Ohio House Passes Severance Tax on Drilling

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A long-debated severance tax on hydraulic fracturing operations within the state passed the Ohio House of Representatives on Wednesday, setting the stage for a Senate vote on the issue later this year. House Bill 375, which sets a 2.5% tax on gross receipts from horizontal wells, cleared the chamber by a 55 to 35 vote. The House vote came one day after a subcommittee voted to send the legislation to the floor by a narrow 11 to 10 margin. The tax rate in the bill is .25% lower than the 2.75% severance tax proposed by Gov. John Kasich.

Under the legislation, the first $10 million of gross receipts from wells drilled after October 1, 2014 is exempt from taxation. An amendment added before the subcommittee vote also would allow oil and gas producers to deduct payments towards the state’s commercial activity tax from their liability under the proposed severance tax.

It remains unclear just how much revenue the tax, if approved, would raise for the state. The Legislative Service Commission has projected the tax could generate anywhere between $10.6 million and $173 million per year by 2019.

The Governor’s office has voiced concerns that the 2.5% severance tax rate, which is intended to counterbalance a proposed income-tax cut, is too low. On Tuesday, a spokesperson for Gov. Kasich said the plan set forth in the bill “still falls short of what the governor believes is needed.”

But the bill is not without supporters. Tom Stewart, Executive Vice President of The Ohio Oil and Gas Association praised the legislation after it was passed in the subcommittee vote, arguing, “I think that both critics and proponents of the bill have pointed to the tax rate and said that it’s lower than other states. I don’t think Ohio should apologize for a being a low-tax state.”

Referencing the goal held by many legislators in Columbus to encourage oil and gas producers to invest in Ohio’s shale plays, Speaker of the House William G. Batchelder said, “I’m hopeful we will attract more companies once there is some certainty in what the tax may be.”

The bill sets aside $15 million for fracking regulation and an additional $3 million to clean up abandoned well sites. The Senate will likely vote on the severance tax some point after the summer recess.

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Topics:  Energy, Fracking, Natural Gas, Oil & Gas, Severance Tax, Shale Gas

Published In: Elections & Politics Updates, Energy & Utilities Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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