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Severance Tax and Budget Update

Posted By Brian Hickman, Director of Government Affairs, Operations Managing Director, Monday, April 13, 2015

While a revised budget proposal is still being worked upon by the Ohio House of Representatives, some media reports are detailing significant changes in the Governor’s original proposal. Some of these changes will have an impact on the Ohio oil and gas industry. An official announcement on these changes is expected this Tuesday (4/14) before the House Finance Committee.

As you may recall, Governor John Kasich provided a $72.3 billion executive budget proposal to the House for consideration. The proposal included a projected personal income tax cut of $5.7 billion, while increasing taxes by the tune of an additional $5.2 billion in an effort to offset the lost state revenue. The Governor’s vision is to move the Ohio economy from a service-based economic system to a more consumption-based model going forward. 

Overall, the House is expected to remove several provisions that would raise taxes upon certain businesses. Expected to be removed are the increases in a severance tax on oil and natural gas production, the Commercial Activities Tax (CAT), the state sales tax, including a general broadening of this tax to several services not currently included.

While several of these provisions were for the goal of reducing the state’s personal income tax, House Republicans are expected to still offer a sizeable reduction in the tax due to the retention of a few of the Governor’s priorities (IE – a reduced cigarette tax increase) and a continued strong state revenue projection. The cut is expected to be in the neighborhood of a $1 billion overall reduction.

In addition to these tax changes, the House is expected to also make changes to the oil and gas regulatory components as well. At this time, the extent of those changes are not as definitive as the tax provisions.   

Again, the state budget process is far from over. Now, as the House nears the end of their process, the bill will move onto the Ohio Senate where it will see more changes. Then, a conference committee between the House and Senate will hammer out the final version of the bill being proposed by the state legislature for the Governor’s signature.   

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