With Ohio on the cusp of a gas drilling boom, the state still relies on an honor system to collect taxes from producers, with no reliable method for cross checking. The state agencies involved with collecting and spending the gas severance tax money have been reporting different numbers than the statewide organization that represents drillers, who file tax returns every quarter. There is no explanation for the variations.
Those conclusions, from an examination of production numbers by the NewsOutlet, a collaboration among journalism programs at Kent State University, Youngstown State University and the University of Akron, gain significance when the upturn in drilling is taken into account. The state collected about $2 million in gas severance taxes in 2010. By 2014, when thousands of new wells are expected to be in operation, the state could collect as much as $40 million, a history of relatively minor discrepancies becoming a much larger issue.
What’s more, John Kasich is expected to propose new taxes and fees for the drilling industry that would lead to even bigger increases in collections. The governor rightly wants to add an impact fee, the money helping local governments repair damage to roads and bridges from truck traffic. Also expected is applying the state’s severance tax to natural-gas liquids such as propane.
Meanwhile, Policy Matters Ohio, a Cleveland-based think tank, recently issued a study indicating that Ohio could generate more than $500 million in new revenue by 2015 through raising its severance tax rate to a level comparable to other states.
Much attention has been given to developing a state regulatory structure that is up to the task of ensuring drillers act responsibly to avoid polluting the environment and harming human health. What the NewsOutlet report makes clear is that the tax structure also must be overhauled to keep pace. Actually, the two tasks are closely related, with 90 percent of the severance tax going to a fund that supports regulatory activities. The state must develop a more accurate system for measuring output in any new package of taxes and fees.
