States weigh tax policy on drilling
For decades, one tiny county in the rolling hills of Ohio’s rural reaches was a depressed farm community saddled with double-digit unemployment. Now, Carroll County boasts more active oil and gas wells than any other in the state, and the tax dollars are flowing right along with the crude and natural gas.
And in the same county, where unemployment reached 13.4 percent in 2009 amid declines in agriculture, there’s now bustling activity at Carroll restaurants, car dealerships and the area’s one hotel.
Though the economic surge has been a welcome relief, Carroll County and others enjoying the newfound prosperity aren’t all that interested in sharing the wealth. But that decision might not be theirs to make.
Ohio lawmakers and policymakers in other states are weighing how to use taxes and fees on oil and gas production to bolster state budgets and economies without alienating local communities or scaring away energy development.
In Ohio, many Carroll residents are up in arms over a proposal by Republican Gov. John Kasich to raise severance — or taxes on high-volume drillers — and then share the wealth from the state’s oil and gas boom through an income-tax cut.
“I’m not for supporting everybody else with what we’re doing, when this has been an area that’s been depressed for a long time and nobody’s done anything to help us along the way,” said Amy Rutledge, who directs the visitors’ bureau and local chamber. “Why should Appalachia Ohio support the rest of the state?”
Proponents of the production tax approach, including Kasich, argue that taxes on the extracted oil, natural gas and natural-gas liquids can bring long-term benefits to state economies that impact fees can’t. Once the resources are tapped and well construction is completed, wells could continue producing for half a century, according to some experts.
The Pennsylvania Budget and Policy Center, a liberal think tank, estimated the state lost $300 million between October 2009 and January by not passing a proposed tax on oil and gas production.
Kasich’s tax plan is similarly stalled as fellow Republicans who lead the Legislature grapple with the political fallout.
Though the national Americans for Tax Reform has sanctioned Kasich’s plan as compatible with its anti-tax hike pledge, that doesn’t mean the well-funded energy industry couldn’t run ads against lawmakers who support the increase when they come up for re-election in two years.
As it stands, Ohio’s production tax rates — 20 cents a barrel on oil and 3 cents per 1,000 cubic feet of natural gas — are among the lowest in the country. Annual collections on oil production have remained roughly flat from 2007 to 2011.
According to the Ohio Department of Taxation, tax revenue on natural gas production rose by less than 2 percent last year — up $40,000 to $2.1 million — despite an explosion of drilling activity that has included 391 new shale wells permitted the last 20 months. And Ohio never thought to tax natural gas liquids, a newly developing revenue area for the industry.