LEGISLATIVE FISCAL OFFICE
Fiscal Note
Fiscal Note On: HB 26 HLS 21RS 71
Bill Text Version: ENROLLED
Opp. Chamb. Action:
Proposed Amd.:
Sub. Bill For.:
Date: June 9, 2021 2:03 PM Author: MCCORMICK
Dept./Agy.: Revenue
Subject: Severance Tax Exemption - Stripper Well Oil Production Analyst: Greg Albrecht
TAX/SEVERANCE-EXEMPTION EN NO IMPACT GF RV See Note Page 1 of 1
Provides with respect to the severance tax exemption for stripper wells
Current law imposes a severance tax on the production from stripper wells (no more than 10 barrels of oil per producing
day) of 3.125% of the value of the oil when severed. This tax is exempted in any month when the average value is less than
$20 per barrel.
Proposed law will exempt the tax on oil produced from stripper wells in any month when the average value is less than $35
per barrel.
EXPENDITURES 2021-22 2022-23 2023-24 2024-25 2025-26 5 -YEAR TOTAL
State Gen. Fd. SEE BELOW SEE BELOW SEE BELOW SEE BELOW SEE BELOW
Agy. Self-Gen. $0 $0 $0 $0 $0 $0
Ded./Other $0 $0 $0 $0 $0 $0
Federal Funds $0 $0 $0 $0 $0 $0
Local Funds $0 $0 $0 $0 $0 $0
Annual Total
REVENUES 2021-22 2022-23 2023-24 2024-25 2025-26 5 -YEAR TOTAL
State Gen. Fd. $0 $0 $0 $0 $0 $0
Agy. Self-Gen. $0 $0 $0 $0 $0 $0
Ded./Other $0 $0 $0 $0 $0 $0
Federal Funds $0 $0 $0 $0 $0 $0
Local Funds $0 $0 $0 $0 $0 $0
Annual Total $0 $0 $0 $0 $0 $0
EXPENDITURE EXPLANATION
The Department of Revenue will incur staff costs associated with modifications to the tax processing system to incorporate
the new price threshold in this bill. These costs for programing and testing are typically estimated as a few thousand dollars
of staff time. Additional staff time costs associated with handling issues with taxpayers resulting from this change will also
likely be incurred if the monthly price of oil approximates the price threshold.
REVENUE EXPLANATION
The current exemption was enacted by Act 2 of 1994, resulting in intermittent months of tax exemption from FY95 through
FY99. Since then, oil prices have generally exceeded $20/bbl and these wells have been subject to the stripper rate of
3.125% of value (1/4 the tax of full-rate production). Over the last four fiscal years (FY17-FY20), these wells have been
producing approximately 4 million barrels of oil per year, and being exempted from approximately $20.6 million of severance
tax per year (3.7 million barrels and $18.8 million in FY20) relative to the full-rate tax of 12.5% of value.
Oil prices are currently more than the $35/bbl threshold proposed by the bill (currently in the $60/bbl to $65/bbl range), and
are currently expected to exceed that price threshold throughout the fiscal note horizon. Thus, the bill is not expected to
exempt these wells from their current level of tax payment, some $3.9 million per year.
Senate Dual Referral Rules House
13.5.1 >= $100,000 Annual Fiscal Cost {S & H} 6.8(F)(1) >= $100,000 SGF Fiscal Cost {H & S}
Christopher A. Keaton
13.5.2 >= $500,000 Annual Tax or Fee 6.8(G) >= $500,000 Tax or Fee Increase
Change {S & H} or a Net Fee Decrease {S} Legislative Fiscal Officer


Statutes affected:
HB26 Original: 47:633(7)
HB26 Engrossed: 47:633(7)
HB26 Enrolled: 47:633(7)