Ohio's severance tax on oil and natural gas production should be higher -- much higher -- liberal-leaning think tank Public Policy Ohio said Monday.
Raising the tax would allow the state to capture some revenue to help repair any eventual environmental damage from the predicted boom in drilling in the Utica Shale and allow it to make job development and educational investments when the boom ends, the think tank said.
Ohio should set a severance tax of 5% on the wellhead value of newly extracted gas and oil, Public Policy said, an increase hundreds of times above the 0.025-cents/Mcf and 10-cents/barrel rates set in 1972.
Ohio also charges 0.005-cents/Mcf as a conservation fee.
"Many mineral-rich states dedicate their severance tax collections to trust funds that finance services during drilling and strengthen the state once minerals are depleted," Public Policy Senior Project Director Wendy Patton said. "The severance tax is how energy states ensure impacted communities are protected and wealth invested to create a better future for all residents."
Ohio's severance tax rate is well below neighboring West Virginia or Michigan and well below that of traditional oil and gas producing states like Texas and Oklahoma. The single exception among neighboring states is Pennsylvania, which has no severance tax. A proposed impact fee estimated to account for 1% to 1.5% of wellhead value is bottled up in the Pennsylvania Legislature but expected to pass in some form in January.
Saying the tax wouldn't impact producers because it is deductible from their federal tax bill, the research group said Ohio ranks 25th out of 35 in revenues from severance tax collections while at the same time ranking 19th in gas production and 17th in oil production.
The research group thinks the 5% tax could raise up to $538 million in the next three years based on projections for drilling and production in Ohio.
"Costs associated with increased drilling activity as well as with pollution may impact state and local finances, while the level of benefits predicted by the industry may not materialize," Patton said.
