The Rise of Hydraulic Drilling and What It Means to Ohio
In recent months, there has been much interest in the rise of the Ohio Shale Play currently taking place on the eastern side of our state. As widely reported in the news media, new technologies and discoveries have given many energy companies the ability to drill hydraulically fractured horizontal wells, also known as “fracking.” With the ability to actually drill into the shale of the earth 5,000 to 6,000 beneath the surface, they are primarily extracting “wet gas,” which is later processed into butane, propane and methane.
Currently, only about 100 wells have been drilled in the state, but the potential is for thousands of these wells to be drilled here. The economic impact has significant implications for almost all industries in Ohio.
Approximately $2.3 billion have already been invested from companies both inside and outside the state. Analysts project that because of this development there will be 65,680 new jobs created, value added growth of $4.9 million and $433 million generated in state and local taxes in Ohio by 2014. So great is the impact, Governor Kasich has proposed that the personal income tax be significantly reduced or eliminated.
This is an industry that is on the rise, and clients, including surveyors, contractors and engineering firms, may be directly affected. In addition to the impact on businesses, many individuals who live in the eastern counties of the state are receiving significant lease bonus payments, up to and exceeding $1 million. These payments preclude any royalty payments based on quantities extracted.
There are several tax implications if you or someone you know is involved at any level with this industry. Business owners who derive source income related to services provided with the oil and gas industry may find unique savings and tax-planning opportunities.
Likewise, manufacturing companies that are selling products related to this industry may also be able to take advantage of such savings. Finally, individuals who are recipients of lease bonus payments and royalties need to be aware that those payments are subject to federal, state, and possibly local taxation. Strategic tax planning may be needed.
For more information about this subject, contact your Whalen tax adviser.
Rich Vogt is a tax specialist and has been with the firm for four years. He provides tax and consulting services to business and individual clients. Rich has more than 10 years of experience in the accounting and tax industry.
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