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Ohio Severance Tax Bill Stalls; Debate Expected to Resume in ‘15

A bill passed by the Ohio House of Representatives in May that would levy a 2.5% severance tax on oil and natural gas production from horizontal wells has stalled in the state Senate, but lawmakers are expected to take up deliberations again in 2015.

The state's severance tax debate has continued without resolve for roughly three years (see Shale Daily, Feb. 3, 2012). Sources said there's a strong chance that not a lot will change when the 131st General Assembly begins its work.

The bill has languished in the state Senate since it was passed by the House. The bill differs from several proposals that were put forth by Republican Gov. John Kasich, who indicated in May that the legislation did not meet his expectations.

The Republican-controlled House passed substitute HB 375 along a mostly party-line vote of 55-35 (see Shale Daily, May 15). Under the legislation, severance tax revenue, which would be based on gross wellhead receipts, would be placed in a state treasury fund. From there, it would be allocated to an oil and gas fund, a well plugging fund and to local governments, among other things.

And while both chambers of the General Assembly are controlled by Republicans, members on both sides of the aisle in the state Senate have said they'd like to see a higher severance tax rate (see Shale Daily, Feb. 12).

"I've had zero conversations on this, but I would anticipate, because of the public comments that have been made indicating Gov. Kasich's willingness to reengage in the severance tax debate, that we won't see anything on this until his operating budget or another comprehensive budget bill is introduced at the beginning of the next session," said Democratic Sen. Capri Cafaro, a member of the Ways and Means Committee, where HB 375 stalled. "The rate passed by the House will be a point of contention during negotiations and it's likely that Kasich will come with a higher number."

Cafaro said the Ways and Means committee has received no further information on the bill, no hearing notices or "no indication that there's any interest to consider this bill" before the year's over. Attempts to contact other Senate lawmakers were unsuccessful.

Ohio API Director Christian Zeigler told NGI's Shale Daily that he knew little about the status of Senate legislation, adding that he expected that it wouldn't go anywhere before the end of the year. "We'll probably see some severance tax legislation in the governor's budget next year; that's what we're expecting," he said.

Kasich, who was reelected to a second term in a landslide victory earlier this month (see Shale Daily, Nov. 5), has floated several severance tax ideas since he took office. Last March, he proposed a 2.75% severance tax -- with the proceeds going toward his goal of reducing the state's income tax rate by 8.5% over the next three years -- and an $8 million tax exemption on gross receipts, which would allow operators to recoup start-up drilling costs (see Shale Daily, March 12; June 11, 2013; April 5, 2013).

The governor's proposed budget typically arrives early in the year, sometime before March. It was unclear if Kasich planned to renew debate on the severance tax with legislation in his next budget proposal.

"It's pretty clear the Senate will not take action in the remaining time we have in this session of the General Assembly," said Thomas Stewart, executive vice president of the Ohio Oil and Gas Association, which supports the House bill. "It's also clear that the governor has prevailed in his wish that the Senate not take action because he would just assume to do it his way as part of a budget debate or a tax reform debate beginning in the next session. That's because the administration wants to take political control of the issue."

Cafaro said it wasn't clear if the state Senate would debate HB 375 or a new piece of legislation. She added that the Ways and Means committee has been focused on a municipal tax reform bill.

"Part of it is we have such little time," she said of the municipal tax reform efforts. "Because the severance tax is also complex and controversial with a number of stakeholders that will want to be heard, it's unlikely that two very, very complex bills will come back to back."

Stewart said his organization expects a renewed round of fierce debate on the issue, given Kasich's previous stance, declining commodity prices and the amount of time the House bill remained in the Senate without action. 

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