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State House begins discussing oil and gas taxes
By Marc Kovac
COLUMBUS
The Ohio House began deliberations Tuesday on legislation to revamp taxes charged on oil and gas produced in eastern Ohio’s emerging shale oil fields.
House Bill 375 calls for lower taxes on existing conventional wells and increasing rates on those drilled horizontally, with excess proceeds devoted to plugging abandoned wells and potentially cutting income- tax rates.
“I believe this comprehensive tax-reform proposal is a fair and balanced approach that will provide oil and gas producers with more certainty,” state Rep. Matt Huffman of Lima, R-4th, told members of the House Ways and Means Committee. “Certainty is an important factor to companies when weighing their tax burden and deciding whether or not to invest billions into energy exploration and development within our state.”
He added, “Taxpayers, of course, will benefit from this proposal as the creation of two new offsets will impact royalty owners while additional revenues are earmarked for a reduction of the personal income tax.”
The legislation is a departure from a plan pursued by Gov. John Kasich, who sought to increase severance-tax rates on oil and gas produced through fracking, a process that involves pumping large volumes of water, chemicals and sand into shale formations deep underground to extract natural gas and oil.
House Republicans’ new bill, which has more than a dozen co-sponsors, calls for tax rates on nonhorizontal wells to be cut in half.
Horizontal wells would be subject to a 1 percent tax on gross receipts over the first five years of production, then 2 percent thereafter as long as production remains above certain levels. The lower rate during the initial years will allow producers to recoup their costs, Huffman said.
Proceeds from the increased severance tax first will go to state regulators overseeing the fracking industry, with extra collections used to cap orphan oil and gas wells and for potential income-tax rate cuts.
HB 375 also includes additional tax breaks for well owners.
Industry groups are supporting the bill.
In a released statement, Tom Stewart, executive vice president of the Ohio Oil and Gas Association, called the legislation “rational, substantive and good for Ohio.”
Some House Democrats, however, remain opposed, saying lawmakers and the governor should push for a higher severance-tax rate and use the proceeds to pay for more state inspectors to regulate the industry, plus provide a needed funding boost to schools and local governments.