16 NOVEMBER 2024 WorldWide Drilling Resource® www.starironworks.com 257 Caroline Street Punxsutawney, PA 15767 800-927-0560 • 814-427-2555 Fax: 814-427-5164 SERVING THE WATER WELL INDUSTRY Serving the Drilling Industry Booth 1003 Drilling Into Money Not Boring by Mark E. Battersby Tax Savings at the State and Local Levels Many within the drilling industry complain about their federal tax bills. However, more often the state and local tax burden of their businesses is far greater. What’s worse, many of those state and local tax laws change from year to year. Today, state income taxes can cost a drilling operation or business between 2.5% and 10% - or more - of its pretax income. This is not an insignificant amount, regardless of the state of the economy. Every drilling professional or business owner should also be aware of whether those deductions they’re planning to claim on their federal tax returns will receive the same treatment at the state level. While many states follow federal tax rules, some states decouple from certain tax provisions. Obviously, the possibility of nonconformity should always be a consideration. Federal, state, and even local laws dealing with employees also change from year to year, and all of those changes usually impact a drilling operation’s tax bill. While these laws may be designed to be beneficial for employees, businesses usually find it increasingly difficult to remain profitable. Many states have created programs to compensate businesses for expenses related to minimum wage law changes, worker incentive programs, such as paid family leave, and other laws dealing with employees. However, this is only a temporary solution and rarely addresses higher payroll costs and increased payroll tax bills. One state tax often overlooked and frequently overpaid is the tax assessed on the property and - in many places - the equipment and other business assets. Surprisingly, few drilling operations challenge their property tax bill. While the property tax rate can’t be questioned, the assessment of the business’s property, the value placed on it by the local assessor, can - and should - be challenged. State and local governments often incentivize businesses using tax breaks, grant programs, or business friendly policies. Is the drilling business taking advantage of all the tax credits and incentives they qualify for? State and local taxes are varied and in constant flux. However, those state and local taxes can significantly impact a drilling operation’s cash flow and profits. This means keeping abreast of the business’s state and local tax obligations. Keeping abreast, while complex, is worth the effort. Failing to keep abreast can significantly affect the operation’s cash flow and profits and, as always, professional guidance is recommended. Mark Mark E. Battersby may be contacted via e-mail to michele@worldwidedrillingresource.com
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