# Title 81 — Tax Commissioner

## Article 81-09 — Oil and Gas Gross Production and Oil Extraction Taxes

## Chapter 81-09-03 — Oil Extraction Tax

Separate Properties [Repealed]
[Repealed]
### § 81-09-03-01. Application of oil and gas gross production tax rules to the oil extraction tax.

All rules and regulations adopted in chapter 81-09-02 for the administration of the oil and gas gross
production tax law, not in conflict with the provisions of the oil extraction tax law, shall apply to and
govern the administration of the oil extraction tax law.
History: Effective July 1, 1982.
General Authority: NDCC 57-51-21
Law Implemented: NDCC 57-51.1-05
### § 81-09-03-02. Definitions.

As used in these sections and for the administration of North Dakota Century Code chapter
57-51.1, unless the context requires otherwise, the following definitions apply:
1. "Completion" or "completed" means an oil well will be considered completed when the first oil
is produced through wellhead equipment after production casing has been run.
2. "Drilled" means the spudding of a well.
3. "Incremental production" means the oil which has been classified as incremental by the
industrial commission under subsections 5 and 6 of North Dakota Century Code section
57-51.1-03.
4. "New well" means a well initially drilled and originally completed after April 27, 1987, to a
separate and distinct reservoir as recognized by the industrial commission.
5. "Nonincremental production" means the oil which has not been classified as incremental by
the industrial commission.
6. "Reservoir" means a common source of supply as defined by the industrial commission.
7. "Test oil" means oil recovered during and after drilling but before normal completion of a well.
8. "Unit" means the total area of land that results from the combining of interests in all or parts of
two or more leases or fee interests in order to operate the reservoir as a single production unit

subject to a single operating interest. A unit may be formed by an agreement between the
mineral interest owners (voluntary unitization) or by order of an agency of the state or federal
government (compulsory unitization). A unit does not include "poolings" resulting from the
enforcement of spacing requirements. This definition is only effective for periods prior to
April 27, 1987.
History: Effective August 1, 1986; amended effective October 1, 1987; March 1, 1990; June 1, 1992;
April 1, 1996; April 1, 2006; July 1, 2016.
General Authority: NDCC 57-51-21, 57-51.1-05
Law Implemented: NDCC 57-51.1-01(3)(4)(5)(8), 57-51.1-03(3)
### § 81-09-03-03. Determination of a property - Operator's election to designate individual wells

as separate properties.
Repealed effective September 1, 1997.
### § 81-09-03-04. Designation of a property on an individual well basis - Notification by operator.

Repealed effective September 1, 1997.
### § 81-09-03-05. Rate reduction for qualifying secondary and tertiary recovery projects.

Repealed effective June 1, 2002.
### § 81-09-03-05.1. Tax incentives for qualifying secondary recovery projects.

The exemption for incremental production from a qualifying secondary recovery project starts with
the first day of the first month in which incremental oil is produced from the project.
History: Effective June 1, 1992; amended effective June 1, 2002; July 1, 2016.
General Authority: NDCC 57-51-21, 57-51.1-05
Law Implemented: NDCC 57-51.1-01(5)(6)
### § 81-09-03-05.2. Tax incentives for qualifying tertiary recovery projects.

1. The exemption for incremental production from a qualifying tertiary recovery project starts with
the first day of the first month in which incremental oil is produced from the project.
2. The exemption and rate reduction may be eliminated as of the first day of the first month in
which the unit ceased to be operated as a qualified project if the industrial commission
determines that the unit operator is not continuing to operate the unit as a qualifying tertiary
recovery project.
History: Effective June 1, 1992; amended effective June 1, 2002; July 1, 2016.
General Authority: NDCC 57-51-21, 57-51.1-05
Law Implemented: NDCC 57-51.1-01(5)(6)
### § 81-09-03-05.3. Reporting requirements for secondary and tertiary recovery projects.

1. Categorization and taxation of production. The unit operator must report on a form
prescribed by the commissioner all of the oil produced from the project. The aforementioned
production is categorized and taxed in the following manner:
a. If the five-year or ten-year exemption is in effect, any incremental production is exempt
from the oil extraction tax.

b. If the applicable exemption period has expired, any incremental production is subject to
extraction tax at a rate of four percent.
c. Any nonincremental production attributable to stripper wells, new wells, and worked-over
wells is exempt from the oil extraction tax. The volume of this exempt nonincremental
production must be calculated by multiplying the actual production from any stripper
wells, new wells, and worked-over wells by a fraction the numerator of which is the lesser
of the volume of oil projected pursuant to the production decline curve or the total volume
of oil produced from the project and the denominator of which is the total volume of oil
produced from the project.
d. If a project has been certified as qualifying for a reduced extraction tax rate, any
nonincremental production which is not otherwise exempt is subject to extraction tax at a
rate of four percent.
e. If a project has not been certified as qualifying for a reduced extraction tax rate, any
nonincremental production which is not otherwise exempt is subject to extraction tax at a
rate of six and one-half percent.
f. If a project has not been certified as qualifying for a reduced extraction tax rate, any
nonincremental production attributable to new wells that are no longer exempt is subject
to extraction tax at a rate of four percent. The volume of nonincremental production
subject to this reduced rate must be calculated by multiplying the actual production from
any new wells that are no longer exempt by a fraction the numerator of which is the
lesser of the volume of oil projected pursuant to the production decline curve or the total
volume of oil produced from the project and the denominator of which is the total volume
of oil produced from the project.
2. Payment of tax. Tax must be paid on all nonexempt oil produced from the project during each
month of production. For reporting purposes, oil produced but not sold in the month of
production should be valued based on the taxpayer's average sales price for any oil that was
sold during the month.
3. Remittance of tax. Tax may be remitted by the unit operator or the unit's working interest
owners. However, if tax will be remitted by any working interest owner, the unit operator must
provide on a form prescribed by the commissioner the name and address of each working
interest owner that will be remitting tax along with the percentage of ownership interest on
which the tax will be remitted. In addition, the tax remitted by any working interest owner must
be calculated based on the production reported by the unit operator.
History: Effective June 1, 1992.
General Authority: NDCC 57-51-21, 57-51.1-05
Law Implemented: NDCC 57-51.1-01(5)(6)
### § 81-09-03-06. New well exemption for vertical and horizontal wells.

Repealed effective July 1, 2016.
### § 81-09-03-07. Stripper well exemption.

Oil produced from a stripper well property is exempt from the oil extraction tax.
To be eligible for the stripper well exemption, a producer must have its property certified as a
stripper well property by the industrial commission and must submit a copy of the certification received
from the industrial commission to the tax commissioner.

History: Effective October 1, 1987; amended effective June 1, 1992.
General Authority: NDCC 57-51-21, 57-51.1-05
Law Implemented: NDCC 57-51.1-03(2), 57-51-19
### § 81-09-03-08. Work-over exemption.

Repealed effective July 1, 2016.
### § 81-09-03-09. Trigger provision applicable to oil extraction tax rate.

Repealed effective July 1, 2016.
### § 81-09-03-10. Horizontal reentry well exemption.

Repealed effective July 1, 2016.
### § 81-09-03-11. Two-year inactive well exemption.

Repealed effective July 1, 2016.
