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UPDATED: Fiscal year income, sales tax gains show growing economy

-- MEDIA RELEASE --

For Immediate Release

PRESTON L. DOERFLINGER
Director and Secretary
of Finance and Revenue

MARY FALLIN
Governor

State of Oklahoma
Office of Management and Enterprise Services

July 10, 2013

Fiscal year income, sales tax gains show growing economy

 

Revenues meet needs as Doerflinger urges gross production tax review

 

*Revenue table link included below.

OKLAHOMA CITY — Secretary of Finance and Revenue Preston L. Doerflinger announced Wednesday that strong income and sales tax collection growth during the recently-ended fiscal year indicates continued economic expansion in Oklahoma despite steep declines in gross production tax collections.

“The sustained growth in income and sales tax collections is a key indicator that Oklahoma’s economy had another nice year and remains on solid footing going forward,” said Doerflinger, who is also director of the Office of Management and Enterprise Services (OMES). “It was a good revenue year that would have been even stronger if not for losses stemming from gross production tax changes passed in 2010.”

During Fiscal Year 2013, the General Revenue Fund (GRF) saw a $248.4 million gain in income and sales tax collections over FY 12 that helped offset a $208.9 million or 48.5 percent drop in oil and natural gas collections, according to a preliminary year-end GRF report for FY 13, the 12-month fiscal year between July 1, 2012 and June 30, 2013.

Total FY 13 GRF receipts were $5.6 billion, an increase of $10.3 million or .2 percent over FY 12 that is $26.5 million or 0.5 percent below the estimate upon which the FY 13 budget was based. Income taxes yielded $2.6 billion, an increase of $177.1 million or 7.4 percent over last year, while sales taxes produced $1.9 billion, an increase of $71.3 million or 3.9 percent over last year. 

“This report is preliminary and, like most years, we will likely pick up additional revenue from late deposits after final FY 13 reconciliations are completed later this summer. All FY 13 budgetary needs have already been met thanks to healthy growth in the key revenue areas,” Doerflinger said.

Monthly collections for June contributed $527.5 million to the GRF, a decrease of $54.8 million or 9.4 percent from a year ago and $61.5 million or 10.4 percent below the estimate for the month.

“June was sluggish, but the year was solid,” Doerflinger said. “The year’s lone large concern is the increased likelihood that higher than anticipated gross production revenue losses may prevent a Rainy Day Fund deposit this summer. We will know for sure in the coming weeks, but a deposit doesn’t look likely based on recently revised Tax Commission estimates. The Rainy Day Fund is still flush with $532 million, although it’s always nice to make a deposit when possible.”

The reduced gross production revenue is linked in large part to how horizontal wells are taxed under a 2010 law and payment of deferred rebates to the oil and gas industry.

As in many states, horizontal drilling has become the predominant drilling method in Oklahoma. In 2010, legislation was signed into law reducing the gross production tax rate on horizontal wells from 7 percent to 1 percent for 48 months after the start of production. The 2010 law removed a stipulation in the previous rebate law that ended the tax break once the cost of the well was recovered.

Under the 2010 law’s tax arrangement, the state GRF gets no money from new horizontal oil or gas wells over the 48 month period. The 1 percent tax goes entirely to counties and school programs.

For FY 13, preliminary figures indicate that gross production tax collections to the GRF have fallen nearly $209 million or 48.5 percent since last year, with natural gas accounting for $199 million or 79.8 percent of the decrease. The figures indicate a $9.9 million loss in oil taxes, but that figure is skewed because $92.6 million in FY 12 oil money was diverted to a supplemental appropriation approved by the Legislature. If that money was included, the oil revenue loss for FY 13 would be about $102 million.

According to the Oklahoma Tax Commission, state tax breaks tied to oil and natural gas drilling totaled $321 million in FY-13. Refund payments under the old rebate program totaled $173 million, with $102.6 million linked to horizontal wells, of which $72.5 million was for gas and $30.1 million was for oil. In addition, the OTC listed a $148 million cost to the state as result of lowering the gross production tax rate for horizontal wells from 7 percent to 1 percent under the 2010 law and distributing all of the tax proceeds to local entities. Of the $148 million, $79 million was for oil and $69 million for gas.

