News
9:57 am
Wed May 14, 2014

New Severance/Fracking Tax Bill Passes House Committee

A compromise proposal on a tax increase for oil and natural gas drillers is on its way to the Ohio House floor. 

Ohio Public Radio's Karen Kasler reports.

In the last two years, a hike in the tax on oil and natural gas drillers has never been this close to reality.  Gov. John Kasich proposed a severance or fracking tax increase to fund an income tax cut twice. But Republican lawmakers worried about its effect on development of the state’s shale resources proposed their own lower rate bill, which has been rewritten several times. The latest one creates a 2.5% tax on gross receipts from shale wells in exchange for an income tax cut that’s estimated around 1.5%. The bill also allows drillers to subtract the commercial activity tax they pay from the fracking tax they owe, which will dramatically lower the revenue the severance tax will bring in. House Ways and Means Committee Vice Chair Gary Scherer of Circleville said he knows this compromise measure isn’t perfect. 

“I don’t believe there isn’t something in this bill that every single person that I’ve talked to has some problem with or they would do differently. Myself included.” 

Several lawmakers on the panel had problems with the bill, starting with Democrat Mike Foley of Cleveland, who said it was too low and provides an income tax cut that’s not needed. 
“I don’t think I’ve ever voted against a tax increase bill. There’s a little bit of an irony here.” 

The bill also sends 15% of the revenue generated to local governments. That’s not enough, said Republican Brian Hill of Zanesville in shale country in eastern Ohio. 
“I will be voting no on this bill – with a 15% level, with us not addressing some of the landowner issues.” 

Two other Republicans – conservatives John Adams of Sidney and John Becker of Cincinnati – said they were opposed to the severance tax increase because they feel it’s a tax shift and grows government. 

And Bill Patmon of Cleveland was the only Democrat to support the bill, which he said he did with misgivings because he’s concerned about infrastructure. Committee chair Jeff McClain of Upper Sandusky said he’s confident problems with the bill will be worked out in the Senate. 
“The politics of it is that that’s where it’s going to happen, not here. We are at the point where we need to do something.” 

The bill passed 11-10. After the vote, Tom Stewart with the Ohio Oil and Gas Association said he thinks overall, the bill is a good package, but he says that the shale play is very difficult in Ohio, and the industry is very sensitive to costs. 
“I think that both critics and proponents of the bill have pointed to the tax rate and said that it’s lower than other states. I don’t think Ohio should apologize for being a low tax state.” 

And Jack Shaner with the Ohio Environmental Council says he’s pleased the bill puts $15 million toward more regulation and $6 million total for geological mapping and for plugging thousands of old, abandoned orphan wells. 
“Somebody else can carry the debate about ‘should there be a tax decrease?’ That’s not my fight. My fight is the air, land and water.” 

The measure now goes to the House floor for a full vote. But there’s a chance Gov. Kasich won’t support it, since he wanted an income tax cut through a 2.75% severance tax, along with an increase in cigarette taxes and in the commercial activity tax, which haven’t gotten hearings in front of lawmakers.