Ohio Sales and Use Tax Exemptions for the Oil and Gas Industry

Energy & Resources|State and Local Tax

By Thomas Fagan

Ohio House Bill (“H.B.”) 430 clarifies the Ohio sales and use tax exemption language for the oil and gas industry.  The law becomes effective on September 13, 2018, but is intended to clarify existing Ohio law and “applies to all cases pending on a petition for reassessment or further appeal, or transaction subject to an audit by the Department of Taxation, on or after, May 18, 2018.”

Prior law required that goods and services were used “directly in the production of crude oil or natural gas” in order to be exempt from Ohio sales and use tax.  This statutory language was narrowly applied by the Department of Taxation, and the sales and use tax exemption was permitted only for goods and services that were directly related to actual drilling activities

H.B. 430 continues the requirement that goods and services are used “directly in the production of crude oil or natural gas,” but also clarifies the definition of what is considered “production.”  Specifically, “production means operations and tangible personal property directly used to expose and evaluate an underground reservoir that may contain hydrocarbon resources, prepare the wellbore for production, and lift and control all substances yielded by the reservoir to the surface of the earth.”  Additionally, H.B. 430 includes a detailed list of items that are exempt and are not exempt under the clarified Ohio sales and use tax exemption. 

As the oil and gas business has continued to grow in recent years, this clarification in Ohio law will likely impact many Ohio businesses. For more information on this topic or other State and Local Tax matteres, please email contactsd@schneiderdowns.com. We welcome all questions, comments and concerns and will be sure to forward your message along to the approporiate individual and get you a response promptly. The Schneider Downs State and Local Tax group consists of six professionals located in both Pittsburgh, PA and Columbus, OH.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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