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Groups Square Off On Oil And Gas Severance Tax

Thursday, March 27, 2014 at 5:21 PM

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Drill pad in Columbiana County (photo by Michelle Kanu)

Top policymakers are split when it comes to where Ohio should go with its tax on oil and gas drilling. As Statehouse correspondent Andy Chow reports, comparing the tax to other states’ rates can get complicated.

There are two main proposals squaring off in the Statehouse to decide the future of taxes on the oil and gas industry.

The current rate, also known as the severance tax, is extremely low compared to other states and most parties agree that it must be increased to match the level of business coming into Ohio with the proliferation of shale gas drilling.

However, groups differ on just how high that rate should go.

Republican Representative Matt Huffman has a bill that would bring the rate from below 1% to 2.25% on the total gross receipts of drilling companies.

Gov. John Kasich’s proposal, which was included in his budget update, brought the severance tax rate up to 2.75%.

The Ohio Oil and Gas Association believes the governor’s proposal is way too high and continues to support the current House effort, although they were happier with the original House proposal at 2%. Tom Stewart, the group’s executive vice president, says there’s a big difference between plans.

Stewart: “People often ask me what’s the difference between 2.0 and 2.75? Why are you quibbling about that? We are quibbling about very, very large numbers.”

Stewart claims an increase to the tax on business transactions, also known as the Commercial Activities Tax (CAT), adds even more pressure on oil and gas companies.

As lawmakers hold hearings on these proposals, supporters of Kasich’s plan have said 2.75% is well below other competitive drilling states. Stewart disputes this argument and says there’s no way of comparing Ohio to other states.

Stewart: “It’s very difficult to compare severance rates among the various oil and gas producing states because every state does it somewhat differently - all of them, because of different reasons based on industry characteristics, geology, economics, the whole thing. So to try and compare us to Texas is like trying to compare the moon to the sun.”

Policy Matters Ohio, a liberal-leaning think tank, believes both proposals are too low. Wendy Patton, senior project leader for the group, says local communities need more money from this tax in order to compensate the possible long-term effect of oil and gas drilling.

Patton: “We are not raising the money from this important tax that we need to meet the cost of impacted communities, to build opportunity for the state in the future, a state that will not have these precious resources anymore and to provide for a diversified economy after the boom goes bust.”

Patton says both proposed rates are much lower when factoring built-in exclusions - for instance both plans include reductions to the rate at the beginning implementation.

Drilling and hydraulic fracturing, also known as fracking, have the ability to bring about unpredictable problems such as spills and leaks. State researchers are currently trying to figure out if a fracking well may have contributed to a series of earthquakes near Youngstown.

Patton calls on the state to direct more money into an investment fund to account for any possible issues.

Patton: “Think of the recent chemical spill in West Virginia. There were costs to the state at providing water, of testing, of emergency response. We could face that kind of emergency at any time we just need to be constantly aware, constantly vigilant and it’s prudent to have a savings fund in case there is an emergency.”

Policy Matters wants the state to go into a regional agreement with Pennsylvania and West Virginia, which calls on all three states to implement a 5% severance tax rate.

The governor’s proposal was removed from his overall budget update, known as the mid-biennium review. Instead his plan will be considered during the committee process for Huffman’s existing House bill.

Andy Chow at the Ohio Public Radio Statehouse News Bureau. 

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