A BILL for an Act to amend and reenact subsection 3 of section 54-35-26 and sections 57-40.2-03.3 and 57-60-06 of the North Dakota Century Code, relating to the evaluation of economic development tax incentives, the carbon dioxide capture and injection use tax exemption, and the ad valorem property tax exemption for carbon dioxide capture equipment used for enhanced oil recovery and secure geologic storage; to repeal sections 57-06-17.1, 57-06-17.2, and 57-39.2-04.14 of the North Dakota Century Code, relating to the carbon dioxide pipeline exemption, payments in lieu of taxes for certain carbon dioxide pipeline property, and the carbon dioxide capture and injection sales tax exemption; and to provide an effective date.
HB 1295 would revise several North Dakota tax provisions tied to economic development incentives and carbon capture projects. First, it updates the Legislative Management’s interim review process for economic development tax incentives, keeping carbon dioxide-related incentives on the list of items subject to periodic analysis along with a broad set of other credits and exemptions. The bill also restructures the contractor use tax exemption provisions by carrying forward existing exemptions for many industrial and energy-related projects and by specifically addressing the exemption for materials used in compressing, gathering, storing, transporting, or injecting carbon dioxide for enhanced oil recovery.
The bill further amends the property tax treatment of carbon capture assets by classifying certain carbon dioxide capture systems and equipment used for secure geologic storage or enhanced recovery as personal property exempt from ad valorem taxation, except for the underlying land. At the same time, it repeals the separate carbon dioxide pipeline exemption, the related payments-in-lieu-of-taxes provision for certain pipeline property, and the sales tax exemption for carbon dioxide capture and injection equipment. The bill’s effective dates stagger these changes, with some provisions taking effect for taxable events after June 30, 2025, and others for taxable years beginning after December 31, 2024.
HB 1295 would change North Dakota’s tax code by eliminating several standalone carbon dioxide pipeline and capture-related tax exemptions while preserving and reorganizing tax relief for certain carbon capture and storage equipment. It would also affect the state’s interim review of economic development tax incentives by explicitly including carbon dioxide-related exemptions in the list of incentives subject to periodic legislative analysis. The bill would directly affect taxpayers involved in carbon capture, pipeline, oil recovery, and related industrial construction projects, as well as the Tax Commissioner’s administration of sales and use tax exemptions.
The bill failed on House second reading by a vote of 24-60, indicating limited support in the chamber. The vote suggests that most members were not persuaded to adopt the proposed restructuring of carbon capture tax exemptions and related repeals. Because no committee transcripts were provided, the available record shows the outcome more clearly than the underlying debate, but the floor vote reflects a generally unfavorable sentiment toward the measure.
The main point of contention appears to be the bill’s treatment of carbon capture and pipeline tax incentives. Supporters likely viewed the bill as a cleanup or consolidation of tax provisions and a way to keep economic development incentives under review, while opponents may have objected to repealing the carbon dioxide pipeline exemption, the payments-in-lieu-of-taxes provision, and the sales tax exemption for carbon capture and injection equipment. The split likely centered on whether these tax preferences should be preserved to encourage carbon capture infrastructure and enhanced oil recovery, or reduced/removed as special tax treatment.