On October 22, 2015, the informal working group that was appointed by Governor John Kasich to study the severance tax climate in Ohio issued its findings to the Ohio 2020 Tax Policy Study Commission. The group is led by Senate Ways and Means Committee Chair Senator Bob Peterson and the House Ways and Means Committee Chair Jeff McClain, with the remainder of the group being a mixture of industry group representatives, House and Senate members and other interested parties. The following is an excerpt from the commission’s findings and recommendations:
Informal Working Group Findings and Recommendations on Ohio Oil and Gas Severance Taxes
- Ohio was compared to the following eight states in the categories of multistate regulatory fees, oil and gas severance taxes and property taxes:
- North Dakota
- West Virginia
- Ohio was also compared to the following four states as part of the Oregon Study for sales and use taxes, business taxes and personal income taxes:
- Stock, commodity, and capital markets affecting the oil and gas industry have fluctuated widely in the recent past. There are few, if any, businesses in the state of Ohio that are not in some way exposed to one or all of these natural market forces, but the oil and gas industry is especially sensitive to these fluctuations and is under financial duress.
- Given the current market conditions, the legislative members of the informal working group suggest consideration of a trigger or a slow phase-in of a reformed severance tax. Given those provisions, Ohio should not expect to see a new revenue stream materialize overnight until market conditions improve. This is another reason why continuing the discussion of severance tax reform is prudent.
- Factors such as market capitalization, price, production, and "expected ultimate recoverables" should be taken into consideration when determining the appropriate severance tax rate, such that adequate funding is provided for the state's regulatory, administrative, and oversight aspects of the oil and gas industry, while focusing additional resources back to infrastructure and other industry-supported initiatives that will foster more exploration and extraction of oil and gas.
- We reiterate the guiding principles stated at the beginning of these findings: to update Ohio's severance tax to make it comparative with other shale play states across the nation. 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 new revenues generated should be used to:
- Assist local governments in shale play counties to improve infrastructure, equipment, and services that will accommodate the oil and gas industry and also benefit the citizens within their counties.
- Facilitate making adjustments to Ohio's income tax or possibly other taxes in an effort to make Ohio more competitive in the national and international marketplace.
- Invest in asset-building opportunities that will grow Ohio's economy and improve the quality of life of all Ohioans.
- The legislative members of the informal working group recommend that the Ohio 2020 Tax Policy Study Commission accept this information as a foundation for continuing review in its larger analysis of Ohio's tax structure and utilize these principles as a framework for that continuing review.
Based upon the findings and recommendations of the group, it’s clear that changes to the severance tax in Ohio will be made at some point, but not until commodity prices stabilize and the market can absorb the potential raise in overall tax burden.
Contact us if you have questions about the Ohio severance tax and its impact on your business and visit our State and Local Tax services page to learn about the services that the Schneider Downs Tax Advisors offer.