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Severance Tax Is the Wrong Kind of Tax Reform for Ohio
A letter to the editor from Thomas E. Stewart, executive vice president of the Ohio Oil and Gas Association, about Gov. Kasich’s proposal to increase the severance tax rate was recently published in The Wall Street Journal on August 1, 2012.
Severance Tax Is the Wrong Kind of Tax Reform for Ohio
I’m shocked by your editorial supporting the severance tax increase Gov. Kasich has proposed for oil and gas production in Ohio. What your editors call creative, I call risky to the state’s growing energy-based economy.
Exploration of Ohio’s Utica Shale is still in its infancy, yet the Kasich administration insists on pursuing a tax that could stifle capital investment and derail development. It’s also an insult to the oil and gas producers who have already invested billions in the state without asking for a dime in tax incentives or any guarantee of a return on their investment.
The administration claims that Ohio’s severance tax rate is antiquated and far less than other states. In fact, the severance tax was increased only two years prior with industry and bipartisan support. It’s also impossible to make an apples-to-apples comparison of severance tax rates without considering a state’s overall oil-and-gas tax framework.
For example, Texas has a 7% severance tax rate but it offers generous abatements to oil and gas companies to offset the severance tax. There is also no income tax in Texas. Then there’s Pennsylvania, which debated instituting a severance tax for years but decided against it because of concerns that it could diminish investment.
Despite conventional wisdom, the profit margin on oil and gas production is low—approximately 7% after tax. The administration’s proposal is a dramatic increase that would equate to a 4% gross-receipts tax, essentially slashing producer’s profits and their incentive to invest in Ohio.
Thomas E. Stewart
Executive Vice President
Ohio Oil and Gas Association
Granville, Ohio
View the article at the Wall Street Journal website.