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Monday, November 2, 2009

Solve South Dakota Budget Shortfall with 1.2% Pipeline Tax

As I scribble up the numbers on TransCanada's reported $40,000-per-mile payments for land rights and daily volume on the Keystone pipeline, my wife asks, "So how much oil would it take to cover the state budget shortfall?"

My wife always asks good questions. Scribble scribble...
  • Potential South Dakota budget shortfall: $200,000,000.
  • Projected daily volume of oil, Keystone pipeline: 590,000 barrels.
  • Current price of crude oil: $77.28 per barrel.
  • Annual value of oil passing through eastern South Dakota in Keystone I: $16,642,248,000.
  • Tax rate on $16.6B that would produce $200M: 1.2%.
Keystone I will be pumping oil in 2010. Now, add in Keystone XL, which TransCanada hopes to have in service by 2012
  • Projected daily volume of oil, Keystone XL pipeline: 900,000 barrels.
  • Total projected daily volume of TransCanada tar sands oil crossing South Dakota: 1,490,000 barrels.
  • Total annual value: $42,028,728,000.
  • Tax rate required to put $200M in South Dakota's coffers each year: 0.48%.
  • Time each day it would take TransCanada to pipe enough oil to cover that tax rate: 6.9 minutes.
Legislators, are you listening? Our "leaders" are loathe to ask South Dakotans to bear the burden of paying for state services. TransCanada, a foreign corporation, could be the gravy train that keeps you from putting the burden of increased taxes on your constituents in an election year. In the face of a $200 million budget shortfall, a pipeline tax is a no-brainer.


  1. We're placing our pristine statewide natural resources at high risk with the addition of this foreign pipeline. Even a 1% tax on what flows across our state is nothing compared to what it would cost them to truck it to a refinery. Some of those millions could be placed in a clean-up fund, the rest could soften the burden placed on our taxpayers in the coming years. This is one case where I agree with adding a tax. Will any legislators have the guts to drive it through? Probably not. Who in this state would oppose it? Nobody.

  2. Since these pipelines cross state lines would a tax on the oil piped in them violate the interstate commerce clause of the US Constitution?

  3. That's a very good question, Nick. We do place restrictions and obligations on the trucks rolling through our state, don't we? I would think that if we view crude oil as a hazardous substance posing environmental risk, we could find a way assess a risk fee based on the volume and/or value of that substance moved through our state. Can we do that?

  4. There must be some way to get a little scratch from the pipelines but I don't know what it is.

    If the pipeline ended in ND could they tax it because there was no interstate commerce (only international commerce)?

  5. Cory, you have dreamed up a new tax that I would heartily support. If it's not legal, it should be. After all, we impose sales tax when travelers spend money here. We impose the gas tax on travelers passing through ...

  6. Where there's a will, there's a way. Politically, a pipeline tax should be a slam dunk: it doesn't raise prices (at least not directly) on a single South Dakota voter. Constitutionally, I don't recall interstate-commerce objections as a big part of the debates over previous pipeline taxes. And I would think a strong argument could be made that the environmental concerns in regulating the transport of 1.5 million barrels of a hazardous substance would trump business concerns.

    ND: I suppose states aren't authorized to impose their own tariffs... although didn't Bill Janklow once ban Canadian grain and livestock from South Dakota? If we can ban certain products, we can tax certain products.


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