In exchange for a $2.6 billion cut to Ohio’s state income taxes, Gov. John Kasich has proposed a package of tax increases in other areas. Included among those increases would be the gradual implementation of a 2.75 percent tax on oil and gas extracted through horizontal drilling and hydraulic fracturing in Ohio, which is estimated to raise $874 million in three years. A competing proposal in the Ohio House of Representations, however, would cap the top tax rate for oil and gas extraction at 2.25 percent. The oil and gas industry has voiced concerns that Gov. Kasich’s proposal could have a chilling effect on extraction from the Utica shale formation in the state. The Utica Shale is notable for its lack of oil reserves, and up until now operators have produced mostly natural gas from the unconventional—or tight—shale formation. This type of gas is accessible now in large part due to hydraulic fracturing and horizontal drilling, which is just the type of production that the severance tax will impact.
Across the border, the Pennsylvania Supreme Court found last December that the state’s oil and gas law—known as Act 13—was unconstitutional, which called into question each of its provisions, including an “impact fee” that oil and gas producers pay to state and local governments. The Pennsylvania Supreme Court ultimately remanded the case to a lower court tasked with determining what parts of the law could stand without the specific provisions that were struck down. In an agreement reached earlier in March, both the state and those challenging the oil and gas law indicated that the impact fee is not in dispute, and as a result, will remain in the statutory framework governing extraction in that state.