The Ute Tribal Business Committee has decided on a sliding scale of 4 percent to 10 percent for the new severance tax imposed on natural resources taken from tribal trust lands.
Business Committee Chairman Lester Chapoose said Wednesday the rate will go up or down depending on the posted price of crude oil each month.With the price of oil currently hovering around $12 a barrel, the tax will be implemented at 6 percent. It would go to 10 percent if oil goes beyond the $20-a-barrel mark.
Chapoose said marginal wells will be taxed at half the going rate, and a two-year exemption will be granted on new development.
The severance tax, which applies mainly to some 500 oil wells on tribal trust lands in Uintah and Duchesne counties, went into effect Tuesday but will not be collected until spring.
A 10 percent tax had been announced last August, but tribal leaders agreed to discuss alternatives after state and oil industry officials voice concerns.
"Tribal leaders conscientiously reviewed all comments and letters taken during a public comment period prior to the tax being imposed," Chapoose said in announcing the new rate.
He said the tribe plans to establish a six-member tax commission to oversee the administrative aspects of the new tax.
The severance tax goes on the rolls with a 4 percent severance tax levied by the state. Additional taxes mean oil producers already pay about 12.4 percent in state taxes.
Jim Peacock, president of the Utah Petroleum Association, said Wednesday the addition of the tribe's tax has created a situation of double taxation that could force the closure of many wells.
"The oil industry in the Uintah Basin can't stand and will be irreparably harmed if both taxing entities continue to demand a full tax payment from an industry that is barely making it in an area that has the highest production cost in the nation," Peacock said.
Peacock said he hoped the state and tribal leaders would continue negotiations to work out a compromise rate. A meeting among tribal leaders and officials from the state and Duchesne County is scheduled for Nov. 22.
The U.S. Supreme Court was expected to rule on the legality of double taxation this spring in the case of Cotton Petroleum vs. New Mexico.
The Ute tax would generate about $6 million for the tribe, which runs a variety of services on its eastern Utah reservation, including garbage collection, head start preschool and the cemetery.