Governor Kasich’s proposed income tax reduction, set off by a modernization of Ohio’s severance tax on the oil & gas industry, has gotten a lot of attention. Whether from the press, other elected officials, or whomever, there’s no lack of opinions on the matter.
The proposed law would increase the effective severance tax rate in Ohio from 0.5% or 0.8% (depending upon the type of well) to 2.7%. With the increase, Ohio’s effective severance tax rate (ETR) would be 16% lower than the other states’ average for the well producing dry natural gas and natural gas liquids and 40% lower than the other states’ average for the well producing dry natural gas and oil.
If the proposed severance tax change is adopted, Ohio would still rank lowest among the eight states in terms of overall effective tax rates, including all major state and local taxes, for both types of wells. Ohio’s overall ETR would be 40% or 48% below the average ETR in the other states…
The jobs and gas production remain a subject of speculation, Dudley said during his speech. But BP is excited about the potential of Ohio’s shale gas, he said, and so is he.
“In 2009, I was skeptical of the shale revolution,” said Dudley, a Chicago native and BP’s first American-born CEO. “I’m now convinced the U.S. has enormous reserves of natural gas.”
He said energy companies will be coming to Ohio for its natural gas liquids…
And how about Chesapeake Energy setting up an Ohio headquarters, purchasing 291 acres for development?
The industry isn’t afraid of this proposal, but what they are afraid of is uncertainty. Oil and gas companies want to know what they’re getting into, rather than being blindsided with taxes and regulations years down the road. The regulations, having passed the legislature, are already in place to give those companies that predictability.
The severance tax modernization deserves to follow.
At the end of the day, the industry knows this is a good plan for a state that’s seen its population stagnate in the face of such an onerous income tax burden. The fact is, people have been voting with their feet for decades to avoid such arduous taxation. Businesses have done the same, taking jobs with them.
Chipping away at that burden is one way to reverse that trend. Just ask business owners:
Ohio’s tax climate needs reform and where better to start than with a severance tax that hasn’t been touched in over 40 years. It’s one more step we can take to make Ohio more business-friendly and attract more job creators. Oh, and that’s on top of an income tax cut for you, the individual Ohio taxpayer. Not too shabby if you ask us.Cross-posted at GOHP Blog.