Ohio's future oil, gas tax picture debated
COLUMBUS, Ohio—Ohio state officials and the oil and gas industry are painting radically different pictures as they lobby lawmakers to support or oppose Gov. John Kasich's proposal to raise the state severance tax and reduce personal income taxes.
The Republican governor says the current tax rates of 20 cents a barrel on oil and 3 cents per 1,000 cubic feet of natural gas are ridiculously low and energy companies "pay nothing" on highly prized natural gas liquids.
The industry counters that even without Kasich's proposed increase, oil and gas companies will be paying more than $1 billion in new taxes by 2015.
The proposal is stalled at the Statehouse.
Kasich wants to raise severance taxes up to 4 percent over time on the highest-producing oil and gas wells and use the proceeds for modest statewide income tax cuts beginning in two or three years.
Under the plan, well operators would pay a lower 1.5 percent tax rate for up to two years as they recoup their startup costs.
"I don't want all this money to escape Ohio," he said during an Ohio Energy Jobs Summit on Wednesday. "And our severance tax is going to be at a level that will allow us to be very competitive and it will allow us to reduce our income tax in the state and benefit all families."
Kasich's plan would raise between $327 million and $561 million annually by fiscal 2016, according to Ohio Department of Taxation estimates.
The exact amount is dependent on how long it takes oil and gas drillers to recoup startup costs, and what the going market prices are for the natural gas, oil, and natural gas liquids being extracted from the Marcellus and Utica shale underlying eastern Ohio.
A combined $973 million beyond what's currently being collected could be raised from 2013 and 2016 to go toward income tax cuts, the state estimates.
A competing analysis produced for the industry by Kleinhenz & Associates in November indicated that oil and gas tax collections would rise by 4 percent by 2015 -- to $1.05 billion -- even if current tax rates don't change.
The consultants attribute the increase to projected growth in the shale drilling business, saying it would lead to increased collections in other categories of taxes that energy companies pay, including commercial activities, income, and sales taxes at the state level as well as county property and municipal taxes.
"There's a whole list of other taxes we pay," said Jerry James, president of the Ohio Oil and Gas Association. "The governor always just sorts out the severance tax that's unique to our industry, but it's not the only tax that we pay."
Gary Gudmundson, a spokesman for the state tax department, noted that virtually every Ohio business pays the commercial activities tax and property taxes, not just oil and gas companies.
A 4 percent rate in Ohio would still be lower than the 5 percent severance tax levied in neighboring Michigan and West Virginia, but more than the 0.1 percent charged in Illinois. Pennsylvania has no severance tax on oil and gas but recently authorized local governments to impose a drilling "impact fee."
Data from the nonpartisan National Conference of State Legislatures shows Ohio's severance tax rates are among the lowest in the nation.