Ohio Gov. John Kasich (R) has offered a proposal that would raise taxes on oil and gas production in the state to help fund a partial income tax cut.
His plan calls for an across-the-board income tax cut for low- and middle-income taxpayers and expanding existing tax credits for low-income households.
To partially offset the proposed tax cuts, Kasich proposes increasing Ohio’s severance taxes on oil and natural gas produced and distributed in the state. A severance tax is a tax imposed on the removal of nonrenewable resources, such as crude oil and natural gas. Kasich proposes setting a 6.5 percent tax on crude oil and natural gas sold at the wellhead and a second 4.5 percent tax at later stages of distribution for natural gas and natural gas liquids.
Ohio currently imposes a tax of 20 cents per barrel of oil and 3 cents per thousand cubic feet of natural gas produced. The governor’s office says the two tax hikes together would yield $448 million in revenue over two years.
Shawn Bennett, executive vice president of the Ohio Oil & Gas Association, says the tax hikes Kasich proposes would burden an industry already suffering from low prices.
“While this industry continues to struggle in a market downturn, any increase in costs would stifle development even further,” Bennett said. “We have to recognize while oil prices are starting to rebound, it is not the heyday of 2013.
“The increase in the severance tax Kasich wants doesn’t reflect what is going on with oil and gas production in Ohio and nationally,” said Bennett. “Kasich fails to recognize the Utica [shale] isn’t the only game in town.”
Competition for Investors
Bennett says Ohio’s oil and gas industry competes with other regions in the country for investors, and raising taxes on oil and gas production could hamper the industry’s growth in the state.
“We are competing for capital,” said Bennett. “People are looking to get the best return on their investment, and even with Ohio’s current low severance taxes, people are still investing in other states more than they are in the Utica [shale].
“You have to treat this for what it is: a regional shale play for regional producers, not big oil,” Bennett said. “Let’s not scare away the opportunities for the hardworking folks in Ohio.”
Michael McGrady ([email protected]) writes from Colorado Springs, Colorado.