News and Insights

Ohio Proposes Budget Proposal House Bill 59

Tax Development Feb 25, 2013

On February 12, 2013, Ohio Governor John Kasich released the text of proposed House Bill 59 (“HB 59”). The proposed language includes changes for income tax, sales and use tax, and severance tax. Major changes to each of the taxes are listed below:

Income Tax

  • Reduces income tax rates in all brackets over three years by a total of 20%.
  • Creates a new deduction for individuals receiving business income as a sole proprietor or through a pass-through entity, whereby 50% of such income is deductible, up to certain limits.
  • Repeals the income tax deduction for wagering losses.
  • Clarifies that taxpayers and pass-through entities may request another method to effectuate an equitable allocation and apportionment of business in the state.
  • Specifies that any investor in a pass-through entity, on whose behalf the entity files a composite return and pays tax, may file an individual return and claim the refundable credit for taxes that the entity paid on the investor’s behalf.

Sales and Use Tax

  • Lowers the rate of the state sales and use tax from 5.5% to 5% beginning September 1, 2013.
  • Subjects the sale or use of services to state and county sales and use taxation beginning September 1, 2013, unless the sale or use is expressly exempt under the bill or continuing law.
  • Expressly exempts from taxation the sale or use of medical services, educational services, construction services, residential leases and rentals, daycare services, social assistance services, residential trash pick-up services, services used directly in the production of tangible personal property by mining, and the purchase of insurance by a consumer; also exempts personal services an employee provides to his or her employer. Therefore, unless exempt, all other services will be subject to the sales tax.
  • Repeals an existing exemption for the sale or use of magazine subscriptions beginning September 1, 2013.
  • Subjects the sale or use of intangible property and electronically transferred digital audio products, audiovisual products, and books to sales and use taxation beginning September 1, 2013.
  • Reduces existing sales and use tax rates for each county and transit authority beginning September 1, 2013.
  • Suspends authority for counties and transit authorities to change their sales and use tax rates after July 1, 2013 and until July 2016.
  • Prescribes and guarantees specific increases in sales and use tax distributions to each county and transit authority.

Severance Tax

  • Adjusts the rate of severance tax on gas from non-horizontal wells from the current 2½¢ per 1,000 cubic feet (MCF) to the lesser of 3¢ per MCF or 1% of spot market value.
  • Raises the tax rate on severance of oil from non-horizontal wells from 10¢ per barrel to 20¢ per barrel (and eliminates the 10¢ per barrel regulatory cost recovery assessment).
  • Levies a severance tax at a rate of 4% of the spot market value of oil and condensate produced by horizontal wells after the first five quarters in which a well produces, and a reduced 1.5% rate for the first five quarters.
  • Levies a severance tax at a rate of 1% of the spot market value of gas on gas measuring 1,050 British Thermal Units (BTU) or less produced by horizontal wells.
  • Levies a severance tax on gas measuring more than 1,050 BTU at a rate that varies according to the BTU of the gas and the spot price of gas and natural gas liquids (NGLs), with a base rate for gas of 1% and for NGLs of 4%, after the first five quarters in which a well produces, and 1.5% for the first five quarters.
  • Exempts from severance tax gas produced by a non-horizontal well that produces fewer than 10 MCF of gas per day in a calendar quarter.
  • Repeals regulatory cost recovery assessment imposed on well owners for severance of oil and gas at a general rate of 10¢ per barrel or ½¢ per MCF, respectively.
  • Requires a horizontal well owner to pay a $25,000 fee to the county in which the well is located, distributes the fees to taxing units affected by the well’s operation, and requires the taxing units to repay the fee to owners over subsequent years.
  • For the purpose of property tax valuation, calculates the true value of gas reserves based on the BTU of the gas extracted and the true value of condensate reserves similar to how oil reserves are currently valued for that purpose.

It is anticipated that the proposed House Bill may change dramatically during the legislative process over the next several months.


Leslie S. Hahn