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On the ballot for Louisiana voters on November 3 is Louisiana Constitutional Amendment 2 which would allow the inclusion of oil and gas value when assessing oil well properties for tax assessment.
The amendment would only directly affect those in the oil and gas industry but will allow oil well property assessors to determine the value of wells with more accuracy. People in the oil and gas industry in Louisiana said they feel oil wells are not assessed appropriately and assessors agree. They say Amendment 2 will provide a fair method for oil well property assessment which other properties in Louisiana are allowed to use.
Read below for a detailed look into Louisiana Amendment 2.
Do you support an amendment to permit the presence or production of oil or gas to be included in the methodology used to determine the fair market value of an oil or gas well for the purpose of property assessment?
Explanation of Amendment 2
Amendment 2 to the Louisiana Constitution allows for the income approach to be used when property assessors are determining the value of an oil well property for tax purposes.
Kati Hyer, vice president of communications for the Louisiana Oil and Gas Association (LOGA), said there are three basic means of assessing a piece of property: replacement cost, market value and income value. Of the three assessment methods, the “income approach” is barred by the constitution for oil and gas well assessment, according to Hyer.
“All that’s being done here is to allow the income approach to value to be considered for oil and gas wells like it is for every other kind of property in Louisiana. [The income approach] can be done in every other state which assesses minerals across the country…This is bringing Louisiana up to match its peers,” Daron Fredrickson, LOGA chairman, said.
Fredrickson said the replacement cost method, the more popular of the two methods currently allowed by the Louisiana Constitution, is an arbitrary calculation on what it might cost to replace the well in the current market. He said without assessing the oil itself, “the one thing of value,” it is difficult to fairly assess the value of the well.
Belinda Hazel, an assessor in Plaquemine and chair of the Oil and Gas Committee for the Oil and Gas Association in Louisiana, said a problem for assessors using the replacement cost and market value approaches comes from valuing wells that are between brand-new and the end of life. The inclusion of the income approach includes depreciation of wells which allows assessors to value the property with more accuracy, according to Hazel. The exclusion of guesswork when valuing a well will allow assessors and well managers to predict estimated tax payments.
Fredrickson said the purpose of Amendment 2 is to assess and judge oil and gas well properties fairly and give Louisiana the opportunity to better plan its budget, knowing what tax payments are incoming.
“The idea is for everyone to have visibility into this thing and to be able to see what’s coming… Everyone [in the market]will be able to see what will and won’t happen,” Fredrickson said.
According to Hyer, Amendment 2 would allow assessors, who are elected in each parish, to have another tool available to them when valuing a property. The current methods do not take production into account, leaving many oil operators over-assessed, according to Hyer.
The amendment will only affect well operators who are responsible for severing the minerals from the ground, according to Fredrickson. He said landowners, royalty owners, and average taxpayers will be unaffected by the change.
The Louisiana House and Senate passed House Bill 360 (Amendment 2) unanimously, according to Hyer.
Impact of Amendment
If the amendment should pass, it would only open the door for discussion on how to apply the income method in practice, according to Hazel.
“The amendment allows tax assessors to consider the income approach to value, it does not define numbers or calculations. It gives everyone a tool,” Fredrickson said.
Fredrickson said the amendment is the “greenlight”for discussion on new rules and regulations to take place at the Louisiana Tax Commission in the summer. According to Hazel, the public will be able to weigh in on the new rules and regulations as they develop.
“Anyone can submit or rebut proposals. It’s an open process,” Hazel said.
Fredrickson said the earliest adoption of the income method for usage would be 2022, but he thinks 2023 is more realistic. He said when a new change is adopted, it is phased in to avoid anyone being directly impacted or crushed by it.
“The product price [of gas] is defined by the market, the global market… The [amendment and gas cost] are distinctly unlinked,” Fredrickson said.
Why an Amendment and Not a Law?
Hyer said the Louisiana Constitution currently spells out the cost replacement method and market value method as the only methods property assessors can use when valuing oil and gas wells. The income method was not included, and therefore cannot be used unless a narrow change of the constitution is implemented, according to Hyer.
Fredrickson said the constitution makes it impossible for oil and gas well assessors to use the income approach and apply an “ad valorem” tax, a tax based on the value of a property.
A “YES” Vote means…
A “yes” vote will support the inclusion of the income method to be considered when assessing an oil or gas well for ad valorem taxes.
A “NO” Vote means…
A “no” vote will oppose the inclusion of the income method to be considered when assessing an oil or gas well for ad valorem taxes, and keep the constitution in its current state.
Visit the Louisiana Voter Portal to view specific information about where to vote and other voter details.