The state House on Monday passed a bill that would cut the oil severance tax rate by 4 percentage points, a measure that aims to revitalize Louisiana’s oil industry but could leave an $80 million gap in state tax revenue.
, sponsored by Rep. Beau Beaullieu, R-New Iberia, faced virtually no pushback on the House floor, passing the chamber 86-13. It now heads to the state Senate.
With a vote of 96-6, the House also overwhelmingly passed a second Beaullieu bill, , which would halve the tax currently levied on oil and gas produced by wells that have been orphaned and inactive.
Currently, if a well has been inactive for two years or more, any oil or gas produced from it is taxed at a reduced rate of 50% of the general severance rate. HB 418 would cut it to 25% of that rate, and it would bring the rate for wells orphaned for over 60 months from 25% to 12.5% of the general rate.Â
Beaullieu has said HB 418 aims to incentivize people to get orphaned and inactive wells back into production. The law would cost the state about $350,000 in annual revenue, according to the bill's fiscal note.Â
HB 259, which only applies to oil wells and not gas wells, is expected to have a much bigger fiscal impact.
Louisiana taxes oil extracted from certain active wells at 12.5% of its value. HB 259 would gradually bring that rate to 8.5%, stepping it down by half a percentage point each year starting in 2025.
Lawmakers have tried and failed to pass similar tax cuts in recent years.Â
The change proposed in HB 259 would cost the state nearly $107 million in tax revenue over the next five years, according to the Legislative Fiscal Office. Invest in Louisiana, formerly known as the Louisiana Budget Project, estimates it will put the state short about $80 million in annual revenue once the rate reaches 8.5%.
Jan Moller, who heads that organization, has warned against moving forward with the tax cut, especially as the state faces an anticipated half-billion-dollar budget shortfall after the 0.45-cent temporary sales tax rolls off next year.
But supporters of HB 259 argue lowering the tax will prompt renewed investment in the state’s oil industry. Increased oil extraction could offset the revenue loss, they say. A state economist told a House panel he doubted such impacts would offset more than 5% to 15% of the loss.
The budgetary challenge also comes as the state is expected to face rising costs related to the slew of tough-on-crime measures lawmakers passed during the recent special session. Those measures will keep people convicted of crimes locked up longer, reversing 2017 criminal justice reforms that saved the state millions of dollars.Â
Editor's Note: An earlier version of this story stated that orphaned and inactive wells are taxed at rates of 50% or 25%. In fact, they are taxed at 50% or 25% of the general severance tax rate for active wells.Â
