Yesterday, Ohio Rep. Matt Huffman (R-Lima) introduced a new severance tax proposal in the Ohio House of Representatives. Co-sponsors of the bill include many House Republican leaders, including Speaker of the House William G. Batchelder (R-Medina).  The new severance tax proposal: (i) reduces the severance tax rate on persons extracting oil and natural gas by means other than horizontal wells (e.g., traditional vertical drilling); (ii) imposes a tax on the net proceeds of oil and natural gas produced through horizontal wells; (iii) provides a non-refundable credit against the state income tax equal to the amount of the horizontal severance tax paid by the taxpayer (which includes the oil and gas producer with a working interest or landowner with a royalty interest); and (iv) provides an exclusion from the commercial activity tax (CAT) for proceeds of the sale of oil and gas by persons paying the severance tax applicable to the use of horizontal wells. A copy of H.B. 375 (as introduced) is available here, and a summary of the bill put together by attorneys at Bricker & Eckler LLP is available here.

By way of background, Gov. John Kasich earlier this year proposed a severance tax as part of H.B. 59, his biennial budget bill. Amid pressure from the oil and gas industry, House Republicans removed the language in April (See our July 26, 2013, blog post – "Oil and gas industry lobbied hard against Gov. Kasich's proposed severance tax hike"). Ohio Oil and Gas Association Executive Vice President Tom Stewart said that the new industry-backed proposal "would lower taxes for conventional oil and gas producers and eliminate the threat of higher taxes for the state's thousands of royalty owners and landowners...and [that it] earmarks excess revenue for a reduction in the personal income tax for all Ohioans," according to the Gongwer Ohio Report. An article in The Columbus Dispatch reports that H.B.375 would raise an estimated $1.7 billion over 10 years by taxing oil and gas "at one percent for the first five years of production," which would increase to two percent "if the well is producing at a high level." The new revenue would be divided three ways: "for oil and gas drilling regulation; for a fund to clean up Ohio's more than 5,000 uncapped 'orphan' wells; and for annual statewide income-tax cuts," the article said.  For more, read the full story.