Louisiana’s oil lobby and tax assessors are pushing support for a Nov. 3 constitutional amendment to change how oil and gas wells are taxed.
Amendment No. 2 would amend Louisiana’s constitution to allow an oil or gas well’s productivity to be factored into the overall value for property tax assessments, allowing parish assessors to raise taxes on productive wells and lower them on less productive operations.
The state’s constitution currently prohibits assessors from factoring how much income oil or natural gas wells generate when establishing overall assessed value. Instead, the constitution limits them to using values based on the hypothetical cost to replace the well based on its age and condition or a fair market value. A Public Affairs Research Council of Louisiana analysis notes the technique is widely viewed as a cumbersome and arcane assessment system fueling frequent clashes among assessors, oil and gas producers and the Louisiana Tax Commission, which is the chief regulatory body for this type of tax assessment.
The statement argued that although there are three ways to assess property, (those methods are the ‘cost,’ ‘market’ and ‘income’ methods) the state constitution only includes the use of two for oil and gas wells in Louisiana. CA-2 would include the income approach as the third methodology to value oil and gas wells for property assessment. The income approach values wells based on their ability to produce revenue.
PAR notes that the Louisiana Tax Commission would create rules for how the production of a well’s oil and gas would be incorporated into the method used by local assessors. The intent is not to raise or lower taxes on oil and gas wells in general, but the organization notes a shift in tax burden would occur. Low-producing or shut-in wells may be assessed less, and wells with higher production potential may be assessed more.
PAR notes the amendment is narrow and does not affect severance taxes, only allowing the income approach to be considered when assessing an oil or gas well, along with the
market and cost approaches. This change will give the local assessors and the Tax Commission the tools they need to assess wells logically and fairly and could reduce
litigation. It may also lessen the unfair tax burden on some low producers.
But PAR suggests that a better solution would be a broader and more fundamental
change to create a Constitution that allows the Legislature more flexibility with state fiscal policy.
“This amendment brings a fairness to the assessment process for the oil and gas industry, 90% of which consists of small businesses,” said Mike Moncla, Interim President for the Louisiana Oil & Gas Association. “When independent operators can reliably predict their costs, they can allocate more to supporting and expanding their workforce. Fairness and predictability lead to more investment.”
