The Times West Virginian

Headline News

March 22, 2014

Report: Pennsylvania drilling taxes among lowest

State doesn’t impose severance tax based on volume or market value of gas produced

PITTSBURGH — Pennsylvania’s taxes on the natural gas drilling boom are among the lowest in the nation, according to a new report from a nonpartisan office of the state Legislature.

Pennsylvania is the only state with significant production that doesn’t impose a severance tax based on the volume or market value of gas produced, the figures released Thursday by the Independent Fiscal Office found. Instead, the state imposes an impact fee for each well drilled, no matter what it produces.

The report looked at 11 states and found that a Pennsylvania well that began producing in 2014 will be taxed at an effective tax rate of at most 1.6 percent. By comparison a similar well in West Virginia will be taxed at 7.2 percent, a Texas well at 4.6 percent, a Colorado well at about 5.6 percent, and Ohio at 1.8 percent.

Under some scenarios, such as high production, Pennsylvania’s effective rate falls to under 1 percent.

The Marcellus Shale Coalition, an industry group, said the analysis is flawed because it doesn’t include other factors, such as corporate taxes. The coalition said in a statement that “those who oppose shale development will inevitably seek to leverage this flawed analysis as a rallying cry, based purely on politics rather than objective facts.”

The coalition noted that Pennsylvania has the highest corporate income tax rate among energy-producing states, while Ohio and Texas don’t levy such taxes.

But the report also noted that Pennsylvania doesn’t tax natural gas reserves, gas that’s in the ground but hasn’t been extracted yet, while several other states do.

The Independent Fiscal Office agreed that it’s difficult to compare state energy taxes.

The Marcellus Shale covers large parts of Pennsylvania, Ohio and West Virginia, and a drilling boom began in 2008. Pennsylvania is now the second-largest producer of natural gas in the nation, after Texas, according to federal reports. Depending on wholesale prices Pennsylvania’s 2014 production could be worth $15 billion or more this year, while the current impact fee is expected to generate less than $250 million in state revenue.

Statements by several candidates seeking the Democratic Party nomination for governor this year are urging increases to the Pennsylvania tax rates that could raise more than $1 billion a year from the industry.

Gov. Tom Corbett’s administration has said that the state’s tax policies help to create jobs and promote investment.

The Marcellus Shale Coalition has said “it would be irresponsible and ill-advised” to impose large new energy taxes on the industry.

 

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