Honor system for taxes on drilling produces disparities

Honor system for taxes on drilling produces disparities

By Chris Cotelesse

The NewsOutlet

As Ohio prepares to usher in a multibillion-dollar gas-drilling industry, the state relies on an honor system to collect taxes and fees from well owners — and the numbers don’t seem to add up.

Well owners are required to report the amount of natural gas they “sever” from the earth and file severance-tax returns each quarter.

But an examination of production numbers by The NewsOutlet, a collaboration of journalism programs at Youngstown State, Kent State universities and the University of Akron, raises questions about their reliability, and no one has an explanation for the disparities in what represented a $2 million revenue stream in 2010.

From 2000 through 2009, the Ohio Oil and Gas Association, which represents the industry, reported more natural-gas production than did the Ohio Department of Natural Resources — the agency responsible for regulating wells.

The variations were wide, with ODNR’s annual production numbers 3 percent to 15 percent below those of the association.

In 2010, it was the opposite: ODNR reported more production than did the association.

And an analysis of severance taxes collected by a third source — the Ohio Department of Taxation — suggests a third set of gas-production numbers, which means that two government agencies have different numbers.

Tom Stewart, oil and gas association executive vice president, said he estimates production by examining “first-purchaser” figures, which represents the amount of natural gas bought at each well site.

“We try to zero in on what the best number is to report what the production is. I think we get it pretty close,” Stewart said.

State officials said they don’t have the authority to go to the wells and check the meters against the reports, and there is no explanation for why there are different numbers.

“We just process the tax returns and allocate the money to ODNR’s oil-and-gas program,” said Gary Gudmundson, spokesman for the taxation department.

Read the full story Monday in The Vindicator and on Vindy.com.

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