By Karl Henkel
Ohio could generate $538 million in revenues by 2015 if it imposed a higher tax on oil and gas rates, according to a new report from Policy Matters Ohio.
Wendy Patton, author of the new report and senior project director at Policy Matters, with offices in Columbus and Cleveland, said that by aligning severance taxes with that of nearby states, Ohio could benefit financially from new drilling operations.
“Ohio’s severance tax is one of the lowest among states with potential to produce oil and gas from shale,” she said. “Part of preparation for the coming boom should include raising the severance-tax rate to a level consistent with other energy states.”
Texas has a severance tax rate of 7.5 percent; Oklahoma, 7 percent; and Arkansas, Michigan and West Virginia, 5 percent.
Pennsylvania has no severance tax but is considering one.
Ohio’s severance tax, by comparison, has equaled about 0.50 percent for natural gas and 0.19 percent for oil during the past decade, Patton said, which is the lowest among states with viable shale formations.
The Buckeye State ranks 25th in severance-tax collections among 35 states with such a tax. It ranks 19th in production of natural gas and 17th in oil production.
Ohio has two formations — the Utica and Marcellus shales. The taxes are based on production and not based on market value.
“Some states tax on value, and others tax on volume,” Patton said. “So it’s hard to get a good apples-to-apples read.”
But Patton said that by raising severance fees by 5 percent, the state could generate more than a half-billion dollars of additional revenue during the next three years — and that’s solely on natural gas; the report did not project revenues for oil production.
Rob Nichols, spokesman for Gov. John R. Kasich, said the tax modification is “something we’re looking at,” but said “we’re not going to thwart this economic generator with taxes.”
Patton said the tax increases would not affect Ohio’s business climate, however.
“Natural resources is not a footloose industry like other industrial development targets might be,” she said. “It’s geographically defined.”
Ohio already taxes brine-injection wells, which accepts water used in the drilling process.
Through the first nine months of 2011, the state has collected more than $1 million from that tax.