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Ohio Oil/Gas Well Plugging, Industry Sales Tax Bills Pass Legislature

Two bills that were a high priority for Ohio’s oil and gas industry have passed the legislature and are headed to Gov. John Kasich for his signature.

House Bill (HB) 225, which would make it easier to get orphaned wells plugged in the state, also had support from environmental organizations. It passed the legislature by wide margins and the House cleared amendments by the Senate on Thursday, moving the bill on to Kasich.

The bill would increase funding for the Ohio Department of Natural Resources (ODNR) by requiring the agency to spend 30% of the Oil and Gas Well Fund on plugging orphaned wells. The fund generates money through fees, severance taxes and penalties paid by the industry. The bill would also require the agency to report its well plugging progress to the legislature annually.

As in other producing states across the country, thousands of orphaned wells have yet to be discovered in Ohio, industry officials have said. ODNR currently has about 700 wells identified for plugging. Some of the wells date back to the nineteenth century and were drilled long before the state passed its first comprehensive oil and gas regulations in the 1960s. 

The other piece of legislation sent to Kasich, HB 430, reaffirms the traditional sales tax standing that oil and gas operators have had since the 1960s. The bill simply clarifies exemptions. 

In 2016, Kasich line-item vetoed legislation that the state Department of Taxation had argued would have cost the state considerably by expanding the sales tax exemption on equipment used directly in producing oil and gas to cover all production-related purchases.

Ohio Oil and Gas Association spokesman Mike Chadsey said the industry disagreed with that argument at the time, but noted HB 430 is different. He said the latest bill “does go further to specifically spell out what has always been exempt will remain exempt, and what has always been taxable will remain taxable.”

Kasich spokesman Jon Keeling said the governor is currently reviewing the bills.

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