Lawmakers voted 87-6 Thursday to kill the bill.
Democrats blasted the measure, saying it would have cost North Dakotans more than $1.3 billion in the first five years.
Republican Sen. Dwight Cook of Mandan says the measure was an attempt to bring tax certainty to the oil industry and the state, while closing loopholes and adding drilling incentives.
Cook's proposal would have cut the exemption for so-called stripper wells that the state Tax Department says is costing North Dakota about $50 million in revenue each year. It also eliminated price triggers that would lessen state taxes for companies if the price of oil falls below a certain level.