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Ohio tax panel: Go slow with oil and gas industry

COLUMBUS — The oil and gas market remains too volatile to consider an immediate tax hike on an industry that Gov. John Kasich has repeatedly said was getting a great deal in Ohio, an informal legislative panel said Thursday.

The panel, part of the broader 2020 Tax Policy Study Commission, had been working behind closed doors with the industry. The report had been promised by legislative leaders more than three weeks ago.

Instead of proposing any rate increases, the informal group’s report suggested setting unspecified triggers at which point increases might be implemented or a slow phase-in of any increase. Any change should also look at the broader impact of other taxes on the industry as well as the potentially higher cost of extracting oil and gas from Ohio shale.

The panel did agree with Mr. Kasich on one thing:

“Ohio’s total tax burden on the oil and gas industry is lower than or as low as every other state with a severance tax,” the report reads.

Any tax hike would target those engaged in horizontal drilling, or “fracking,” which primarily occurs in the eastern and southern portions of the state. Currently, oil is taxed at the rate of 20 cents per barrel and natural gas at 2.5 cents per 1,000 cubic feet. The state collected $26.9 million from the tax in the last fiscal year.

The governor has tried several times to increase the tax. His most recent proposal would raise the tax to as high as 6.5 percent of market value.

Mr. Kasich has presented the hike to help finance deeper income tax cuts while Democrats have sought a higher rate with much of the revenue going back to the local governments where the activity occurs.

In related news, Ohio lawmakers studying frack tax meet for first time.

Ohio’s severance tax is just one of several tax issues before the 2020 commission. Its co-chairmen, Rep. Jeff McClain (R., Upper Sandusky) and Sen. Bob Peterson (R., Sabina), both stressed that the informal report will be considered by the broader panel as it also examines such things as converting to a flat income tax and the abundance of tax credits and exemptions that litter the tax code.

“We are in a historical economic situation with the industry because of what’s going on with Saudi Arabia and everywhere else,” said Mr. McClain, whose district includes part of western Seneca County. “Because of that, we’ve basically given a recommendation of caution. …

“We want to take care of Ohio, but we don’t want to kill the industry as well,” he said.

Shawn Bennett, executive vice president of the Ohio Oil and Gas Association, said the Organization of Petroleum Exporting Countries has manipulated the market to stifle U.S. domestic investment.

“Increasing regulations or taxes at this time would have a significant negative impact on the workers, landowners, businesses, and industries throughout the state related to oil and gas development,” he said.

The commission’s deliberations over the next year will also look at the idea of replacing Ohio’s graduated income tax system with a flat tax of between 3.5 and 3.75 percent. Ohio currently has nine income brackets.

“It’s an extremely difficult, complex process to move from a highly structured, complex, progressive personal income tax system,” Tax Commissioner Joe Testa told the committee. “It’s going to be hard to come up with a rate that doesn’t create a lot of losers.”

This article was written by Jim Provance from The Blade and was legally licensed through the NewsCred publisher network.