Watching Government: Ohio's severance tax battle

March 23, 2015
Ohio Gov. John R. Kasich praised already enacted tax cuts in his Feb. 24 State of the State address. "Let's keep going, and let the common sense growth strategy of cutting taxes strengthen Ohio, as well as helping us attract the best and brightest to our state," he urged the state's lawmakers.

Ohio Gov. John R. Kasich praised already enacted tax cuts in his Feb. 24 State of the State address. "Let's keep going, and let the common sense growth strategy of cutting taxes strengthen Ohio, as well as helping us attract the best and brightest to our state," he urged the state's lawmakers.

But the governor also conceded that some taxes are necessary to provide basic public services. "Those taxes must be generated in the least harmful way," he said. "This means we must reduce Ohio's traditional overreliance on income taxes and lean more on consumption taxes."

Reform is essential, starting with the state's 20¢/bbl severance tax, Kasich said. This needs to be increased while protecting the state's smaller producers by cutting their income taxes and keeping Ohio competitive with other oil and gas producing states, he said.

"The prosperity created by our oil and gas deposits can be great not just for shale country," the governor said. "This is not just for part of Ohio, but for all of Ohio, because it makes possible the income tax cuts that provide an economic boost statewide."

Ohio Oil & Gas Association Executive Vice-Pres. Shawn Bennett painted a different picture when he testified Mar. 3 about the severance tax provision in HB 64 before the Ohio House Ways and Means Committee.

Bennett started with impacts producers and support industries have felt since crude oil prices fell more than 50% from June 2014 levels and gas prices plunged 80% since 2005, "with most of the decline following our last oil crash in 2008."

Producers have reduced operations and spending, written off acreage, or packed up and left, Bennett said. Steel manufacturers have laid off workers and idled plants, a well services company has closed its Ohio office, and its larger competitors are reducing their workforces, he said.

Only a deterrent

"The legislature should not add additional tax burdens on an already struggling industry," Bennett said. "The proposed severance tax…will dramatically decrease the chance of success in this effort, and only serves as a deterrent to future recovery, growth, and stability in Ohio's oil and gas industry."

Simply comparing other states' severance levies to determine Ohio's development appeal is gross oversimplification, Bennett said. The 2014 Global Petroleum survey, which includes input from 710 industry executives worldwide, places Ohio, with its current tax structure and climate, well below other developing states in its appeal to producers.

Other surveys show that it has more investment barriers and a less attractive commercial investment climate, Bennett said. "As it stands now, Ohio is already playing catch-up to competing producing states," he said.