Kasich Will Propose New Tax on Fracking, Cut Income Tax

The Cleveland Plain Dealer reports that Governor John Kasich is set to propose tax changes which will increase the tax burden of oil and gas drillers while also lowering the income tax. 

In addition to a new tax on fracking, there would also be changes to various existing taxes petroleum companies pay for pumping out oil and natural gas from underneath the ground in Ohio.  It also contains a tax break for some smaller operators.  Based on current market values, the changes could bring roughly $1 billion in revenue to the state over the next 5 years, money which will be funneled back to Ohio taxpayers in the form of income tax reductions.

"We want to lower income taxes to help out all Ohioans and to especially help out small businesses because they're so important to Ohio's economy," Kasich told The Plain Dealer.

The plan is also to siphon about $17 million per year from the increased revenue for state regulation of the oil and gas industry.  More after the jump...

The proposal will need legislative approval, and it is bound to meet some opposition, especially from Republicans who will not like the idea of raising taxes - particularly on big business - and from the oil and gas industry leaders, who feel that the revenue generated from the jobs being created and the taxes they already pay should shield them from more taxation.  Marcellusdrilling.com is already calling the plan socialism.

Here is the summary of the proposed changes from the Plain Dealer:

Under Kasich's proposal, Ohio would continue to charge companies 20 cents a barrel for oil retrieved through conventional wells. The market price of crude oil on Friday was $107 a barrel.
Oil retrieved through horizontal fracking would be taxed at 1.5 percent of the annual gross sales for companies in their first year of operation. After that, the tax grows to 4 percent of gross sales. The lower rate in year one is to help companies offset their initial start-up costs in Ohio, according to documents reviewed by The Plain Dealer.
Natural gas tax rates would also change, and for the better for most companies. Companies that produce less than 10,000 cubic feet of natural gas per day through traditional wells would no longer pay a tax. That's good news for about 90 percent of Ohio's conventional natural gas producers.
Those producing more than 10,000 cubic fee of natural gas per day would pay a 1 percent tax, which is also a tax break from the current rate of 3 percent. Natural gas collected through horizontal fracking would be taxed at 1 percent regardless of the amount collected. Natural gas prices this week had dropped to $2.62 Mcf. (Mcf is a unit of measure that equals 1,000 cubic feet.)
And the new tax on natural gas liquids through obtained by fracking would follow the same tax rate as the rate charged for oil from fracking, 1.5 percent of gross sales in year one and 4 percent after that.
The revenue would go into a newly created fund requiring legislative approval, which would be used to support the tax cut. The income tax cut would apply when there is annual growth on revenue of at least one-third of 1 percent. If there isn't sufficient growth, Ohioans wouldn't get the tax cut, but the pool of money would carry over to the next year.
These rates are lower than in Michigan and West Virginia, in an attempt to still set Ohio apart as a more attractive destination for the oil and gas industry.

As for the income tax cuts, they are likely to appear in time for Kasich's re-election bid in 2014.

So, what do you think?  Is this a good thing for Ohio?  Comment here or at the Daily Digger Forum!




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