Natural Gas Tax Lags

Revenue from a higher severance tax on natural gas failed to meet expectations in its first year, and the outlook for fiscal 2010 is dim.

Arkansas originally expected to generate $20.1 million from the tax in fiscal 2009, but in March budget officials reduced the estimate to $18.8 million.

Actual revenues totaled $11.1 million. The tax went into effect on Jan. 1.

The General Assembly approved the higher tax at a special session in 2008. Most of the revenues are allocated to the Arkansas Highway and Transportation Department for road construction.

The Department of Finance and Administration expects revenue in fiscal 2010, the first full year of the new severance tax, to total $62.2 million, down from an earlier estimate of $73.6 million.

The new severance tax, which is based on the price of natural gas, replaced one set in 1957 that was based on the volume of gas produced. The older tax generated between $500,000 and $600,000 a year.

When the legislature approved the tax in March 2008, natural gas was selling at $10 per 1,000 cubic feet. The current price is approximately $3.50.

The new levy is 5% of the sales price. The old tax was 0.3 cents per 1,000 cubic feet of gas.

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