Wednesday, October 29, 2014

Governor on Severance Tax

The Governor vowed Tuesday to continue his years' long battle to increase the severance tax on oil and gas companies drilling in Ohio's shale formations.  The governor blasted the oil and gas industry for opposing what he views as a "reasonable" severance tax rate and suggested the longer the legislature delays action, the higher the rate should be.  "They're paying 20 cents on a $100 barrel of oil. You should all sign up for that kind of a tax situation. This is a total and complete rip off to the people of this state. It's outrageous," he told a crowd at a Metropolitan Club forum in Columbus.  "And then they take our stuff and they go back and they cut their taxes and they have our wealth in their state and they don't pay for it. We need to stop this. And we've tried in that legislature to have a reasonable severance tax," Gov. Kasich said, noting other petroleum-producing states like North Dakota have considerably higher rates.  "We were proposing four (percent). Every day they wait it goes higher," he added.
Earlier this year the House passed a measure that would impose a 2.5% tax on gross receipts from horizontally fractured oil and gas wells (HB 375). The administration has criticized the House's proposed tax rate as too low and says the legislation would allow too many deductions to generate a significant amount of revenue.  The bill has support from one of the two main oil and gas industry groups, who warn that raising the severance tax any higher would drive drillers away to other states. They note that Ohio applies other taxes on drilling that competing states don't charge, such as the Commercial Activities Tax and the ad valorem tax.
Senate President Keith Faber has expressed doubt that the bill could pass his chamber during lame duck session and maintains that the issue ought to be addressed in the context of "overall tax reform."
Gov. Kasich also said he believes "we're going to need more regulations on the wellhead" and acknowledged the presence of a handful of protestors outside the forum who voiced concern about the effect of fracking on the environment.  "This industry is fantastic for this state. I believe in this industry, I support this industry. But you know what? There's a proper way to have them operate in our state - both in what they pay and the way they're regulated, because I'll tell you, if you don't regulate this thing right, you're going to lose people in the communities - they're going to say it's dangerous," he said.  The governor was hopeful that the shale drilling boom in eastern Ohio could revitalize downtrodden parts of the state and spur development in downstream industries to make Ohio "the polymer capital again."  "This could unlock such an incredible thing in this state. But it has to be regulated and they have to pay their fair share as they deplete our resources in this state. And the legislature's going to have to understand this. Or maybe there's another way to get this done," he said, apparently alluding to the possibility of placing a severance tax issue on the ballot.  Quoting Revolutionary War hero John Paul Jones, the governor said, "I have not yet begun to fight."

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