Details on Ohio Gov. Kasich’s New Tax on Shale Drilling

sign taxes aheadDetails of Gov. John Kasich’s plan to raise taxes on the nascent shale drilling industry in Ohio (see this MDN story) are starting to leak out. Gov. Kasich plans to unveil his plans officially next week, but here’s what we know so far:

  • Oil obtained from horizontal hydraulic fracturing would be taxed at 1.5 percent of market value per year for the first two years, and then go to 4 percent in the following years.
  • The same rate would apply to natural gas liquids: 1.5 percent per year for the first two years, then 4 percent.
  • Dry gas (methane) would be taxed at 1 percent of market value.
  • For vertical/conventionally drilled wells producing <10,000 cubic feet of natural gas per day, no tax, and >10,000 cubic feet per day, 1 percent.
  • No tax on natural gas liquids from vertical/conventionally drilled wells.

Currently, the state charges 20 cents per barrel of oil, 3 cents per 1,000 cubic feet of natural gas, and nothing on natural gas liquids.

Kasich’s defense of breaking his no new tax pledge is that by raising taxes on one industry (drilling) he will reduce state income taxes for most Ohians, and therefore the proposal is a net tax reduction. Gotta love how politicians think.

Apparently the pot o’ gold is just too tempting:

The changes might generate from $834.5 million to $1.02 billion from 2012-16, depending on price assumptions, and would be returned to residents by lowering income-tax rates on individuals and small businesses.

Kasich has discussed the proposal with energy producers, he told reporters yesterday at CERAWeek, a Houston conference held by IHS Cambridge Energy Research Associates.

“Our plan is fair and it will create long-term stability,” Kasich said. “A lot of people, when they pay zero, they want to continue to pay zero. That’s not acceptable.”*

The Ohio Oil and Gas Association, which represents drillers in the state, has a different take on the governor’s leaked proposal:

The association sees the proposal as an effort to shift the tax burden and will oppose it, Executive Vice President Thomas E. Stewart said in a telephone interview.

“It’s fundamentally unfair to ask the one industry that could bring economic renaissance to the state of the Ohio to pony up and solely bear the cost of reducing income taxes for another portion of Ohio society,” Stewart said.*

We’ll see how it plays out in the coming weeks.

*Akron Beacon Journal/Bloomberg (Mar 8, 2012) – Kasich plan would raise Ohio drilling tax as much as 4 percent