Pennsylvania is Enacting a Severence Tax in Addition to their Impact Fee

by Duane Nichols on August 15, 2017

New book coming 12/26/17

Gas severance tax won’t have big impact in Pennsylvania, says researcher

From an Article by Marie Cusick, NPR StateImpact Pennsylvania, August 10, 2017

The severance tax recently approved by the PA state Senate is unlikely to have a major impact on drilling activity or government revenues, according to a researcher from an environmental economic think tank.

A natural gas severance tax has been a hot-button issue in Harrisburg for nearly a decade, but the plan recently approved by the PA state Senate is unlikely to have a major impact– either in terms of government revenue, or drilling company investment decisions, according to a researcher from the nonpartisan environmental economic think tank, Resources for the Future.

The severance tax is now in the GOP-controlled House where its future is uncertain. Republican legislative leaders have argued over the years it would harm the state’s economy. Yet passing the tax has been a major focus of Governor Tom Wolf, a Democrat.

The tax rate approved by the Senate last month would change, based on the average annual price of natural gas– ranging from 1.5 cents per thousand cubic feet to 3.5 cents. It’s expected to raise $100 million this year to help plug a $2.2 billion budget hole. It would be added on top of the roughly $200 million in impact fees gas companies already pay, which are based on the number of wells they drill.

StateImpact Pennsylvania talked about the new tax measure with Daniel Raimi, a senior research associate at Resources for the Future and author of the forthcoming book, The Fracking Debate:

Q: There is so much rhetoric around what a severance tax could mean for Pennsylvania. Can you explain your recent research? What’s your take?

A: Over the last several years my colleague Richard Newell and I have looked really closely at oil and gas revenues that flow to states and local governments. We’ve looked at the top 16 oil and gas producing states in the U.S. What we find is the average state collects about seven percent of the value of oil and gas revenues. Either through severance taxes, or something like a severance tax, or through property taxes collected by local governments.

Pennsylvania’s lack of a property tax is unusual. That lowers costs for drillers.

For example, if there’s $1 million of oil and gas that comes out of the ground each year, that is taxed as property. It helps fund school districts, townships, county governments, and cities. In some states property taxes make up a larger share of government revenue than severance taxes.

Pennsylvania’s impact fee structure makes up for some of that shortfall by collecting revenue from oil and gas producers and allocating a large portion of it back to the local level. That means the state government doesn’t collect as much from oil and gas production as other states do.

Q: One of the big questions around the impact fee* is whether Pennsylvania is leaving money on the table. Are we?

A: That is a hard question to answer precisely. In short, the severance tax that’s been passed by the Senate is unlikely to have a large effect on either Pennsylvania government revenues, or investment decisions by oil and gas companies. It’s a small severance tax.

Other factors, such as oil and gas prices, access to infrastructure, like pipelines, and access to labor—those are all more important. If it were a severance tax of five, six, or seven percent, then maybe we’d be looking at large impacts, both in terms of the revenue for the government, and potentially deterring oil and gas investment. This severance tax would add something like 0.7 percent to the total revenue generated by natural gas production in Pennsylvania. That’s not enough to have a huge impact.

Looking back at 2015, if this severance tax had been in place it would have raised about $90 million for the state. That’s a lot of money for me and you, but in Pennsylvania that year total tax revenues were $35 billion. So, this type of severance tax would add about a quarter of a percent to state revenues.

Q: You’re using the Henry Hub natural gas spot price (in Louisiana) in your analysis. But don’t Pennsylvania gas producers often receive less?

A: That’s right. That’s a great question. Natural gas prices for producers in Pennsylvania have been lower than they are in other states. That’s primarily because of limited pipeline capacity to take the gas away to other markets.

But the severance tax proposal would use the price in Louisiana, which is surprising to me.

Q: One of the things the industry points out is that even though Texas, for example, has a severance tax, it doesn’t have Pennsylvania’s high corporate income tax rate.

