(Scroll down to see photos from the Ohio Farm Bureau annual meeting.)
COLUMBUS — Ohio Gov. John Kasich wants to overhaul the state’s tax system, with the goal of lowering the income tax. And who doesn’t want that?
But part of his tax reform package is an increase of the severance tax levied on oil and gas production. And there are plenty of landowners who could get stuck with the bill.
A severance tax is an “extraction” tax on the production of a resource. If you have a lease for oil and gas production, there is language in your contract that determines whether or not expenses, like the severance tax, will be deducted from royalty payments before the royalty share is split.
Currently, Ohio imposes a severance tax of 20 cents per barrel of oil produced and 3 cents on each million cubic feet of gas produced. Last spring, Kasich proposed taxing horizontally drilled oil and natural gas liquids at 1.5 percent of gross receipts, eventually increasing to 4 percent; and dry gas at 1 percent.
Speaking to the Ohio Farm Bureau Federation annual meeting Nov. 29, Kasich asked the farm group’s support of his tax reform measures, saying the severance tax was so low it was “ridiculous.”
“A modest increase in the severance tax on Big Oil will allow us to reap some of the benefit of that oil that they are pulling out of the ground and is a diminishing resource,” Kasich said.
Harrison County Farm Bureau President Jayne Wallace voiced her opposition to a severance tax increase during a unprecedented 25-minute question-and-answer session with the governor after his 17-minute speech.
“I feel like we’re being penalized for owning property that happens to have oil and gas under it,” Wallace said. “I’ve already paid taxes on it.”
In a characteristically blunt response, Kasich basically told Wallace she signed a bad lease.
“If you negotiated a bad deal with the oil companies, and you have to pick up the severance tax, I mean, I wouldn’t have done it that way, if I were you.”
Prior to the Utica shale drilling push, typical oil and gas leases stated, in the royalty provision, that the landowner would bear a share of any taxes associated with production. Most of the leases signed early in the Utica drilling negotiations also require landowners to pay a share of any production taxes, including the severance tax.
“We are going to get a higher severance tax in this state. It’s going to happen,” Kasich said. “It’s just a matter of when.”
“I want the Farm Bureau to help me on this.”
The 332 voting delegates wrestled with the severance tax issue during the annual meeting’s two-day policy development sessions, defeating several proposals raised by eastern Ohio counties.
Delegates finally approved policy on a comprehensive state and local tax reform that says, in part, “We oppose an increase in severance tax solely to fund an income tax reduction.”
It includes language that would earmark severance tax revenue for local governments, infrastructure needs, economic development, and mitigating future environmental impacts, and enhancing the sustainability of local economies in the impacted areas.
Columbiana County Farm Bureau President Phil Greenisen said the policy was well written. “We won’t have a chance to say ‘yes’ or ‘no,’ but this gives the Farm Bureau staff the chance to sit at the table and proceed with some very, very important discussions.”
The governor also pushed the idea of privatizing the Ohio Turnpike while speaking to the farm organization, but the Ohio Farm Bureau continues to oppose privatization.
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Here are some of the photos from our OFBF annual meeting coverage.
Read more OFBF coverage here: