Pennsylvania is the only U.S. state that has not imposed tax on extraction of natural gas, but that is likely to change if Governor Tom Wolf (pictured) manages to push through a 6.5 percent tax on natural gas production.
Pennsylvania – the home to the prolific Marcellus Shale formation – charges an impact fee, which county and municipal governments can use on various expenses related to natural gas development such as: repair and maintenance of roads, emergency response preparedness, affordable housing, and social services.
However, with the tumbling oil and gas prices, the revenues from the impact fee have also been dwindling. For the calendar year 2013, impact fee revenue totalled over $225 million, an increase in revenue of over 11 percent from 2012. By June 2014, the impact fee had generated a total of $630 million in revenue since its enactment in February 2012. But with oil and gas prices at its lowes in years, the impact fee revenue has also gone down to around $218 million in 2015.
This is close to the $217.8 million revenue Governor Wolf expects from the 6.5 percent tax during the initial fiscal year. The new law would see impact fee funds for gas drilling areas remaining intact, but instead of a per-well fee the money would come out of the 6.5 percent tax. According to State Impact, that revenue is estimated at $133.1 million, and is in addition to the $217.8 million expected for the general fund. Total projected revenue generated from a 6.5 percent shale gas tax would be $350.9 million for FY 2016/2017. These estimates jump each year, reaching $507 million for the general fund by 2020/21.
The imposition of the new tax has been strongly opposed by the oil and gas industry, who pointed out that the year which, according to a recent Deloitte study, is likely to see one-third of all E&P companies face bankruptcy, is the worst possible time to impose additional taxation.
Erica Clayton Wright, spokeswoman for the Marcellus Shale Coalition, an industry group, told State Impact: “We already are seeing significant reductions in capital expenditures and job losses. This is not the time to add additional taxes.”
Not everybody agrees, though. In an opinion piece for The Daily Times, Joseph Batory, a past superintendent of schools in Upper Darby School District, wrote: “Pennsylvania’s Independent Fiscal Office has projected that the severance tax would bring in vast amounts of new revenue while the gas industry in Pennsylvania would continue its expansion.
“This is a direct contradiction of the “doom and gloom” projected by the Marcellus Shale lobbyists. As for gas drillers leaving the state if a tax were enacted, this is highly unlikely because every other state where this industry exists already has severance taxes.”
Back in March last year, Governor Wolf tried, unsuccessfully, to replace the impact fee with a 5 percent tax on the extraction of natural gas in addition to a flat fee of 4.7 cents per thousand cubic feet of gas produced.
Meanwhile, West Virginia – another Marcellus Shale state – has voted to remove a 56-cents-per-ton tax on coal producers and a 4.7-cent-per-thousand cubic feet tax on gas producers. The tax was implemented in 2005 to help pay off the state’s old workers’ compensation debts. Now, having repaid the debt ten years ahead of schedule – thanks to the profits generated from the Marcellus during the height of the shale boom – the tax is being retired.
Governor Earl Ray Tomblin’s office and senators from both parties said the tax cut was about keeping a promise — that the taxes were only in place until the workers’ comp debt went away.
“As Senate president, Governor Tomblin made a commitment to remove excess severance taxes on coal and natural gas once the Old Fund liability was paid off,” Shayna Varner, a Tomblin spokeswoman, said.
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