Colorado Lags Other States in Taxing Oil, Incentives Increase Volatility

This report compares how Colorado provides local governments with production tax revenue from unconventional oil extraction against six other major oil-producing states: Montana, New Mexico, North Dakota, Oklahoma, Texas, and Wyoming.

This report (PDF) shows how Colorado’s local governments receive production tax revenue from unconventional oil extraction.

Fiscal policy is important for local communities for several reasons, and this analysis shows that many Colorado communities are not receiving the resources necessary to build and maintain infrastructure and to provide services during the boom. The Colorado report is part of a larger series that looks at seven states: Colorado, Montana, New Mexico, North Dakota, Oklahoma, Texas, and Wyoming.

The focus on unconventional oil is important as horizontal drilling and hydraulic fracturing technologies have led a resurgence in oil production in the U.S. Unconventional oil plays require more wells to be drilled on a continuous basis to maintain production than comparable conventional oil fields. This expands potential employment, income, and tax benefits, but also heightens and extends public costs.

Mitigating the acute impacts associated with drilling activity and related population growth requires that revenue is available in the amount, time, and location necessary to build and maintain infrastructure and to provide services. In addition, managing volatility over time requires different fiscal strategies, including setting aside a portion of oil revenue in permanent funds.