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Tax plan rankles oil & gas industry



Published: Mon, February 17, 2014 @ 1:40 a.m.

By Tom McParland

tmcparland@vindy.com

YOUNGSTOWN

A revised severance tax bill, introduced last week by Republicans in the Ohio House of Representatives, proposed a higher tax rate and shortened the period before it would take effect, riling a top oil and gas industry representative.

Tom Stewart, president of the Ohio Oil and Gas Association, which represents drillers throughout the state, took exception to the substitute bill that would raise the top tax rate on the net value of natural gas produced from horizontally fractured wells from 2 percent to 2.25 percent.

But the most significant change, he said, was a provision that would enforce that rate after two years of production, instead of five.

“That’s a huge issue,” he said in an interview.

The shorter window would give producers less time to recover the cost of drilling and overburden them with tax obligations, he said.

“On average, five years probably gives level playing ground across the state of Ohio,” Stewart said. A two-year window before the higher rate kicks in “is not reality.”

The initial severance tax bill, introduced in December and sponsored by House Speaker Pro Tempore Matt Huffman of Lima, R-4th, proposed a 1 percent tax on the gross value of oil and natural gas from fracked wells for the first five years of production. After that, the rate would have risen to 2 percent for high-producing wells and then dropped back to 1 percent when production declined.

The OOGA was heavily involved in the crafting of that proposal, and the industry group publicly endorsed the bill on the day it was introduced with the backing of House leadership.

Since then, the severance tax has had six hearings in the House Ways and Means committee, and the governor’s office has lobbied for a rate of 2.75 percent.

Last year, Republican Gov. John R. Kasich proposed a rate of 4 percent, but that bill was shut down by Republicans in the Legislature.

The new, slightly higher rate is coupled with a provision in the substitute severance tax bill that would no longer exclude producers from paying a 0.26 percent commercial activities tax.

The CAT tax is an annual fee businesses pay for the privilege of operating in Ohio.

While it sounds nominal, Stewart said that the increased rate represented a CAT tax, in and of itself. He argued that it is unfair to force producers to pay the additional fee when they already are paying taxes that apply only to the oil and gas industry.

“[Producers] are adding tax value in Ohio,” he said. “Because they have industry-specific taxation, they deserve an exemption from the CAT tax to avoid double taxation.”

Still, state Rep. Sean O’Brien of Brookfield, D-63rd, said the revised severance tax bill did not go far enough for many Democrats, who want a higher rate and more money going back to support local governments.

“We don’t want to tax them out of business, but we want to be fair and equitable,” he said. “We’re not getting our fair share.”

Unlike the initial bill, the revised version directs some funds to support governments in areas bearing the infrastructural brunt of drilling, but the bulk of the revenue goes toward a statewide income tax cut.

“I’m not against tax breaks, but when we could use that money to create jobs, it just seems like a better use,” O’Brien said.

Stewart said he expects to see another substitute bill emerge in the House, but there is no room to negotiate a higher severance tax rate.

Meanwhile, he said that the industry is waiting for clarity on an issue that has hung over the Statehouse for more than a year.


Comments

1polhack(127 comments)posted 6 months, 2 weeks ago

Anyone want to bet that peak production for a fracked well lasts longer than five years? Gee, I guess that if they aren't producing at the five year point, they pay nothing under Stewart's bill. He isn't even an elected carpet bagger. I was taxed on the first and every dollar I ever earned . Now I'm taxed on my retirement income. Frackers don't deserve tax breaks they brazenly "suggest" (wink, wink) to the dunderheads in politics.

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2grazor50(56 comments)posted 6 months, 2 weeks ago

Unless dollar bills are coming up with the gas and oil from these wells, just who do you think is paying these higher taxes? Wake up people< this is just another tax burden on the average citizen. Oil and gas producers just pass the increase on with their product and ultimate responsibility for the increase goes straight out of our pockets in higher prices. Government knows that, but they hide it in the form of taxes on a business that people feel deserve to pay more because they make so much, then starts Government wasteful spending that will require this increase when the oil and gas industry slows in production.As state rep O'Brien puts it " WE'RE NOT GETTING OUR FAIR SHARE!" What about the taxpayers, increasing our tax burden with higher oil prices,, does that sound fair?

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3billdog1(1158 comments)posted 6 months, 2 weeks ago

This girlly man is crying over .25%. WTF, it isn't like the oil industry hasn't done the same to its customers. They cry that it isn't needed during the warm winters so they have to raise rates, then they say demand during cold winters drives up rates. Okay, now the citizens finely got them over a barrel and they cry. OKay go drill somewhere else. Oh, I see, it isn't somewhere else, so we are telling these leaches to share the wealth and they cry. Another shell game by the kingbabies. If your going to make money in a community at least help that community. This area could use a little money to help its schools, roads, infrastructure, blight, jobs, etc... If you want the community to support you, support the community. They have drilled two of these down the road from me and the plates on the pickups going in and out are all out of state plates. So they are giving the locals the flying finger of farce. Yes a few in the future will have support jobs, but this isn't the big win they keep claiming for the area. Right now we are getting support jobs, restaurants, hotels, prostitutes and police/courts. Giving these people tax holidays while taxing the few dollars most land owners are getting (yes a few got big money, but those are only a few with many acres of land) is a joke. These guys couldn't do this if land owners wouldn't agree to allow them to have mineral rights. So stop crying about 1/4% in tax. Your talking about 25 cents on $100.

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4HSG(122 comments)posted 6 months, 2 weeks ago

"you're talking about 25 cents on one hundred dollars."

The Ohio Oil and Gas Lobby is BEYOND greedy!

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5CommonSensei(1 comment)posted 6 months, 2 weeks ago

There appears to be a typo in the last sentence of the article. I believe it should read:
"...the industry is waiting for Charity..."
(not clarity)

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6stateline(69 comments)posted 6 months, 1 week ago

.25% can equal millions of dollars in the end. That is before they even recoup their costs/losses. Drilling one well can costs millions, and even then its never a sure thing that it will be a producer.

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7dontbeafool(885 comments)posted 6 months, 1 week ago

Right Grazor, I'm sure if we let lem drill tax free, they would pass along their savings to us the consumers in the form of lower prices. Big oil is all about bottom line profit and see how bad they can price gouge us before we start to gripe about it! In other states, they are being taxed 7% and are still drilling away, so why is Ohio only getting 2%?

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