A: It’s hard to compare tax policies across states. In the analysis we did, we wanted to include corporate income taxes, but we couldn’t because they are so different between different states.

In Texas, there is no corporate income tax. However, there is a gross receipts tax companies pay. That does impose a notable additional tax burden.

I think there is something to the idea that Pennsylvania’s high corporate tax rate does add costs for businesses. However, if tax rates were the only thing that mattered, we’d see companies moving more quickly to states like Ohio, where there is no corporate tax rate, but there is a gross receipts tax. These factors matter, but generally their impacts are small.

The three most important factors are the quality of the resource, the prevailing prices, and access to infrastructure—that is, pipelines.

*Note: Pennsylvania’s Independent Fiscal Office tracks the impact fee collections and calculates an annual effective tax rate. It has ranged from a high of 5.6 percent in 2011, to a low of 2.3 percent in 2014.

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WV Press August 16, 2017 at 12:14 pm

Governor says companies close to agreement on back taxes

From an Article by Rusty Marks, WV Press, August 14, 2017

CHARLESTON, W.Va. — West Virginia Gov. Jim Justice said state tax officials and those running several of his coal companies are close to reaching an agreement on millions of dollars in past-due severance and other taxes.

“I’m a high-profile guy now,” Justice said August 4th, a day after announcing with president Donald Trump in Huntington that he would change his party affiliation from Democrat to Republican. “It needs to be straightened up.”

Justice has made it clear he has turned over operations of his coal interests to his son, Jay Justice, but millions of dollars in severance taxes remain unpaid. A review of tax documents shows several Justice-owned companies still owe back taxes both in Raleigh and Kanawha counties.

According to tax liens on file in the office of the Raleigh County Clerk, Justice’s companies owe almost $2.27 million in back taxes and penalties in Raleigh County. The taxes are owed by Southern Coal Corp., Kentucky Fuel Corp., Justice Energy Co. and Tams Management Inc., all owned by Justice.

Between August 2016 and February 2017, state officials also filed tax liens totaling almost $972,000 against Tams Management in the Kanawha County Clerk’s office. The liens are in addition to about $1.22 million in tax liens filed against Tams Management in Kanawha County in 2013.

According to Kanawha County tax records, Justice owes at least $2.89 million in back taxes in Kanawha County.

A lien against Tams Management for about $84,000 filed in Kanawha County was released after the debt was paid off, Kanawha County Clerk’s records show. Another lien against Tams Management for $133,380 was released in July 2016.

Note: The severence tax rate in West Virginia is generally 5% on coal, oil and gas, as well as on sand and gravel, limestone, etc.



Duane Nichols October 18, 2017 at 12:47 am

Letter: Pennsylvania should be taxing natural gas extraction

Letter to Editor, Reading Eagle, October 17, 2017

“Wolf stumps in Erie for Marcellus shale tax” (Reading Eagle, Oct. 12) irritated me. As a supporter of Gov. Tom Wolf, I was outraged that his promise of implementing a tax on the gas extracted from the Marcellus shale has yet to be realized.

I know the blame lies not in the hands of our governor but in our Legislature, a highly compensated group of people who work for the citizens of Pennsylvania but cannot manage to pass a tax on big gas companies that are destroying our natural resources while cashing in on consumers.Pennsylvania is the nation’s second-largest gas-producing state. We are the only state not to tax extracted gas.

Are you kidding me? We have no budget, we have a miserably failing Medicaid system to help the poor, our roads and bridges are crumbling around us, and our GOP House legislators refuse to consent to taxing the Marcellus shale gas? It’s preposterous.

Every Pennsylvania voter represented by a Republican in the House should encourage their representative to follow the rest of the United States and tax gas extraction. It is time to balance the budget, it is time to settle the partisan nonsense, and it is time for Pennsylvanians to take control and elect House members who support a sensible tax on gas.

Dr. Brian M. Schwab
Alsace Township



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