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The House and Senate decided to not include an Oil & Gas severance tax provision in Ohio’s budget. Instead, the Ohio legislature will study the severance issue over the summer before taking it up again on October 1. The House preferred a budget without a severance provision and a large segment of industry would not engage on the severance as part of the budget process. Consequently, severance was discarded ... for now.

Senators Balderson and Peterson made a strong effort to craft a compromise approach. They reviewed provisions in neighboring states and had discussed a phased-in approach that recognized current depressed pricing. This staggered approach could have been implemented in lieu of any specific cost recovery mechanism. The old HB 375 approach had $10 million dollars of cost recovery per well. The state that was mentioned by the Senate as a possible template was West Virginia, which uses a gross receipt approach and a 5 percent rate. Senator Balderson was also adamant that any provision contain a strong earmark for the local communities.

A Joint House and Senate press conference took place this week to announce the study committee. President Faber said that while it appeared all parties were negotiating in good faith, there was not enough time to reach an agreement. The proving forming a study committee contains a firm deadline for resolution. President Faber was adamant that a severance proposal would be forthcoming this Fall and that the General Assembly would act on that proposal. A recent article in The Plain Dealer reports on these developments.  

Even if a compromise is reached, the legislative leaders must create a legislative vehicle for the tax increase. Typically, tax issues are addressed either in a budget bill or a budget correction bill. The budget bill contains a “20-20 Tax Commission,” which could identify a broader range of tax issues to be addressed. If that is the case, we could be looking at another major budget initiative in 2015.
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