Ohio’s oil and gas severance tax is among the lowest in the nation, but drillers shouldn’t be hit with a significant tax increase until slumping energy prices rebound, according to new recommendations from panel of state lawmakers.
The long-awaited report, released Thursday, didn’t tackle the key issue in what’s been a years-long debate: how much to raise taxes on fracking activity in eastern Ohio.
The report’s findings show that state lawmakers are still reluctant to act on Gov. John Kasich’s repeated calls for a tax hike to pay for income-tax cuts and funding to local governments in drilling areas.
The legislative study group found that “Ohio’s total tax burden on the oil and gas industry is lower than or as low as every other state with a severance tax.”
The lawmakers agreed with the energy industry’s stance that that low energy prices have put “financial stress” on Ohio’s shale oil and gas industry.
As a result, the study group recommended that lawmakers consider a “trigger” or “slow phase-in” of any tax increase they pass.
“Ohio should not expect to see a new revenue stream materialize overnight until market conditions improve,” the report stated.
Kasich, in a statement, said the report’s findings were “disappointing.”
“Make no mistake, our fight to get Ohioans the income tax cut they deserve will continue,” the governor said.
In June, legislative leaders announced at a rare joint news conference that the study group would work through the summer to hammer out a severance tax plan that all sides could agree on.
However, legislators missed their self-imposed deadline of Oct. 1 to release the report.
Senate President Keith Faber, a Mercer County Republican, said this week that the newly convened Ohio 2020 Tax Policy Study Commission will continue to work toward a comprehensive severance tax deal.
Faber disputed that lawmakers are using delay tactics. “I think what you’re seeing is people trying to wrestle with a complex issue,” he said.
State Rep. Jack Cera, a Belmont County Democrat on the study committee, said in a statement that he appreciated the report’s recommendation that a portion of the proceeds from a tax hike should go to local governments in eastern Ohio.
It would be a “mistake” to put the money toward income-tax cuts, Cera said, because of the “instability of severance tax revenue.”
Currently, Ohio charges a flat rate of 20 cents per barrel of oil, while the tax on natural gas is 3 cents per thousand cubic feet.
Kasich, a Republican, has proposed charging horizontal drillers $3.25 per $50 barrel of oil and about 16 cents per thousand cubic feet of natural gas, given a spot price of $3.59 last December.
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