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Debate continues on Marcellus Shale
No matter what your position is regarding the long, ongoing debate over the taxation of Pennsylvania’s natural gas industry, both sides can agree it has been a game changer to the state’s economy.
Many local residents have been very outspoken on the debate whether or not the state should levy a severance tax on Marcellus Shale, in addition to the existing impact fee. I’ve very much appreciated the input and opinion offered by numerous residents from Berks and Schuylkill Counties.
The talks surrounding the state budget are heating up as we head into the month of June and a lot of debate is centered on taxation of the Marcellus Shale industry. With that in mind, I want to provide you with this update on this important topic.
Last year, I requested a report from the state’s Independent Fiscal Office to show an apples-to-apples comparison of how much tax revenue is generated on average in gas drilling wells in states with active natural gas production. My goal was to see how much revenue is raised for state, county and local governments at a gas drilling well in Pennsylvania compared to an average well in West Virginia, Texas and Oklahoma, among several other states.
Unfortunately, the final report was inconclusive. Their report states, “The taxation of natural gas extraction has been a source of debate since the significance of the Marcellus shale natural gas formation became widely known. The debate has many facets, but the severance tax rates of other gas producing states often serve as reference points. These statutory tax rates alone are not comparable due to the unique features inherent in each state’s tax code. For example, many states grant various exemptions or special provisions to natural gas wells that meet certain criteria. These features make it difficult to generate an ‘apples to apples’ comparison of state severance tax systems.
States also levy corporate net income, personal income, sales and use and tangible personal property taxes that may be paid by natural gas extractors. Those tax bases and rates will vary across states, as will tax administration, tax compliance costs and regulatory compliance costs. These dissimilarities further complicate attempts to compare tax policies related to natural gas extraction.”
Proponents of a severance tax argue that Pennsylvania is the only natural gas producing state without a severance tax. Opponents of a severance tax note that Pennsylvania currently levies an impact fee and places other taxes on businesses which are not in effect in many other states.
Locally, the impact fee has been helpful to county governments. Specifically, Berks County received $396,233.79 and Schuylkill County received $140,925.26 in 2013 from the impact fee in 2013.
According to the Public Utility Commission, the state, counties and municipalities received a total of more than $225 million in 2013. You can see a revenue breakdown by year below.
According to the Marcellus Shale Coalition, the industry generated 250,000 jobs, over $2.1 billion in state taxes and $850 million in local taxes. According to a recent Independent Fiscal Office report, a severance tax would be passed along to the consumer.
A recent article published by Stateline found that states that rely heavily on taxes from oil and natural gas are suffering due to drops in prices. For example, 75 percent of revenues generated for Alaska’s state budget relies on domestic energy production. Alaska is currently facing a $3.6 billion deficit.
The governor has proposed a five percent severance tax on the Marcellus Shale industry, which he estimates will generate $1 billion, to be dedicated to additional funding for education through his Pennsylvania Education Reinvestment Act.
In his support for a natural gas severance tax, the governor’s news release stated, “Pennsylvania sits on one of the largest deposits of natural gas in the world. Other natural gas producing states, including Texas and Oklahoma, levy a similar – and in some cases higher – tax on extraction to fund key priorities and initiatives.”
The governor’s release omits the fact that both individual taxpayers and gas drillers alike in Oklahoma and Texas do not pay an income tax. However, Pennsylvania’s taxpayers and gas drillers are subject to a 3.07 percent personal income tax. Furthermore, the report makes no mention that Pennsylvania’s Corporate Net Income tax (CNI) – a tax on the cost of doing business – far exceeds that of Oklahoma and Texas. Pennsylvania’s 9.99 percent CNI is the highest in the nation and eclipses Oklahoma at 6 percent and Texas at .0975 percent.
The debate will continue when the Senate reconvenes next week.
The Senate Finance Committee and the Senate Environmental Resources Committee will weigh the pros and cons with taxing this “game changing” industry on Monday, June 1 at 10:30 a.m. If you are interested, you can watch the hearing live here.