Colorado's severance tax rate - fair or not?

Against: Raising levy would boost government coffers at our expense

J. Greg Schnacke

Published October 27, 2007 at midnight

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As the old saying goes: "Tax not you, tax not me - tax the guy behind the tree." That's the siren call of those who want to raise Colorado's severance tax.

But, as usual in these political debates, consumers aren't getting the whole story. This issue isn't about fairness. It's about satisfying the ever-increasing appetite of the tax-and-spenders who want to confiscate and spend even more of your hard-earned money. A severance tax hike will fatten government coffers at the expense of Colorado consumers - you, me and the guy behind the tree.

First, Colorado's system is not a giveaway to the state's largest industry. For property tax purposes, your house is taxed at about 9 percent of assessed value. Business is assessed at 29.5 percent. Oil and gas are taxed at 87.5 percent.

Second, critics of the current system overlook a key element - local property taxes. When the legislature adopted the severance tax in 1977, it decided to keep the bulk of the tax at the local level by creating the ad valorem tax credit. The credit acts as a balancing mechanism to even out local tax rates and help to reduce disincentives to investment in high-tax counties. Eliminating the credit will immediately hurt many counties, mostly in eastern Colorado.

Colorado's severance-tax system differs from other states where the bulk of the tax is imposed and collected by the state. Local governments and local taxpayers benefit directly from the ad valorem revenues. While a portion of the state severance tax is distributed back to local governments, it is local ad valorem taxes that should be looked to as the primary help for local governments and taxpayers to address their needs.

Third, Colorado ranks in the middle of its peer "producing states" when it comes to total taxes on oil and gas.

Fourth, Colorado's system raises money - lots of it. Over the past decade, six Colorado counties have received more than $100 million each in mineral property taxes. Another eight realized $50 million each. At the head of the pack, Weld County realized nearly $450 million in mineral property taxes - almost entirely from oil and gas production - compared with about $30 million in severance-tax distributions and grants over that same period.

This system has enabled Weld County to build new schools and public facilities, balance its budget and reduce the property tax burden on homeowners and businesses at the same time. Other producing counties have similar stories to tell.

If there is a problem with the system, it is with those counties that have not "de-Bruced" local tax revenues. Such a course would provide new income to local governments without adding a tax that could drive away investment and result in higher energy prices for consumers. In addition, the General Assembly should resist transferring future surplus funds to pay for new programs.

Don't be fooled by the siren call of the tax-and-spenders on this issue unless you think government doesn't take enough of your hard-earned income already.

J. Greg Schnacke is president and CEO of the nonprofit Americans for American Energy. He led the Colorado Oil and Gas Association trade group for 10 years, until leaving in August. More information: americansfor americanenergy.org.

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