OUR THOUGHTS ON:

Will the Proposed Ohio House Bill 375 Bring Major Changes to Ohio's Oil and Natural Gas Severance Tax?

Energy & Resources|State and Local Tax

By William Vohsing

On December 4, 2013, Ohio House Republicans introduced House Bill 375, which if passed, will bring significant changes to the way Ohio taxes oil and gas extraction.  The Bill is supported by the Ohio Oil and Gas Association and Governor Kasich.  The new tax is expected to raise an additional $1.7 billion dollars over the next ten years.  The additional revenue would be used to fund oil and gas regulatory programs administered by the Ohio Department of Natural Resources, plug idle and orphaned wells, and potentially contribute to the State’s income tax reduction fund. Hearings on the bill will be held in 2014.

Proposed Changes

  • Eliminate the regulatory cost recovery assessment (CRA)
  • Impose a 1% tax on the net proceeds of horizontal oil and gas wells for the first five years of production.  The rate would increase to 2% on the gross proceeds of the well after the first five years.  However if the well is low-producing, the rate would remain at 1%.  Low-producing is defined as less than 17bbl/day for oil and less than 100 Mcf/day for natural gas.
  • Reduce the severance tax on natural gas extracted through traditional wells from 2.5 cents to 1.5 cents per Mcf.  The severance tax on oil extracted through traditional wells would remain unchanged.
  • Provide for a nonrefundable credit against the taxpayer’s income tax equal to the horizontal severance tax paid by the taxpayer.  Any excess credit may be carried forward for a period of not more than seven years.
  • Exclude the gross proceeds realized from the sale of oil and natural gas from the Commercial Activity Tax.

Schneider Downs will continue to monitor House Bill 375 as it makes its way through the legislature. Please contact our state and local tax professionals with any questions you have regarding the Ohio severance tax.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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