“The boom in the energy industry is improving Oklahoma’s economy in so many ways, but the general revenue fund isn’t seeing the benefits it would have before 2010,” Doerflinger said. “The 2010 law has led to some real revenue loss. In our estimation, policymakers should consider revisiting this law in consultation with the energy industry to determine whether it is fair and equitable to the industry, the state and all its taxpayers.”

The latest Baker-Hughes rotary rig count showed 174 rigs engaged in exploration or development in Oklahoma, with 161 involved in horizontal drilling.

“Any fiscally responsible policymaker needs to seriously consider at what level government should incentivize something that is now standard practice. It’s not responsible for government to give money away as an incentive if no incentive is needed,” Doerflinger said.

In addition to gross production challenges, GRF collections will likely be affected by two other dynamics in FY 14. The first is $60 million in income tax revenue diversion for state Capitol building repairs pursuant to legislation signed into law this year; the second is the potential economic effect of a federal sequestration order requiring an estimated 20,000 Oklahoma military installation civilian workers to take 11 forced furlough days between this week and Sept. 30.

“Time will tell if the state’s economic strength can continue helping the general revenue fund overcome these challenges,” Doerflinger said.

The GRF is state government’s main operating fund and is made up of about 70 revenue sources. It is where all state taxes and fees flow, except those earmarked or dedicated to specific programs.

Major tax categories in June contributed the following amounts to the General Revenue Fund:

 

  • Income tax – The total collected from individual and corporate income taxes in the month of June was $256.9 million, which was $14.3 million or 5.3 percent below prior year collections and $23 million or 8.2 percent below the estimate.

    Individual income tax receipts of $187.1 million were $5.4 million or 2.8 percent less than the prior year and $21.9 million or 10.5 percent below the estimate.

    Corporate tax collections in June contributed $69.9 million to the GRF, which was $8.9 million or 11.2 percent below collections for the same month of 2012 and $1.2 million or 1.6 percent below the estimate.
  • Sales tax – The Tax Commission apportioned $163.7 million in sales tax collections to the GRF from June collections, which was $1.6 million or 1 percent less than the prior year and $9 million or 5.2 percent below the estimate.
  • Gross production tax – Gross production tax collections from June contributed $33.2 million to the GRF after rebates and credits. This amount is $0.2 million and 0.8 percent above collections for the same month of 2012 and $13.7 million or 29.2 percent below the estimate. Total gross production tax collections for the 2013 fiscal year are $221.6 million, down $208.9 million or 48.5 percent from FY 12 collections and $155.4 million or 41.2 percent from the current year estimate.

    Gross production gas taxes in June contributed $3.8 million to the GRF, which is $4.8 million and 56.1 percent below the monthly estimate. Total fiscal year collections from this source fell $199 million and 79.8 percent below FY 12 collections and $138 million or 73.3 percent below the estimate for the current fiscal year.

    Gross production oil taxes in June contributed $29.4 million to the GRF, which is $3.5 million and 10.7 percent less than collections for June of 2012 and $8.9 million or 23.2 percent less than the June estimate. Total FY 13 contributions to the GRF from this source were $9.9 million and 5.4 percent below prior year collections and $17.4 million or 9.2 percent below estimate. The difference from FY 12 was, in reality, a drop of $102.5 million or 37.4 percent after consideration of the $92.6 million captured for the FY 12 supplemental appropriation.

 

  • Motor vehicle taxes – Motor vehicle taxes produced $12.7 million from June collections, which was $8.9 million or 41.1 percent less than the prior year and $10.9 million or 46.3 percent below the estimate.
  • Other revenue – Other revenue produced $60.9 million for the GRF in June. This amount was $30.3 million or 33.2 percent less than the prior year and $4.9 million or 7.4 percent below the estimate.

Monthly revenue tables are available on the OMES website: http://www.ok.gov/OSF/News/June_2013_Financial_Report_Data_Tables.html


Media Contact

RON JENKINS
Public Information Officer
(405) 521-3267 | ron.jenkins@omes.ok.gov

About the Office of Management and Enterprise Services

The Office of Management and Enterprise Services provides financial, property, purchasing, human resources and information technology services to all state agencies, and assists the Governor’s Office on budgetary policy matters. Our mission: To lead, support, and serve. For more information, visit OMES.OK.gov.