Amendment Proposal: Potential Tax Changes for Oil and Gas Companies

On November 3^rd, Louisiana voters will decide the fate of a proposed amendment to the state constitution that would allow Louisiana property tax assessors to include oil and gas well production when setting the assessment amount.  The goal of the amendments is to generate additional oil and gas tax revenues for parish and state governments. If passed, the amendment will take at least 3 years for the new assessment process to take effect. Constitutional Amendment No. 2 does not change severance taxes.

Representative Mike Huval (R) proposed Louisiana Constitutional Amendment No. 2 in the 2020 regular legislative session. The proposal retains the current constitutional intent, but allows tax assessors to include oil and gas production or the presence of petroleum products as part of a property’s fair market value. Currently, the constitution provides for severance taxes on some natural resources but prohibits additional taxes on sulfur, oil, or gas leases and rights. This means that Louisiana tax assessors cannot currently consider the presence of oil, gas, or sulfur when they determine the fair market value of a property.

The proposal has near-unanimous support from lawmakers, oil and gas industry representatives, and tax assessors. The new method removes ambiguity and simplifies the assessment process. Dry and low-producing wells will be assessed at a lower value than higher-producing wells.

Although not in opposition to the amendment, the Legislative Fiscal Office stated that any effect on local tax bases is speculative. Some parishes will see higher tax revenue increases than other parishes. The Fiscal Office proposed that broader and more fundamental changes are needed in order for the legislature to have the fiscal flexibility it needs.

According to Mike Moncia of the Louisiana Oil & Gas Association, “This amendment brings a fairness to the assessment process for the oil and gas industry, 90% of which consists of small businesses.”  Moncia claimes the Lousiana property tax changes will allow independent operators to reliably predict costs, leading lead to more jobs and additional investment.

On the ballot, voters will see the following text for Louisiana Constitutional Amendment No. 2: “Do you support an amendment to permit the presence or production of oil or gas to be included in the methodology used to determine the fair market value of an oil or gas well for the purpose of property assessment?” (Amends Article VII, Section 4(B))