A severance tax plan proposed by Ohio House Republicans in consultation with the Ohio Oil and Gas Association would raise nearly $2 billion in new revenue over the next decade to cover income-tax cuts, increased regulation costs, and the plugging of abandoned wells, the Cleveland Plain Dealer said.
Under House Bill 375, starting next April, the state would collect 1 percent of the net proceeds from each horizontally drilled oil and gas shale well for the first five years the well is in production, the report said.
In year six, the severance tax would rise to 2 percent then eventually fall back to 1 percent when well production declines to marginal levels.
Ohio now charges 20 cents per barrel of oil. The tax on natural gas is 3 cents per thousand cubic feet. In fiscal year 2013, the state took in more than $2.8 million in oil and gas severance taxes, according to the Office of Budget and Management.
The proposed tax rates would raise an estimated $1.7 billion in new revenue over the next 10 years, according to the report.
And at least one environmental group wonders if the new rates would provide enough money for state regulators to adequately oversee an ever-increasing amount of drilling activity.
“Oil and gas producers balked at [Gov.] Kasich’s proposal, which would have set initial severance tax rates at 1.5 percent of gross sales, rising to 4 percent in the next year or two after well startup costs were covered,” the Plain Dealer said.
Oil and gas companies have been increasing activity in the Marcellus and Utica shale formations that run through eastern Ohio.
Currently, 35 states impose taxes or fees on oil and gas production. Of those, at least 20 charge higher rates than those proposed in Ohio, the story said. Alaska charges a base rate of 25 percent, while Oklahoma imposes a 7-percent severance tax.
Maryland, New York, and Pennsylvania impose no severance tax.