Severance Tax Myths vs. Facts

news293Groups and officials calling for the imposition of a severance tax on natural gas continue to make claims about the industry and the taxes it pays that are simply untrue, or that ignore broader tax realities that would make a Pennsylvania’s tax structure for energy development uncompetitive against other oil and gas producing states.

Here are a few of the myths and the realities:

The natural gas industry doesn’t pay taxes.

  • It is estimated that the natural gas industry has paid approximately $2.1 billion in taxes to state and local government since 2008, the first year of significant Marcellus Shale drilling.
  • The industry pays Pennsylvania’s 9.99 percent Corporate Net Income tax, just like every other business in the commonwealth
  • The industry pays sales taxes on equipment used in all aspects of drilling wells and installing pipelines.
  • The industry has paid more than $625 million in impact fees to counties and municipalities across the state in the past three years.

The industry needs to pay for the damages they are causing to infrastructure.

  •  The state’s natural gas impact fee mandates that 60 percent of the total funding raised each year be allocated to counties and municipalities where drilling activity is taking place – that’s $375 million in just three years.
  • The industry has spent an additional $600 million for road repair and maintenance in areas where drilling is taking place, often upgrading roads before any drilling activity begins.
  • The industry pays motor fuel taxes on every gallon of diesel fuel used in trucks that use state roads and highways, as well as taxes on some fuel used at drilling locations.

The industry is taking a resource that belongs to the commonwealth without compensation.

  • In addition to all of the taxes being realized by the commonwealth, the state has also received over $600 million in lease and royalty payments for drilling activity on state-owned land; that amount will continue to grow as additional wells are drilled and more natural gas is produced.
  • Natural gas beneath an individual’s property is a resource that is owned by the mineral rights holder, not by the Commonwealth of Pennsylvania. The commonwealth is compensated for every cubic foot of natural gas extracted beneath state property.

Pennsylvania, Ohio and West Virginia should all have the same form of severance tax to make a level playing field for shale in this region.

  • A three-state “equal” severance tax will greatly reduce Pennsylvania’s competiveness with Ohio and West Virginia, considering Pennsylvania’s corporate tax rate of 9.99 percent vs. West Virginia’s 6.5 percent.
  • West Virginia maintains an important exemption from sales tax for every aspect of developing a natural gas well, compared to a far more limited treatment of those expenses in Pennsylvania. Those exemptions increase the overall cost of drilling a single well in Pennsylvania by approximately $120,000.

Pennsylvania is the only natural gas-producing state without a severance tax.

  • While that stand-alone statement is true, a detailed review of tax realities tell a far different story.
  • Developing and comparing “equal” state tax burdens is not an easy task, given the complexity of each state’s tax structure. As a general snapshot, Pennsylvania is tied with four other states as having the ninth highest tax-burden state in the country, at 10.2 percent of total income.
  • Pennsylvania’s natural gas industry pays the highest corporate income tax in the nation at 9.9 percent; Texas, by comparison has a corporate tax rate of zero, along with a personal income tax rate of zero.
  • Pennsylvania’s corporate tax rate is also more than double that of Colorado, North Dakota and Ohio, three states with significant shale drilling.
  • Limiting a severance tax to natural gas, while ignoring other extractive industries in Pennsylvania, would run completely counter to fair tax policy. Any discussion of a severance tax should recognize its applicability to similar industries, including coal, gravel, slate and timber.
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We go out the message with a rolling billboard in Harrisburg.

 


Diverse coalition opposes new taxes on natural gas industry

It’s not just our industry opposing efforts to impose a severance tax on natural gas production. A broad coalition of business and industry interests is delivering a strong message to state lawmakers that Governor Wolf’s proposed severance tax would harm more than just natural gas producers.

Visit www.StopNewEnergyTaxes.com for news and resources on opposing this ill-conceived tax proposal – and direct your industry associates, family members and other supporters of natural gas development there as well. The webpage has an easy-to-use feature for sending a message to your state legislators.


 

Highest severance tax in the nation?

Is Governor Wolf’s proposed severance tax modeled on West Virginia’s tax, as his administration claims? Or would it be the highest such tax in the nation, as the Independent Fiscal Office has determined? Learn the facts here.

 


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