PA Missing Out on Drilling Taxes

Sep 12, 2012 Tax Wrap_Emily Farah_SOC.mp3

The Public Utility Commission reported this week that revenues from the state's impact fee on Marcellus Shale gas drillers totalled $206 million, but a liberal-leaning policy group says the commonwealth could have collected tens of millions more if it imposed a shale gas tax.   The impact fee is a flat amount assessed on wells drilled in the state with the revenues designated to offset negative effects of the drilling on municipalities and counties. 

The Pennsylvania Budget and Policy Center evaluated the state’s Marcellus Shale impact fee collections and compared them to what could have been collected if Pennsylvania had a drilling tax like West Virginia’s, which is levied on both the extraction and sale of gas.

The center's estimate showed Pennsylvania missed out on $187 million between July 2009 and December 2011.

Center director Sharon Ward said if West Virginia’s tax would have been implemented on the $6 billion worth of natural gas extracted from Pennsylvania between July 2009 and December 2011, the industry wouldn’t have been any less profitable or discourage companies from drilling wells.

“Here’s the situation: Pennsylvania is leaving a tremendous amount of money on the table by not having a drilling tax that’s comparable to the one that’s in effect in West Virginia,” Ward said.

West Virginia imposes a 5% tax on the market value of the gas and charges 4.7 cents on every 1,000 cubic feet of gas that's produced.  Ward proposed the same formula for all Marcellus Shale states.

“That takes the tax rate out of the equation,” Ward said.  “The reality is that the gas industry makes decisions based on a number of factors that aren’t related to the tax, so let’s just use the tax rate in West Virginia, let every state impose the same level and then let the market work.”

Ward suggests a drilling fee in Pennsylvania could have avoided teacher furloughs in Pittsburgh and elsewhere in the commonwealth.

“If we are not asking the industry to pay its fair share, it means that local taxpayers are paying more in taxes in order to deal with the impacts of the industry,” Ward said, “and I’d say that’s just not fair.”

Before the impact fee was passed, there were several proposals for a tax on the shale gas and how revenues would be used including for education and environmental programs.  However, opponents of a shale gas tax indicated that any revenues from a tax or fee should go to the communities where drilling takes place to offset any negative impacts  such as to roads and infrastructure.  Critics opposed a tax where revenues would be spent for programs across the commonwealth including areas of the state where there is no drilling at all.