Severance-tax proposal has 50-50 chance of Ohio House passage
By Marc Kovac
Last week, Tom Stewart was giving a severance-tax proposal plan being developed by Republicans in the Ohio House a 50-50 chance of passage.
Stewart, executive vice president of the Ohio Oil and Gas Association, told members of his group gathered in Columbus for a winter meeting that House Bill 375 would provide clarity to the state’s oil-and-gas-tax policies, was based on sound economic principles, and would ensure more orphan wells around the state are appropriately capped.
Stewart also told those attending he was willing to work with Gov. John Kasich’s administration on some sort of compromise on the frack-tax issue.
“We’re desperately waiting to see a signal from the administration that they want to reach back across and resolve this issue,” he said, “It’s been going on too long.”
Fast-forward a few days, and now Stewart isn’t so sure of the fate of HB 375, given the governor’s latest tax proposal.
“It’s a very difficult issue, and it’s starting to get a very tortured history,” Stewart said the day after the governor’s plan was unveiled.
As part of his midbiennium budget package released this week, Kasich called for an increase in tax rates for oil and gas production to 2.75 percent on gross receipts.
The plan includes exemptions of up to $8 million to cover drillers’ startup costs and no taxes on smaller conventional producers. Additionally, the proposal would direct 20 percent of severance-tax collections to local governments in shale gas- and oil-producing areas.
That’s a departure from HB 375, which calls for an increase of 1 to 2 percent on oil and gas produced via horizontal hydraulic fracturing, with proceeds going first to regulatory efforts and then to a possible income-tax cut.
The OOGA and other industry officials have endorsed the House plan, though HB 375 doesn’t appear to be on any fast track to passage.
Stewart said his group has shown a willingness to compromise on the issue, moving from a “no severance-tax hike” position not too long ago to backing HB 375.
“We think HB 375 provides clarity to the industry and tax fairness but also provides an opportunity to expand the exploration window into areas that are technologically challenged right now,” he said.
But industry groups are balking at Kasich’s new proposal, saying it would stifle exploration and institute higher tax rates for oil and gas producers compared to other businesses.