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New severance tax bill, how Farm Bureau members say the money should be used
by Callie Wells
House Bill 375 was recently introduced in an effort to make changes to the state’s severance tax (the tax that applies when natural resources are “severed” from the earth).
Ohio Farm Bureau has not taken an official stance on this bill, but members have established Farm Bureau policy that prioritizes the use of severance tax revenue for funding of ODNR's oil and gas regulatory program, funding the Orphan Well Program and funding reinvestment in counties impacted by oil and gas drilling.
In addition to funding oil and gas regulatory programs, the severance tax revenue would also go toward funding a statewide income tax reduction.
Lawmakers have also said they want to provide an income tax credit to landowners whose lease agreements require them to pay a portion of the severance tax.
“As long as the bill meets our policy’s funding priorities, we think it’s appropriate to use the remaining revenue to fund an income tax reduction, said Brandon Kern,” Ohio Farm Bureau director of state policy.
As currently written, House Bill 375 lacks the critical component of local reinvestment.
“When a local asset is leveraged, our members want to ensure it benefits that community in the long term,” Kern said. “Providing for at least some of the severance tax revenue to be invested in infrastructure and community development in these counties will help the region avoid the typical boom-bust cycle that so often plagues areas where natural resource extraction occurs.”
Kern said that Ohio Farm Bureau has been very actively involved in interested party meetings about this issue. Farm Bureau has been talking to lawmakers, asking them to add the local reinvestment component to the bill and make sure the bill’s tax credit provisions balances the interests of landowners and oil and gas producers.
It is estimated this legislation will generate $1.7 billion in revenue over 10 years by levying a tax of 1 percent on the net profits of oil and natural gas drilled in Ohio. The rate will remain in place for the first five years. Then, a temporary rate of 2 percent will be imposed until production decreases to low levels.
The current severance tax collects a flat rate based on the volume of the resource, not profits, of $0.20 per barrel for oil and $0.03 per 1,000 cubit feet of natural gas. The revenue raised from the newly proposed severance tax would fund income tax reductions and allocate funds to oil and gas regulatory and geological survey activities of the Ohio Department of Natural Resources.
The bill is currently being reviewed by the House Ways and Means committee and is expected to see a vote soon.
Callie Wells is a communications specialist for Ohio Farm Bureau.