This is the first in a series of blog entries regarding Ohio state and local taxes imposed on oil and gas operations.

Oil and gas operators in Ohio currently pay a variety of state and local taxes:

  • Commercial activity tax (CAT) which is a 0.26% excise tax on all Ohio-based gross receipts. The tax is paid by the recipient of the gross receipt—e.g., landowners on rent, drillers on drilling fees, and operators on mineral production. No deductions are permitted for costs. Some related-party exceptions apply.
  • Property (ad valorem) taxes. All real property in Ohio is subject to the real property tax administered by counties for the benefit of public schools, counties, cities, libraries, and other local governmental entities. In general, Ohio real property taxes average 2.25 to 2.75% of fair market value per year. Ohio counties do not use a consistent method for assessing oil and gas properties. In the future we expect to see some standardization for taxing severed mineral estates—for example, separate parcel numbers used and/or more efforts to tax minerals even if not being actively produced. We expect to provide a more detailed discussion about ad valorem property taxes and severed mineral interests in the near future.
  • State unemployment and workers’ compensation taxes like other employers.
  • State sales and use taxes on taxable purchases of goods and services.
  • Municipal income taxes on company’s taxable income in some locales.
  • Drillers’ and operators’ employees pay state and local income taxes like other employees.
  • Ohio severance taxes:
    – 20 cents per barrel of oil
    – 3 cents per MCF (thousand cubic feet) of natural gas
    – No tax on severance of “natural gas liquids” including benzene and butane

Comparison to peer states with shale gas potential and shale oil potential:

The Ohio shale boom started slowly when a few small companies quietly began acquiring mineral leases for as little as $25 per acre.  This soon gave way to a full blown land rush in the fall of 2010.  But as lease prices skyrocketed through the Fall of 2011, disillusioned lessors who signed before the peak of the market were the ones rushing – to the courthouse to file lawsuits to cancel their leases.

In order to gain leverage and legitimize their lawsuit, lessors frequently allege that their lease is “unconscionable” or they were fraudulently induced to sign it.  “Exhibit A” to these lawsuits is often a technical error in the lease signing or a “fraudulent” statement made by a landman.  There are exceptions, but many of these kinds of lawsuits have no legal basis.

The Medicare laws have undergone significant changes. With the relatively new reporting regulations and the focus on compliance, litigators must implement new procedures in their practice.  Many companies are establishing guidelines to obtain information needed to comply with the Medicare Secondary Payer Act (“MSP”) and the Medicare, Medicaid and SCHIP Extension Act of 2007 (“MMSEA”).

In response to questions posed by the Richland County Prosecuting Attorney, the Ohio Attorney General recently provided guidance to public authorities about entering into Road Use Maintenance Agreements (“RUMA’s”) with oil and gas operators.  This is a distillation of the 20-page Attorney General Opinion No. 2012-029, which addressed three primary questions.

I.          May a county enter into an agreement with a private oil and gas drilling company to have the company improve and repair the county roads it uses at no cost to the county?

In Preserve Wild Santee v. City of Santee (2012) 2012 Cal. App. LEXIS 1091, petitioners challenged the City of Santee’s (City) certification of a final environmental impact report (EIR) for a development project in the City, claiming the project violated the California Environmental Quality Act (CEQA) in several ways.  The trial court found merit in

In Ohio, private pipeline companies regulated as common carriers or public utilities have the power of eminent domain to “condemn” or “appropriate” private property in certain situations. 

It is well known that the power of eminent domain is available to government authorities.  But, the reality of modern America is that carefully regulated private companies, not