The Ohio Tax Commissioner recently issued a memorandum to county auditors regarding significant changes to the taxation of oil and gas reserves starting in tax year 2016.  These significant changes include:

  • Elimination of filing forms 6 and 6A.
  • Values will now be based upon production volumes reported to the Ohio Department of Natural Resources (ODNR).  After hearing from industry representatives, the Ohio Tax Commissioner acknowledged that this approach may lead to higher values than statutorily permitted in some circumstances.  Accordingly, the Ohio Tax Commissioner announced a temporary fix to address this circumstance.
  • The new approach will overvalue oil and gas reserves in some circumstances because amounts reported to ODNR are produced amounts, whereas O.R.C. 5713.051 requires that values be based on volumes “produced and sold.”  The temporary fix is re-instatement of DTE form 6A for the limited purpose of ensuring that producers will be permitted to challenge any overassessment based on the difference between “produced” and “produced and sold.”  If producers wish, they can file a DTE form 6A with each county auditor where there is a difference between “produced” and “produced and sold.”
  • Tax bills will be issued only to producers; royalty interest holders will no longer receive tax bills.  As a result, producers will be responsible for collecting taxes owed by royalty interest holders.
  • The memorandum confirms that minerals bartered as a form of payment are considered sold and should be reported as taxable production.

Going forward, the changes discussed above will significantly change how the ad valorem tax is collected.  As such, it will be very important to accurately report production volume to ODNR, accurately track shrinkage, and confirm that ODNR is accurately attributing volume to each active production site.

Learn more about what to do if there are discrepancies in taxable volume amounts in this Vorys State and Local Tax Alert.