Groups 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.
An Honest Discussion About a Pennsylvania Severance Tax
Claims made by severance tax supporters
Not paying “fair share”?
False: Natural gas drillers pay ALL the taxes other businesses pay, PLUS the impact “fee” that NO OTHER businesses pay, so natural gas drillers ARE paying MORE than their fair share.
Not getting “our fair share”?
False: Most of the natural gas produced in Pennsylvania is from privately owned resources and so does not belong to the general public, or the state. The public IS being fairly compensated for the natural gas produced from publicly owned resources through bonus and rental payments and royalties via leases with state agencies.
Most (80%) of the tax paid by out-of-state consumers.
False: The severance tax would NOT be a gross receipts tax paid by consumers, but would be levied on – and paid by – Pennsylvania producers, reducing revenue needed for continuing investment.
Consumer gas prices are set by an international market & include severance taxes.
False: Natural gas prices in the Appalachian region are set by gas-on-gas competition among Appalachian producers that bid against each other to sell gas at the lowest price. State severance taxes are irrelevant, and there is no such thing as an international market.
“The gas is here so the drillers won’t leave.”
False: The natural gas is indeed here, but also in many other states that have not targeted the industry in this manner. Industry investment capital will move to these other states – and preclude additional development here – even though they have severance taxes, because of their overall more predictable and reasonable regulations and their more attractive cumulative tax structures. For the week ending Oct 20, there were 32 drilling rigs running in Pennsylvania compared to 436 in Texas.
“PA is the only gas-producing state without a severance tax.”
False: We have an impact “fee” and other states with severance taxes don’t have state taxes we have – there is no State Corporate Income Tax in Texas or Wyoming & No State Personal Income Tax in Texas, Wyoming or Alaska. Picking one aspect of another state’s tax structure while ignoring the whole structure is the ultimate false comparison and is not fair, reasonable or commonsense.
Impact “fee” collections have averaged about 5% of the wellhead value of gas in Pennsylvania, comparable to other states that impose a severance tax and higher than the effective severance tax rate on unconventional wells in Texas – Pennsylvania’s No. 1 competitor for natural gas markets.
Last updated: October 24, 2017