Tag Archives: Leasing

Extension Educator Says: Shale payments subject to Ohio’s Commercial Activity Tax

Landowners across Ohio may be surprised to learn the bonus lease and royalty dollars received for their Marcellus or Utica Shale leases will be subject to theOhio commercial activity tax (CAT) if payments of over $150,000 are received.

What is it?

The CAT was enacted in House Bill 66, which was passed by the 126th General Assembly in 2005. The CAT is an annual tax imposed on “the privilege of doing business in Ohio,” measured by taxable gross receipts from most business activities.

Most receipts generated in the ordinary course of business are included in a taxpayer’s CAT base. This tax applies to all types of businesses: e.g., retailers, service providers (such as lawyers, accountants, and doctors), manufacturers, and other types of businesses.

The CAT applies to all entities regardless of form, (e.g., sole proprietorships, partnerships, LLCs, and all types of corporations). The tax does have limited exclusions for certain types of businesses, such as financial institutions, dealers in intangibles, insurance companies and some public utilities if those businesses pay specific other Ohio taxes.

A person with taxable gross receipts of more than $150,000 per calendar year is subject to this tax, which requires such person to register with the Department of Taxation as a taxpayer.

The term “gross receipts” is broadly defined to include most business types of receipts from the sale of property or in the performance of a service. Please note that certain receipts are not taxable receipts, such as interest income.

The following are some other examples of receipts that are excluded from a taxpayer’s CAT base: dividends, capital gains, wages reported on a W-2, interest (other than from credit sales), or gifts.

 

Oil and gas income

Internal Revenue Code section 1231 provides guidance on why the oil and gas receipts are included in a taxpayer’s CAT base. Specifically, the Code states that timber, coal, and iron ore are considered property used in the trade or business, assuming they are contained in the ground.

Once the mineral is removed from the ground, however, it is no longer an asset used in the trade or business, and therefore receipts from the sale of this mineral are included in a taxpayer’s CAT base.

$150 and 0.26%

 So what are the tax rates for the CAT? The rate for the first $1 million in taxable gross receipts (from $150,000 to $1 million) is a flat $150. The rate for receipts above $1 million is 0.26 percent.

The $150 annual minimum tax is due by May 10 of each year with the annual tax return for calendar year taxpayers or with the first quarter return for calendar quarter taxpayers.

A calendar year taxpayer who will have over $1 million in taxable gross receipts for a calendar year is required to switch to a quarterly taxpayer in the subsequent year and, if it elects to, can switch to a quarterly taxpayer at any time during the current calendar year.

CAT Example

 John B. Landowner owns 400 acres in northeastern Ohio and is a teacher at the local high school. He leases his land for $3,000 per acre, which totals a bonus payment of $1.2 million. To calculate his CAT obligation, Mr. Landowner would pay $150 for the first million dollars and then apply the .26% tax rate for the remainder ($200,000), which equals $520.

He has no other commercial business activity so his total CAT obligation would be $150 + $520 =$670.

Link to original: http://www.farmanddairy.com/news/shale-payments-subject-to-ohios-cat-tax/35664.html

 

ABOUT THE AUTHOR 

David Marrison is an agricultural extension educator in Ashtabula County.

E-mail: marrison.2@osu.edu

Open forum on oil and gas leases at Ohio University-Chillicothe set for 2 p.m. Tuesday

CHILLICOTHE — Ohio University-Chillicothe will seek input from campus faculty, staff, students and the public regarding a potential lease of Ohio University Chillicothe Campus land for oil and gas production at 2 p.m. Tuesday.

The forum is being conducted in accordance with Ohio House Bill 133, which requires public universities in Ohio to conduct an inventory of all properties to determine their eligibility for potential oil and gas leasing.

Speakers will be asked to sign in and will be allowed three to five minutes to speak. The forum is an opportunity to provide input; it is not a debate. Notes will be taken, and written comments will be collected. All comments will be compiled for presentation to the Ohio University Board of Trustees.

Coshocton Tribune: Leasing What Lies Beneath

By Paul Golden

The future potential for a significant increase in oil and gas exploration in Coshocton County has local landowners searching for information to enhance their knowledge and understanding of the entire process from drilling, leases, environmental concerns and more.

Many meetings and informational opportunities have been conducted locally by various groups, organizations and landowners associations. OSU Extension has been part of this process as a research-based source of scientific information.

The most interest is coming from landowners who have not leased their oil and gas rights and are seeking information that will protect their short-term and long-term interests. Deciding whether to lease land for oil and gas development is not a decision that comes easily. Many options must be considered to protect family rights and land, according to Rural Action of Ohio.

The Rural Action group, comprised of Ohio State University Extension, Ohio Farm Bureau, and Appalachia Ohio Alliance, is the working organization of the Look Before You Lease group. All the organizations have a history of working with landowners in Appalachian Ohio.

Look Before You Lease began looking at oil and gas issues facing landowners in Ohio, particularly around newer technologies such as horizontal hydraulic fracturing and private landowner leases.

The group has developed a landowner-friendly lease example that offers explanation and insight regarding the purpose and the reason various clauses are important and included within the document. This sample lease is available as a starting point.

The sample lease is intended to be used as an educational tool only.Working with a qualified attorney will help negotiate a landowner-friendly lease. There are many oil and gas companies currently working in Ohio. Select one that sees the property owner as a valued stakeholder in the project.

Visit www.lookbeforeyoulease.org website to review the landowner tool kit, sign up for electronic updates, or order a CD version of the tool kit. In early 2012, three recorded webinars (video presentations via the internet) will be available on the website. The webinars will be an additional resource to understand the information contained in the sample lease.

Redistribution of this sample lease is permitted and encouraged, so long as the lease remains intact and includes the approved cover letter. For information, contact Rural Action, P.O. Box 157 Trimble, Ohio 45782, attention: Look Before you Lease, or call 740-767-4938      .

Paul D. Golden is an extension educator for the Ohio State University Extension Coshocton County.

 

Link to Article: http://www.coshoctontribune.com/apps/pbcs.dll/article?AID=2012203030305