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Energy Taxes Fund School Construction in other States
Two of our neighboring states have dedicated significant state
funding to help school districts address their construction needs.
The source: tax dollars collected from oil, gas, and coal extraction.
Over the last four years, Wyoming has spent $1.4 billion and
New Mexico has dedicated $730 million in energy tax revenue at
the state level for school construction. While the West is experiencing
an enormous growth in energy production and energy companies
are making record profits, a window of opportunity exists for
Colorado to use a similar approach to chip away at its growing
school construction backlog.
Colorado’s Severance Tax
Like most other states with significant oil and gas production,
Colorado imposes what’s known as a “severance tax” on
the income companies receive from the extraction of oil and gas
in the state. Colorado law says that when nonrenewable resources
are removed from the earth, the value of these resources to Colorado
is irretrievably lost. Therefore, the General Assembly established
a special excise tax intended to recapture a portion of the wealth
lost to the State when these natural resources are removed and
sold for private profit.1
Colorado’s severance tax rate varies depending on the
income earned by the oil or gas producer. However, because of
various credits, exemptions, and deductions, the actual tax rate
(often called the “effective rate”) has averaged
about 1 percent over the past five years.2
Colorado Severance Tax Facts and Figures
Colorado is one of many Western states experiencing a boom in
the energy sector. This is driven both by new drilling and by
a sizable increase in the price of oil and gas. Natural gas production
in Colorado has grown about 50 percent from 2000 to 2005. During
that same period, energy company earnings from the sale of natural
gas extracted from the state has grown nearly
300 percent.3 In
2005, oil and gas companies made nearly $10 billion from oil
and gas extracted from Colorado.
Colorado’s severance tax rate is the lowest of any western
state with a severance tax. For example, while Colorado’s
average severance tax rate is 1 percent, in Wyoming it is 5 percent
and in New Mexico, it is 6.5 percent.4 Yet residents in New Mexico
do not pay more for gas at the pump or for home heating costs
than Coloradans. That’s because prices for oil and gas
are set by national and international markets. In fact, some
residents of La Plata County—Colorado’s largest energy
producing county, where gas companies earned over $3.1 billion
in 2005—make the trip across the New Mexico border to buy
gasoline because it is cheaper there.
Bottom Line
During this period of rising energy prices, increasing energy
extraction and record energy profits, Colorado has an opportunity
to invest in its future and begin to solve the problem of crumbling
classrooms.
1. Section 39-29-101, Colorado Revised Statutes.
2. Report of the State Auditor – Severance Tax (June 2006).
3. Colorado Mineral and Energy Industry Activities, 2005, the Colorado Geological
Survey (2006).
4. These states charge different rates for oil and gas. The oil severance tax
rate is 5.1 percent in Wyoming and 6.9 percent in New Mexico. The gas severance
tax rate is 4.6 percent in Wyoming and 6.5 percent in New Mexico. Colorado Legislative
Council Staff memo, July 2005.
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