YOUNGSTOWN, Ohio – Existing taxes on the oil and gas industry could generate upwards of $1 billion in new revenues for state and local governments, making Gov. John Kasich’s proposal to increase severance taxes in Ohio unnecessary, a representative of the industry said Thursday.
Jerry James, president of Artex Oil Co. in Marietta and volunteer president of the Ohio Oil and Gas Association, addressed members of the Youngstown/Warren Regional Chamber and its government affairs council regarding Kasich’s proposal to raise taxes on natural gas liquids and crude oil from the current 1.5% to 4%, following an initial cost-recovery period. Kasich has proposed using the proceeds to fund a cut in the state income tax.
Opponents argue that such a tax would discourage investment in Ohio at a time of prime opportunity for the state given the oil and gas deposits in the Utica shale play here. Both the Ohio Senate and House of Representatives are taking “a hard look” at the proposal, James said.
“It’s a gross receipts tax that’s charged right on top of the business. It’s not an income tax you pay when a business venture is profitable, therefore it can have a very negative impact on the ability of businesses to invest in the economy because they pay whether the venture makes money or not,” James told The Business Journal. Such a tax could retard job creation, impair landowners’ ability to lease their property to drillers and collect royalties, and suppress energy production, leading to price increases.
“This is the first time in a long time that we’ve had new capital flowing into Ohio, particularly eastern and southeastern Ohio, some of the areas that have been more economically depressed, and the Legislature is concerned about doing anything that could discourage people from investing in Ohio,” he said.
That severance tax would be paid by small business owners and farmers, and because of Ohio’s progressive income tax system, James said, an income tax refund would go to the wealthiest taxpayers.
“Some of these large companies are going to pay it too but a lot of it’s going to be paid for by Ohioans and it’s going to the wealthiest people in Ohio from some of the poorest areas in Ohio,” he remarked.
“I find it ironic there’s a proposal on the table that would require us to give up economic opportunity and pay taxes to the wealthiest people in the state,” James said.
James argues that such an increase is unnecessary. A study conducted for the association by an economics professor at Case Western Reserve University projects a $1 billion increase in state and local tax collections with the existing tax structure in place, he said. A third of that is expected to go to local governments.
A recent study conducted by Penn State University showed increased tax collections in counties where drilling is taking place for oil and gas in the Marcellus shale play.
James is touring the state visiting chambers of commerce and other groups regarding the tax proposal. He reported six chambers are getting ready to come out against Kasich’s proposal. The Zanesville-Muskingum County Chamber of Commerce has already announced its opposition to the proposal.
The Regional Chamber is studying the proposal and hasn’t taken a position on it, said Tony Paglia, vice president, governmental affairs.
A Quinnipiac University poll released Wednesday shows Ohioans strongly back Kasich’s proposal to raise severance taxes on oil and gas producers to fund income tax relief.
James said he also supports an income tax cut. “There’s just a better way to do this that doesn’t jeopardize the investment,” he remarked.
Kasich received support for the tax increase from Policy Matters Ohio, although the progressive pressure group called for any increased revenue to be used to pay for public services and to restore cuts in government funding.
Copyright 2012 The Business Journal, Youngstown, Ohio.