Budget & Tax , Energy

Jonathan Small & Dave Bond | May 20, 2014

Myths and facts: Are Oklahoma energy producers paying their ‘fair share’ in state taxes? They’re paying an awful lot

Jonathan Small & Dave Bond

[Advocates for raising Oklahoma’s gross production tax from the current 1 percent rate to 7 percent on horizontal and deep-well drilling for oil and natural gas have made questionable claims about the nature of the tax, the effects of energy drilling on Oklahoma’s economy, and the relationship between taxes on drilling and funding state government. This is one in a series of posts in which we present the facts.]

Myth: Oklahoma businesses, both large and small, that drill wells for oil and natural gas within the state are not currently paying their “fair share” of state taxes to benefit Oklahoma citizens.

Facts: Today, a generation after the oil bust of the 1980s, Oklahoma is just as dependent on oil and natural gas production as we were then. The oil and gas industry’s effects on Oklahoma’s private-sector economy impact both job growth and state tax collections.

In 2012, the industry was Oklahoma’s largest source of capital spending, at $11.7 billion, according to a report from the State Chamber of Oklahoma’s research foundation. The industry employed nearly 60,000 people, with average compensation of $110,000, raising the quality of life for tens of thousands of men, women, and children in families across the state.

In addition, more than 53,000 self-employed Oklahomans drew income from oil and gas drilling in 2012. These small business owners and sole proprietors are breadwinners for tens of thousands more men, women, and children in households statewide.

Personal income in Oklahoma reached 96 percent of the U.S. average in 2013, up from 85 percent a decade earlier. Job growth in rural energy-producing counties from 2010-2012 was five times greater than in non-producing rural counties and accounted for 75 percent of new jobs outside the state’s metro areas.

All this activity has helped propel Oklahoma’s state tax collections and government spending to all-time highs. In Fiscal Year 2012, direct state tax payments by energy producers and their employees in Oklahoma totaled nearly $2 billion, or 22 percent of total tax collections, more than any other industry.

These figures don’t even include local taxes paid by the industry, or state and local taxes paid by other, often smaller, employers specializing in storage, refining, pipeline access, or other steps in servicing wells and moving product to market. And from 2001 to 2010, Oklahoma ranked fifth among all states — ahead of Texas and our other neighboring states — in severance tax collections as a percentage of total state and local tax collections, according to U.S. Census Bureau data.

It’s also noteworthy that the gross production tax is an additional tax that Oklahoma energy producers pay, on top of the many other state taxes they pay, such as corporate income tax, personal income tax, and sales tax payments by executives and employees, etc. It is an industry-specific tax that places an extra penalty on what has historically been a crucial industry for our state’s economic well-being.

Cries calling for Oklahoma oil and natural gas producers to pay their “fair share” in state taxes are eerily similar to the Obama administration’s general rhetoric toward the energy industry. And when Oklahoma tax collections are on pace to set new record highs, cries for more tax money are all the more troubling.

Jonathan Small President

Jonathan Small


Jonathan Small, C.P.A., serves as President and joined the staff in December of 2010. Previously, Jonathan served as a budget analyst for the Oklahoma Office of State Finance, as a fiscal policy analyst and research analyst for the Oklahoma House of Representatives, and as director of government affairs for the Oklahoma Insurance Department. Small’s work includes co-authoring “Economics 101” with Dr. Arthur Laffer and Dr. Wayne Winegarden, and his policy expertise has been referenced by The Oklahoman, the Tulsa World, National Review, the L.A. Times, The Hill, the Wall Street Journal and the Huffington Post. His weekly column “Free Market Friday” is published by the Journal Record and syndicated in 27 markets. A recipient of the American Legislative Exchange Council’s prestigious Private Sector Member of the Year award, Small is nationally recognized for his work to promote free markets, limited government and innovative public policy reforms. Jonathan holds a B.A. in Accounting from the University of Central Oklahoma and is a Certified Public Accountant.

Dave Bond Vice President for Advocacy

Dave Bond

Vice President for Advocacy

Dave Bond serves as Vice President for Advocacy at the Oklahoma Council of Public Affairs. He was previously the CEO of OCPA Impact, OCPA's 501(c)4 action partner. Since 2011, Dave has advocated at the Oklahoma Capitol on issues of free enterprise, individual initiative and limited government. He has been referred to in the Tulsa World as "a prominent Oklahoma anti-tax lobbyist". Prior to his advocacy efforts, Dave worked in Oklahoma elections, focused mostly on state legislative campaigns. He was the executive director of the Republican State House Committee, the campaign arm of the Republican caucus of the Oklahoma House of Representatives. Dave also worked with the campaign consulting firm A.H. Strategies and with the inaugural campaign of former Corporation Commissioner Jeff Cloud. In addition, he served in the media and communications divisions of the Oklahoma House of Representatives. Dave has lived in Oklahoma most of his life and is a graduate of Oklahoma State University. He and his wife Marsha have two sons and live in Yukon.

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