools and educate children.

Also, these companies provide hundreds of thousands of jobs and millions of indirect jobs. In all, it’s hard to say just how much they contribute to the state in taxes, jobs, and indirect jobs, but without the tax contributions from the oil and gas industry, Texas would be a lot worse off in the budget department.