How Could Ohio’s Election Impact Severance Tax?

David Shallenberger | November 5th, 2012

Every four years, national politics takes center stage here in Ohio. You can’t turn on the radio or t.v. without being inundated with presidential, senatorial or congressional election ads. But there are issues a bit closer to home that are equally important to us.

Of the many state and local issues getting lost in the commotion is one that can have a big impact on Ohio’s oil and gas industry – Governor Kasich‘s proposed severance tax change. Initially introduced in March, this is not a new issue. It was tabled in the lead up to the election and is likely to be reconsidered once the Ohio House and Senate return for their next session.

Potential Tax Increase on Royalty Owners

If passed, the governor’s proposal would fundamentally change the way the severance tax is calculated on oil and gas mineral interests – and significantly raise taxes on Ohio producers and royalty owners. Currently, the tax is calculated based on the volume of oil or gas produced, 20 cents per barrel of oil or three cents per mcf of natural gas. However, the governor’s proposal would change the nature of the tax to a gross receipts based tax, which could be as high as 4 percent.

Both Sides to the Argument

The governor’s proposed severance tax changes comes just two years after the industry worked with the Ohio Legislature to reform the severance tax structure with Senate Bill 165. With this new tax proposal coming so quickly on the heels of the agreement, members of Ohio’s oil and gas industry can’t help but feel that they are now the “bulls-eye” of a political target.

Meanwhile, supporters of the governor’s plan argue that, two years ago, the state didn’t know the full economic value of the Utica Shale reserve that underlies the eastern third of the state. They also contend that the entire state should feel a tangible benefit from these reserves. However, the Governor’s opposition is quick to point out that the oil and gas reserves that the state wants to tax belong almost exclusively to individual landowners, most of whom are Ohio taxpayers and voters.

Exercise Your Voice and Your Vote

Currently, all is quiet on the severance tax front. However, after the November elections, the severance tax debate will likely heat up again. Voters and Ohio producers and royalty owners concerned with the proposed severance tax changes should visit Energy In Depth’s Ohio Votes website. Read how Energy In Depth outlines the candidates’ position on Ohio’s oil and gas industry.

If you have an opinion on the tax, now is the time to make your voice heard. Contact your representatives and let them know how you think it will impact your business and Ohio’s economy. While elections often appear to be all about the candidates, they are really about you – who will best help advance your business and personal interests. Stand up and ensure our elected officials know what will best help you and why.

Ohio Oil and Gas Tax

Severance tax is just one part of Ohio’s complicated oil and gas tax system.  With corporate income tax and Ohio commercial activity tax (CAT) also thrown into the mix, Ohio’s tax environment can be confusing for businesses, especially for those who have come in from out of state.  Confused about how this patchwork system impacts your business?  Contact Rea & Associates.  Our Ohio Oil and Gas tax team will help you to stay compliant with Ohio’s ever-changing regulations.  Want more information on Ohio oil and gas tax?  Follow me, @OilandGasTax, on Twitter

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