Texans are losing out due to how state collects oil, gas fees. Here’s how to fix it | Opinion

There’s a big source of revenue that Texas counts on to pay for projects and vital services. But due to a growing problem inside the office that collects these funds, people across the state are losing out. This problem can affect our local communities in all sorts of ways.

The problem involves severance taxes, which are taxes on the extraction of oil and natural gas . As Texas Standard once put it, “Ever Heard Of Severance Tax ? It’s How Texas Makes Money Off Oil And Gas Drilling.”

Each year, billions of dollars are added to the state coffers this way. They can be used for schools, roads and more. For example, last September the Texas Comptroller of Public Accounts announced that the Economic Stabilization Fund — commonly known as the “ rainy day fund ” — and State Highway Fund were receiving $3.06 billion each from severance taxes, down from $3.64 billion each the previous year.

These figures may sound big, a boon to the state that helps build economic prosperity. But because I work in this field, I’ve realized some revenue that should be going to the state is being lost — and everyone suffers, including private industry.

As you’d imagine, the realities of severance taxes are intricate. They involve multiple factors including the market values of oil, gas, condensate and more (such as coalbed methane, timber, uranium, and carbon dioxide). Markets are volatile, so the values change all the time.

On top of all that incentive programs are designed to keep Texas as the most popular state for the sector. These programs allow companies to reduce the amount they have to pay on a percentage basis, in the hopes that they’ll do more of their production here in Texas rather than elsewhere, raising overall revenues.

So, state government needs a big team of experts who can determine how much any company owes in severance taxes at any time. When the process is delayed, fees kick in. That’s been happening more and more. I work with clients in the sector all over the state, and I see what they’ve been dealing with.

In many cases, companies overpay severance taxes and then get refunds from the government. When those are delayed, the state has to pay interest to these companies. That’s a loss to taxpayers. Lately, those interest fees have been piling up.

The office that handles severance tax audits for the state has become so overloaded and understaffed that it takes months to years to process refunds that once took just a few weeks or months. The good people who work in the office are doing their best, but with high turnover and a lack of personnel, they’re inundated with work.

No one comes out ahead this way. The state loses money to these interest payments, reducing the amount available for public projects. And it’s not as though businesses want this to happen either. When they identify an overpayment, they’d be better off having the funds back immediately rather than effectively giving the state a “loan,” even with interest.

There’s an easy fix for this. The state needs to hire a larger team of experts who know how to do these assessments quickly, slice through the red tape and get rid of the backlog. Texas could do this by hiring consultants or contract auditors with this expertise, who then provide all the documentation necessary for any auditor to double check everything for accuracy.

I encourage my clients in the energy industry to keep up communication with representatives in the state agencies they report to. Frequent contact can be invaluable, helping avoid a lot of headaches down the line. They should also monitor their accounts closely for errors and timely reporting. And it’s crucial that they keep proper backup documentation.

The state has a lot of priorities to tackle, and it’s easy for something like this to get lost in the shuffle. But it’s also a strong example of a concrete problem with a relatively simple solution. By fixing operations in this one branch of government, Texas can ensure a stronger state economy, better competitive landscape for industry and more robust coffers for a rainy day.

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