Ohio’s future oil, gas tax picture debated

JULIE CARR SMYTH

AP State­house Correspondent

COLUMBUS — Ohio state offi­cials and the oil and gas indus­try are paint­ing rad­i­cally dif­fer­ent pic­tures as they lobby law­mak­ers to sup­port or oppose Gov. John Kasich’s pro­posal to raise the state sev­er­ance tax and reduce per­sonal income taxes.

The Repub­li­can gov­er­nor says the cur­rent tax rates of 20 cents a bar­rel on oil and 3 cents per 1,000 cubic feet of nat­ural gas are ridicu­lously low and energy com­pa­nies “pay noth­ing” on highly prized nat­ural gas liquids.

The indus­try coun­ters that even with­out Kasich’s pro­posed increase, oil and gas com­pa­nies will be pay­ing more than $1 bil­lion in new taxes by 2015.

The pro­posal is stalled at the Statehouse.

Kasich wants to raise sev­er­ance taxes up to 4 per­cent over time on the highest-producing oil and gas wells and use the pro­ceeds for mod­est statewide income tax cuts begin­ning in two or three years.

Under the plan, well oper­a­tors would pay a lower 1.5 per­cent tax rate for up to two years as they recoup their startup costs.

“I don’t want all this money to escape Ohio,” he said dur­ing an Ohio Energy Jobs Sum­mit on Wednes­day. “And our sev­er­ance tax is going to be at a level that will allow us to be very com­pet­i­tive and it will allow us to reduce our income tax in the state and ben­e­fit all families.”

Kasich’s plan would raise between $327 mil­lion and $561 mil­lion annu­ally by fis­cal 2016, accord­ing to Ohio Depart­ment of Tax­a­tion estimates.

The exact amount is depen­dent on how long it takes oil and gas drillers to recoup startup costs, and what the going mar­ket prices are for the nat­ural gas, oil, and nat­ural gas liq­uids being extracted from the Mar­cel­lus and Utica shale under­ly­ing east­ern Ohio.

A com­bined $973 mil­lion beyond what’s cur­rently being col­lected could be raised from 2013 and 2016 to go toward income tax cuts, the state estimates.

A com­pet­ing analy­sis pro­duced for the indus­try by Klein­henz & Asso­ciates in Novem­ber indi­cated that oil and gas tax col­lec­tions would rise by 4 per­cent by 2015 — to $1.05 bil­lion — even if cur­rent tax rates don’t change.

The con­sul­tants attribute the increase to pro­jected growth in the shale drilling busi­ness, say­ing it would lead to increased col­lec­tions in other cat­e­gories of taxes that energy com­pa­nies pay, includ­ing com­mer­cial activ­i­ties, income, and sales taxes at the state level as well as county prop­erty and munic­i­pal taxes.

“There’s a whole list of other taxes we pay,” said Jerry James, pres­i­dent of the Ohio Oil and Gas Asso­ci­a­tion. “The gov­er­nor always just sorts out the sev­er­ance tax that’s unique to our indus­try, but it’s not the only tax that we pay.”

Gary Gud­mund­son, a spokesman for the state tax depart­ment, noted that vir­tu­ally every Ohio busi­ness pays the com­mer­cial activ­i­ties tax and prop­erty taxes, not just oil and gas companies.

A 4 per­cent rate in Ohio would still be lower than the 5 per­cent sev­er­ance tax levied in neigh­bor­ing Michi­gan and West Vir­ginia, but more than the 0.1 per­cent charged in Illi­nois. Penn­syl­va­nia has no sev­er­ance tax on oil and gas but recently autho­rized local gov­ern­ments to impose a drilling “impact fee.”

Data from the non­par­ti­san National Con­fer­ence of State Leg­is­la­tures shows Ohio’s sev­er­ance tax rates are among the low­est in the nation.

Posted by AP News on May 2 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.