- Associated Press - Sunday, January 4, 2015

LAWRENCE, Kan. (AP) - In Kansas and elsewhere, state and local governments that receive taxes from the production of oil and natural gas could face budgetary challenges as prices plunge.

Issues arise with two taxes tied to oil and gas prices and production: severance and property taxes, the Lawrence Journal-World (https://bit.ly/1zMvbxq ) reported Saturday.

The severance tax is a state levy on minerals extracted from the ground in Kansas, while property taxes are also collected by the state and most local governments on oil and gas wells.

“We may not have anticipated the full extent of the drop in crude oil prices and possible production cutbacks that we are currently seeing,” Revenue Department spokeswoman Jeannine Koranda said. “Thus, we may possibly miss the estimate on severance tax revenues.”

All told, severance taxes generated about $126 million for the general fund last year, part of which goes into the state’s $6 billion general fund budget.

A bigger effect will likely be seen in property tax collections, which help fund the public school system and are the primary source of local revenue for most cities and counties, according to the newspaper.

According to the Department of Revenue, oil and gas wells account for almost 7 percent of all assessed property value in Kansas, or about $2.1 billion worth of taxable value. Last year, that produced $45.9 million in state property taxes alone, most of which goes into the school finance system.

“The counties that have the largest oil valuations will likely feel the effect of a significant price drop,” said Lynn Kent, head of the oil and gas section of the Department of Revenue’s Property Valuation Division.

The falling prices, however, will have no effect on sales taxes and motor fuel taxes. Sales taxes are not charged on gasoline, and the motor fuel tax that’s included in the price at the pump is charged on a per-gallon basis, not on the price of the gasoline itself.

But state officials also say there may be a positive effect from falling prices that would offset the loss of severance and property taxes.

“The large decline in gasoline prices will put more money in consumers’ pockets, giving them more income, which should be a boost to economic activity and both income and sales tax receipts,” Koranda said.

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Information from: Lawrence (Kan.) Journal-World, https://www.ljworld.com

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