Tax & Royalty Revenue
Tax and royalty revenues from oil and natural gas are critical funding sources for local, state, and federal governments. We often hear from opponents that the oil and natural gas industry needs to pay its fair share. But like many other accusations, this one turns out to be unfounded. From corporate income taxes to excise taxes, state taxes, and federal royalties, rents and bonuses, the industry provides multi-billions in government revenues.
- For every dollar the government spends administering the federal onshore oil and natural gas program, companies return $16.14 in royalties and leasing revenue to the American taxpayer.
- According to economics firm John Dunham & Associates, the exploration and production sector in the West generates $12 billion in local, state and federal taxes annually.
Revenue from Oil & Natural Gas Supports Local Communities
In the West, states and counties rely on a healthy oil and natural gas industry to balance state budgets and fund education, public safety, and infrastructure projects.
- In New Mexico, the industry paid $2.2 billion to the state in 2018, representing 32% of total state revenue. $1.062 billion directly funds public and higher education.
- The industry in Colorado generates $669 million in average annual education funding.
- In Wyoming, the industry contributes $1.7 billion in total tax revenues.
- North Dakota, the second largest oil producing state in the country, enjoys $3 billion in revenue attributed to the industry in the form of severance taxes, sales taxes, personal income taxes, corporate income taxes, property taxes, royalties, lease bonuses, charitable donations, licenses, and fees.
Royalty Rate Increases
Western Energy Alliance president Kathleen Sgamma serves on the Department of the Interior’s Royalty Policy Committee (RPC). The RPC has recognized that simply increasing the royalty rate above 12.5%, as many activists would like, would result in lower royalty returns to the federal government, as it would further discourage producers from operating on federal lands, which continue to be less competitive than adjacent nonfederal lands.
The federal royalty rate is lower than many states’ royalty rates because it reflects the added cost the federal government imposes on public lands development. With myriad bureaucratic processes and regulations, development on federal lands takes considerably longer and is more expensive than corresponding state and private lands. Until the government’s processes are more efficient so that federal lands can compete with nonfederal lands, the current royalty rate equitably reflects the relative value of federal lands.
Understanding that reality, the RPC has been focused on policies to improve the competitiveness of federal lands so that more producers will be willing to increase development, returning more royalties, rents and lease bonuses to the American taxpayer.