In North Dakota, an oil and gas gross production tax is imposed instead of property taxes on oil and gas producing properties. Oil extraction tax is also levied on the extraction of oil from the earth.
Oil Gross Production Tax
A 5% rate is applied to the gross value at the well of oil produced. Royalty interest in oil produced from a state, federal, or municipal holding and from an American Indian holding within the boundary of a reservation are excluded from the 5% rate.
Oil Extraction Tax
A 5% rate is applied to the gross value at the point of extraction of oil from the earth. Low producing wells, commonly referred to as stripper wells, qualify based on production are exempt from the oil extraction tax. Incremental production from qualifying secondary and tertiary recovery wells are exempt from oil extraction tax for a period of 5 or 10 years. The oil extraction tax rate is reduced to 2% for qualified production for wells completed outside the Bakken and Three Forks formations. If certain pricing factors are met, the Oil Trigger Price Adjustment may go into affect. To learn more about the trigger, see the Oil Trigger Price Adjustment section below.
Gas Gross Production Tax
The tax on gas is an annually adjusted flat rate per one thousand cubic feet (mcf) of all nonexempt gas produced in North Dakota. The annual adjustments are made according to the average producer price index for gas fuels. The Office of State Tax Commissioner publishes the annual rate on June 1 of each year, which takes effect on July 1.
Exemptions
An application to qualify a well must be submitted to the North Dakota Industrial Commission (NDIC). The NDIC will issue a letter certifying that the well does meet the qualifications to be eligible for an exemption. The NDIC letter must then be submitted to the Office of State Tax Commissioner within 18 months of completion, recompletion, or other qualifying date to be eligible for the exemption for any prior periods, otherwise the exemption is only eligible for prospective periods.
If a business needs to pay oil and gas gross production tax or oil extraction tax, they must register with the Office of State Tax Commissioner. To register a business or make updates to a business’ registration, please submit the Application to Register for Oil & Gas Taxes.
Depending on your production, different reports need to be filed monthly with the Office of State Tax Commissioner.
The Office of State Tax Commissioner can waive a producer’s obligation to submit reports. To request a waiver, a producer must submit an application. Please refer to the Producer Reporting Waiver Instructions.
Applications:
North Dakota and the Three Affiliated Tribes have an agreement regarding oil and gas gross production and extraction taxes on the Fort Berthold Reservation.
Wells located on the Fort Berthold Reservation are subject to the Tribal Oil Agreement signed by the State of North Dakota and the Three Affiliated Tribes of the Fort Berthold Reservation. Companies must submit the Fort Berthold Tax Rate Application (Schedule T-84) to the Office of State Tax Commissioner. Schedule T-84 is intended to provide the necessary ownership interest information on wells drilled within the boundaries of the Fort Berthold Reservation.
For information regarding straddle wells and the on-reservation trust lands acreage ratio and the on-reservation nontrust lands acreage ratio, please refer to this memo.
See the Oil and Gas Taxes Reporting Instructions on the Fort Berthold Reservation for more information.
Oil Trigger Price Adjustment
With the passing of HB 1286 in the 2023 legislative session, the oil trigger price adjustment now only applies to wells located within the exterior boundaries of a reservation and any straddle wells as defined in North Dakota Century Code § 57-51.1-07.10. The trigger price is determined each calendar year by the Tax Commissioner.
If the average price of a barrel of crude oil exceeds the trigger price for each month for three months in a row, then the rate of tax on oil extracted from all taxable wells is 6% of the gross value at the well of the oil extracted. This continues until the average price of a barrel of crude oil is less than the trigger price for each month for three months in a row, in which case the rate of tax goes back to 5% of the gross value at the well of the oil extracted.
For each year's oil trigger price, refer to the Annual Oil Trigger Price Adjustment.
To verify a federal government royalty (Minerals Management Service royalty) contact the North Dakota Office of the State Auditor. To verify a state or municipality government royalty contact the North Dakota Land Department.