PROJECTState and Local Backgrounders


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  • Severance Taxes

    State and Local Backgrounders Homepage

    Severance taxes are taxes on the extraction of natural resources such as oil and natural gas. These taxes constitute only a small percentage of state and local general revenue nationally, but they can account for a substantial share of revenue in a few, natural resource-rich states—notably, Alaska, North Dakota, and Wyoming.

    How much revenue do state and local governments raise from severance taxes?

    State and local governments collected a combined $15 billion in revenue from severance taxes in 2019, or 0.4 percent of general revenue. That total was up from $13 billion in 2018 and $9 billion in 2017, but is still down from nearly $20 billion annually from 2012 to 2014 (all in 2019 inflation-adjusted dollars). However, even at its peak, severance tax revenue was still less than 1 percent of state and local general revenue.

    Further, severance tax revenue is highly concentrated in a few states. In fact, combined revenue from North Dakota and Texas accounted for nearly 60 percent of state and local severance tax revenue in 2019.

    And the tax was a major source of revenue in only a few states. In 2019, severance tax revenue accounted for 23 percent of North Dakota’s state and local general revenue, followed by Wyoming (8 percent), Alaska (7 percent), and New Mexico (6 percent).  Louisiana, Montana, Oklahoma, Texas, and West Virginia were the only other states in 2019 where the tax accounted for more than 1 percent of state and local general revenue.

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    Texas collected the most severance tax revenue of any state in 2019 ($5.8 billion), but because its population, economy, and general revenue collections are far larger than other severance tax-dependent states, Texas's severance tax is a relatively small share of its general revenue (2 percent).

    In the early 2010s, Alaska depended on severance tax revenue more than any other state, in part due to the state's production and the high price of oil at the time. In fact, in 2012, Alaska collected over $6 billion in real severance tax revenue and the tax accounted for a third of Alaska’s general revenue. However, because of changes in production and price, Alaska’s real severance tax revenue fell sharply over the next few years: $4.4 billion in 2013, $2.7 billion in 2014, and $688 million in 2015 (all in inflation-adjusted 2019 dollars). In 2019, Alaska collected $890 million in severance tax revenue.

    Fifteen states and the District of Columbia did not have a severance tax in 2019. California does not have a severance tax but does levy a small assessment fee on oil and gas produced in California, and the Census Bureau records this as severance tax revenue.

    The volatility of severance taxes poses a challenge to states in which they are an important revenue source, requiring such states to have flexible budgeting arrangements, other readily exploitable revenue sources, or significant rainy-day funds to accommodate unforeseen changes in severance tax revenue flows. Related, the pandemic’s effect on oil prices made severance tax revenue especially volatile over the past few years, putting additional fiscal pressure on state budgets that rely on this revenue source. However, we do not have Census data for 2020 and 2021 yet.

    Interactive Data Tools

    State and Local Finance Data: Exploring the Census of Governments

    State Fiscal Briefs

    Further reading

    State Tax and Economic Review
    Lucy Dadayan (reports are updated quarterly) (2020)

    What Falling Oil Prices Will Mean for State Budgets
    Norton Francis (2014)

    Note

    All revenue data are from the US Census Bureau’s Annual Survey of State Government Tax Collections.  All dates in sections about revenue reference the fiscal year unless stated otherwise.

    Research Areas State and local finance
    Policy Centers Urban-Brookings Tax Policy Center