American Oil and Gas Reporter - February 2018 - 91

ConventionSection: Ohio Oil & Gas Association

Severance Tax Talk
One possible side benefit of HB 225,
Hickman mentions, is that it may have
steeled lawmakers' resolve against raising
Ohio's severance tax. He notes that for
every biennial state budget cycle since
2013, Governor John Kasich has proposed
raising the severance tax rate for unconventional wells.
Last year, for Ohio's 2018-19 budget,
Kasich suggested raising the rate to 6.5
percent on crude oil and natural gas at
the wellhead and taxing processed gas
and natural gas liquids 4.5 percent at the
processing plant tailgate. That tax increase
ultimately was not included in the budget
lawmakers approved last July (AOGR,
August 2017, pg. 34).
According to Hickman, at the Jan. 16
hearing on HB 225 before the House Energy and Natural Resources Committee,
the director of Ohio's Office of Budget
Management openly defended the administration's raiding of the Oil and Gas
Well Fund.
"The bill itself was on plugging idle
and orphan wells, but that became a secondary topic," Hickman reveals. "Everyone
agreed we should be plugging those wells,
but the hearing basically turned to the
state budgetary process. (Lawmakers) really questioned the director's authority
to unilaterally move those funds outside
the budgetary process."
Noting that lawmakers "haven't been
too keen" on raising the severance tax to
date, Hickman adds, "Now, through the
HB 225 process, they were alerted to
$62 million of severance tax revenues
being diverted to other uses outside of
their budgetary process. The antennae
are up on these fund transfers. I would
say lawmakers are even more fortified in
their resolve to oppose a severance tax
increase."
Sales Tax Exemption
The second bill in OOGA's triumvirate
is an attempt to force the Ohio Department
of Taxation to recognize what the association considers an historical exemption
for oil and gas production equipment
from the state's sales and use tax.

Ohio law exempts tangible personal
property "directly used in production"
from sales taxes, which Hickman says
historically has applied to manufacturing
and oil and gas production. Unfortunately,
he observes, while the manufacturing exemption is defined clearly in statute, the
E&P exemption is not. HB 430 would
rectify that by linking the exemption to
the definition of a production operation
contained in Ohio Revised Code Section

1509.01AA.
The problem arose, he relates, in 2015,
when state auditors from the Ohio Department of Taxation started showing up
at producers' offices asserting they owed
sales and use taxes on certain items
stretching back six years, even though a
1960 guidance issued by the department
recognized the E&P exemption.
Aslanides points out that OOGA
thought it had solved the problem as part

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American Oil and Gas Reporter - February 2018

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