State Laws and Regulations
States maintain ownership of some lands and natural resources; develop their own taxation and royalty systems applicable to oil, gas, nonenergy minerals, and renewable energy; and collect extractive revenue directly. Each state has a unique revenue system.
While all 50 states have some natural resource extraction activity, the 2015 USEITI Report focuses on 18 states that led the country in oil, gas, coal, and nonenergy mineral production in 2013; had the most DOI revenue or state production taxes; or had the most significant tribal natural resource interests.
Map of 18 MSG Prioritized States for the 2015 USEITI Report
See State Legal and Fiscal Information for more details about the individual states’ laws and statutes.
Role of state government agencies
State government agencies create regulations and rules related to natural resource extraction based on applicable state laws and statutes (federal laws and regulations apply to all states and localities). Specifically, state government agencies manage state-owned land and natural resources, including leasing natural resources for extraction; enforce regulations and rules related to natural resource extraction; and collect, manage, and disburse revenue from natural resource extraction.
Each state has unique agencies that fulfill these functions. For example:
- Manage state-owned land and natural resources: In Louisiana, the Department of Natural Resources oversees natural resource extraction on state-owned lands. In Arizona, the State Land Department fulfills this function. Both agencies administer natural resource leasing programs that transfer rights to natural resources on state-owned lands to companies for extraction.
- Enforce regulations and rules: States with surface mining operations have agencies devoted to mitigating the environmental impact of such activities and ensuring that companies restore surface mine lands after mining operations are complete: for example, the West Virginia Department of Environmental Protection’s Division of Mining and Reclamation. DOI’s OSMRE oversees this office, as well as others like it.
- Collect, manage, and disburse revenue: In many states, the department of revenue collects, manages, and disburses revenue collected from natural resource extraction on state and private lands within the state, and transfer payments from the federal government for natural resource extraction on federal lands located within the state. For example, the Montana Department of Revenue collects and distributes revenue in Montana.
Local government agencies also play a role in natural resource extraction. In particular, county departments of revenue collect, manage, and disburse local revenue from extractive industries activities.
State leasing programs
State ownership of land constitutes almost 9% of total land area in the U.S. Each state has its own process for leasing natural resources on state-owned lands, and different oversight procedures for when companies explore for, develop, and produce natural resources and when companies decommission projects and reclaim sites. For example, in the State of Alaska, the director of the Division of Oil and Gas at the Department of Natural Resources must establish in writing that the state’s interests will be optimized before any leasing action can occur. Known as a “best-interest finding,” the director weighs the costs and benefits of the leasing action, including potential effects on natural, historical, and cultural resources, as well as on local communities and fish and wildlife populations. The director also considers public comments.
State extractive industries revenue
The revenue a state receives from extractive activities varies by the local legal and fiscal framework, and by the types of resources and land owners involved. At a high level, many states receive the following revenue:
- Bonuses, rents, and royalties for natural resources produced from state lands
- Severance taxes, sometimes called gross production taxes or royalties, on the amount or value of natural resources produced in a state whether on federal, state, or privately owned lands
- Transfer payments from the federal government for natural resource production on federal lands within a state’s borders or off its coast
Wyoming severance tax rates
As an example, Wyoming applies the following severance taxes on the value of extracted resources before processing and transportation:
|Natural resource||Severance tax rate|
State royalty rates vary. Louisiana royalty rates average 21.9%, and can reach as high as 61.6%. California has a minimum royalty rate of 16 and 2/3% that can rise up to a maximum percentage outlined in the invitation to bid for a lease, and paid on the average production of oil per well, per day under the lease.
State revenue disbursements
Each individual state determines how to disburse revenue from extractive industries’ activities. To illustrate, North Dakota, one of the leading oil and gas producing states in the country, levies an Oil and Gas Production Tax at close to 1 cent per Mcf of gas, and at 5% of the gross production value of oil. 20% of the money collected from this tax is distributed to various state funds, while 80% flows to counties, cities, schools, and townships.
North Dakota also sets an Oil Extraction Tax at 6.5% of the gross production value of oil, which is distributed as follows:
- 20% to the Common Schools Trust Fund and Foundation Aid Stabilization Fund to support public institutions of learning and offset foundation aid reductions
- 20% to the Sinking Fund and Resources Trust Fund, which allocates resources for energy conservation programs
- 30% to the Legacy Fund, which provides a perpetual source of state revenue from finite oil and natural gas resources
- 30% to the General Fund, which is the primary cash account for the state to cover administrative and operating expenses
In comparison, Alaska, another leading oil and gas producer, levies its own Oil and Gas Production Tax at 35% of the net value. Most of the revenue derived from the Oil and Gas Production Tax is deposited in the state’s General Fund for government operations and basic services. Payments resulting from an assessment or litigation are deposited into the Constitutional Budget Reserve Fund, which covers the state’s short-term deficits.
Natural resource trust funds
Many states choose to establish permanent mineral trust funds through legislation. These funds allow states to invest and hold revenue from natural resource extraction over time. Permanent mineral trust funds can help governments dependent on revenue from natural resources smooth revenue and investments across boom and bust cycles.
Select states with permanent natural resource trust funds
|State||Natural resources||Fund||Revenue design||Revenue uses|
|Alabama||Oil and gas||Alabama Trust Fund||99% of oil and gas capital payments paid to the state||General Fund, Forever Wild Land Trust Fund|
|Alaska||Primarily oil||Alaska Permanent Fund||25% of mineral-related (oil) income and legislative appropriations||Citizen dividends, inflation proofing, and General Fund|
|Montana||Coal||Coal Severance Tax Trust Fund||50% of coal severence tax collections||General Fund, education, infrastructure, reclamation, and economic development|
|New Mexico||Oil, gas, and other natural resources||Severance Tax Permanent Fund||Historically, 50% of severence tax revenues, but varies||General Fund|
|North Dakota||Oil||Legacy Fund||30% of oil production tax revenue||General Fund|
|Utah||Coal, oil, and gas||State Endowment Fund||Severance tax revenue in excess of $71 million from oil and gas tax; revenue in excess of $27.6 million from coal mining||Economic diversification, capital, and infrastructure|
|Wyoming||Coal, oil, and gas||Wyoming Permanent Mineral Trust Fund||A 1.5%–2.5% severance tax on natural gas, oil, and coal (30%–40% of mineral revenue)||General Fund|