Last week, the Ohio Farm Bureau came out in public opposition to Governor Kasich’s plan to increase the state’s severance tax to cover a reduction in the personal income tax.
While the Governor continues to position his plan as a higher tax on “BIG OIL” to benefit Ohio as a whole, the farmers are not having it. Really, this brings to light the crux of the issue. An increased severance tax may have a greater proportional impact on land owners than it will on “BIG OIL”. Many land owners whose leases may require payment of the severance tax will likely see any decrease in income tax offset by the severance tax hike. In contrast, the “BIG OIL” companies who will undoubtedly pay a very significant percentage of the total severance tax have many other methods to cover the tax and attempt to maintain margins.
Many of these same farmers have recently signed very lucrative leases with those same “BIG OIL” companies. Therefore, they won’t be worried about the severance tax as Santa will be coming down the chimney with a sack full of cash this Christmas.
At the same time, given infrastructure delays and decreased natural gas prices, current drilling is falling short of previous expectations. Not to mention the environmental movement continues to grow stronger, especially around the more controversial injection well sites that come along with increased hydraulic fracturing activity.
All these factors continue to make fracking and the severance tax the most highly charged issue for Ohio moving into the New Year. At the end of the day, I believe there will be an increase in the severance tax but the question remains… how much will it be and who will truly bear it? Likely, eastern and southeastern Ohio farmers and land owners will be reaching into Santa’s sack and “redistributing” some of its contents to all the rest of us in Columbus, Cleveland, Toledo, Cincinnati and the rest of Ohio. Is this what Santa had in mind?