The Ohio House of Representatives has begun substantive hearings on its House Bill 375, a set of new oil and gas tax legislation for the state. Five hearings have been conducted thus far, and changes that result from those hearings will be announced in the near future.
About Ohio’s New Oil and Gas Tax Legislation
Introduced in December by State Representative Matt Huffman (R-Lima), House Bill 375 focuses on the taxation of oil and gas efforts, as well as the state’s Orphan Well Program. It consists of a four-point legislation that works as follows:
1. It eliminates the Ohio Revised Code Section 1509.50, which imposed a regulatory cost recovery fee on conventional wells in the state. It also gets rid of minimum severance taxes on those fees and reduces severance taxes paid on all conventional wells in the state by 50 percent.
2. It alters how severance taxes on horizontal wells and fracking are imposed. Rather than tax on a per-well basis, the new oil and gas tax legislation will levy a severance tax based on the total gross receipts of the well. For years one through five of a well’s operation, a producer will owe a one percent tax on the net proceeds. After that, it increases to two percent.
3. It dictates that revenues from horizontal well taxes go toward the state’s regulatory programs, with 90 percent going to the Division of Oil and Gas Resources Management and 10 percent going to the Ohio Geological Survey. Once these programs have been completely funded, revenues will then be applied to the state’s Idle and Orphan Well Fund, with up to 50 percent of the remaining tax funds going towards plugging abandoned and idle wells throughout the state. After the Orphan Well project has been funded, any additional revenue will go toward Ohio’s personal income tax reduction fund.
4. It creates two new tax offsets specifically for taxpayers who pay horizontal well severance taxes. These individuals will be able to offset their personal income tax and/or their commercial tax liabilities for up to seven years.
According to Rep. Huffman, the bill moves Ohio in the right direction towards responsibly managing its energy options. “It encourages job creation, benefits Ohio’s taxpayers, and prioritizes environmental issues, which puts us in the best possible position to take a fair and balanced approach to domestic energy exploration,” Huffman said. “This is a pragmatic, rational approach that will benefit all Ohioans.”
The House Ways and Means Committee has conducted five hearings in regards to House Bill 375. The bill has received support from a number of industry organizations during these hearings, including the Ohio Chamber of Commerce, the Ohio Farm Bureau Federation, and the Ohio Oil and Gas Association.
Various experts presented testimony on the bill, the history of oil and gas tax legislation in the state, and other applicable topics. Some testifiers present were: Thomas E. Stewart, executive vice president of OOGA; Dr. Benjamin Thomas of Thomas Consulting LLC; Scott J. Ziance of Vorys, Sater, Seymour and Pease LLP; and Steven Downey of EnerVest Operating LLC. According to Stewart, the new bill fills an important gap in the industry. “HB 375 will provide much needed clarity for oil and gas producers who have already heavily invested capital in this state and plan to invest billions more to explore the state’s Utica Shale reservoir,” Steward said. Once all hearings have been conducted, the House will edit House Bill 375 in its current form and introduce a revised version to the floor in the coming weeks.
More on Oil and Gas Tax Legislation
To learn more about HB 375 or another oil and gas tax legislation, or to inquire about your own exploration efforts, contact MAH Energy Law today.
Sources: Hickman, Brian. “Hearings, Debate Begins on Oil and Gas Tax Reform Proposal.” OOGA Bulletin 64.2 (2014): 1, 8. Web. 17 Mar. 2014.
Hickman, Brian. “Oil and Gas Tax Reform Package Introduced in Ohio House.” OOGA Bulletin 64.1 (2014): 1, 6. Web. 17 Mar. 2014.