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Kasich Administration Pushing Severance Tax Increase

Kasich Administration Pushing Severance Tax Increase

Timothy Keen, Director of Ohio’s Office of Budget and Management, presented at the Zanesville Rotary Club on January 12th. He advised that Governor John Kasich will continue to push for a severance tax increase in the coming year.

Currently, the severance tax is 20 cents per barrel of oil and 3 cents per thousand cubic feet (mcf) of natural gas. Under Governor Kasich’s most recent proposal, taxes on conventional (vertical wells) production will remain the same, but severance taxes on shale production would increase to 6.5 percent on the sale of oil and gas at the wellhead. For example, a 6.5 percent tax on oil sold at $30 per barrel would amount to $1.95 per barrel, as opposed to the current rate of 20 cents per barrel. If gas is refined into products, such as ethane, and sold downstream, the tax rate would be 4.5 percent.

In most cases, the severance tax is shared proportionally between the landowner (or royalty owner) and producer. For example, a landowner whose lease secures a traditional one-eighth (12.5 percent) royalty will pay 12.5 percent of the severance tax through a deduction from the landowner’s royalty, while the producer will pay 87.5 percent of the severance tax.

The severance tax increase continues to be proposed despite oil prices dropping below $30 per barrel as of January 15, 2016, and reports that low commodity prices could drive one-third of U.S. producers into bankruptcy (as reported by the Wall Street Journal on January 11, 2016).

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