Voters approved Constitutional Amendment 2, agreeing to permit an oil or gas well to be assessed by accounting for the potential income it might generate. The constitution previously barred the minerals a well produces from being included in the methodology of determining its fair market value.
As of late Tuesday, the amendment was approved 58% to 42% with nearly 100% of the votes reported.
The state Legislature unanimously voted to place the amendment on the ballot this year, touting the measure as a way to make the assessment system for oil and gas wells more fair. With the amendment's approval, wells can now be assessed through the income approach rather than only through the market or cost approaches.
Both the Louisiana Oil & Gas Association and the Louisiana Assessors Association supported the amendment, saying it would provide a more accurate assessment of oil and gas wells while leading to better predictability of tax revenue.
The oil and gas association pointed out in an Oct. 5 statement supporting the amendment that although the income approach is used when wells are valued for sale on the open market, that method was not permitted in the valuing of a well for property tax purposes.
According to an April survey from the oil and gas association, Louisiana has 33,650 oil and gas wells operating in the state.
The independent Public Affairs Research Council of Louisiana said in an analysis of the question that approving the amendment could lead to low-producing wells being assessed at lower values than under the current assessment methods, while higher-producing wells could be assessed at higher values.
The council's analysis said Louisiana was unusual in not allowing assessments to give consideration to the minerals that a well might produce. The current system leads to frequent disagreements between assessors and oil and gas producers over the value of a well, according to the analysis.
While the amendment had no opposition in the Legislature, the council said that a potential argument against it was that its approval would likely create a shift in parish property tax collections.
The amendment is intended to be revenue-neutral overall, but some parishes could experience a spike in property taxes collected on wells assessed at higher values, while other parishes with wells assessed at lower values could experience a drop in tax revenue under the amendment, according to the council.
The council added that the fiscal note on H.B. 360, the bill that created the amendment, said the proposal's effect on local tax bases was speculative.
Rep. Mike Huval, R-Breaux Bridge, was the primary sponsor of H.B. 360.
--Editing by Neil Cohen.
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