Fiscal Lessons for State and Local Governments

This report explores the challenges for states and local communities caused by unconventional oil and natural gas development, and fiscal best practices that address them.

  • The differences between state tax policies, while important, are not enough to shift industry activity significantly from state to state. Instead, geology, available technology, and price drive oil and gas drilling activity.
  • With various approaches to taxing and distributing funds raised from oil and gas activity, no single state has put together a complete fiscal “best practices” package and each can learn from what others are doing.
  • Any successful oil and natural gas fiscal policy must address four main issues: amount, timing, distribution, and volatility.

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Oil and Natural Gas Fiscal Best Practices: Comparing State Tax Rates

A new study and summary by Headwaters Economics compares the oil and natural gas tax policies of leading producing states.  Studies show that the differences between state tax policies, while important, are not enough to shift industry activity from state to state in a significant way. Instead, geology, available technology and price remain the primary factors driving all oil and gas drilling activity.

Fiscal Best Practices

Drilling for oil and natural gas is a high-impact economic activity that presents opportunities and challenges for state and local governments seeking to reconcile the benefits of job and revenue growth with the impacts of rapid industrialization and population growth.

This report, “Oil and Natural Gas Fiscal Best Practices” (218K PDF), focuses on fiscal challenges specific to oil and natural gas development and on the policy mechanisms that address them.