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Severance Tax Passes Ohio House, But May Face Changes in Senate

Thursday, May 15, 2014 at 9:58 AM

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A heavy loader prepares to carry steel pipes used in the fracking process. (photo by Brian Bull)

A new tax on oil and natural gas drillers is halfway through the legislature, but is facing an uncertain future. Statehouse correspondent Karen Kasler reports on the debate in the House.

The bill puts a 2.5 percent severance tax on gross receipts on shale wells that are horizontally fractured, and allows drillers to deduct the commercial activity tax they pay from the severance tax they owe. It’s estimated that will bring in $316 million over five years, which would go to an income tax cut.

That was enough to get most House Democrats to vote against it, including State Rep. Bob Hagan of Youngstown.

“We’re just going to give a tax break to those individuals that already get tax breaks,” Hagan said. “I mean, it’s amazing. It’s like a reverse campaign contribution.”

Hagan also blasted the size of the fracking tax, which will be among the lowest in the country. It’s lower than the severance tax in Republican Gov. John Kasich’s budget last year, and lower than what he proposed in his budget update this year.

House Republicans who wrote and revised this bill several times note that it sends some proceeds to local communities impacted by fracking.

Republican State Rep. Brian Hill of Zanesville voted against the bill in committee. He voted for it on the floor only because lawmakers approved his amendment to raise the percentage going to local governments from 15 percent to 17.5 percent.

“My support of this bill comes from not increasing the tax on local and the gas and oil industry, other than to do some of the things we’ve talked about as far as helping with the orphan wells and the regulatory side, so that we’re being good stewards of our land and our resources,” Hill said.

The bill provides $21 million for the Department of Natural Resources for regulation, to cap orphan wells and for geological mapping.

But another lawmaker from fracking country, Democratic State Rep. Jack Cera of Bellaire, said the money going to those poverty-stricken and neglected communities isn’t nearly enough to help.

“I come up here and I see all the great things going on here in Columbus and other large cities, and I think, ‘Our crap still runs in our creeks in eastern Ohio,’ and how sad that is,” Cera said. “Investing in the infrastructure in eastern Ohio would help the industry, certainly a lot more than providing an income tax to Ohioans.”

But Republicans who backed the bill cautioned that while they feel this bill isn’t perfect, the industry could still be scared off by high taxes in possible future proposals.

State Rep. Dave Hall is from Millersburg in Amish country, which has seen a number of drilling companies in recent years.

“They’re not in New York and New York wishes they were. They’re gone,” Hall said. “You only have so many drilling rigs in the United States and North America. There’s competition for the investment.”

Three Democrats voted for the tax, and six of the House’s most conservative Republicans voted against it—those on the committee that had approved the tax said they opposed it because they feel it’s a tax shift that grows government.

The sponsor of the bill said after two years of debate over a severance tax, he thinks the bill will bring drillers clarity. But maybe not for a while. It’s been mentioned by several lawmakers that changes are possible in the Senate. And Kasich has said that this severance tax increase won’t be enough for the income tax cut that he wants.

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