Policy and research groups from Pennsylvania, West Virginia and Ohio have joined forces to urge their states’ governors to adopt a common severance tax rate for companies drilling for gas and oil in the Marcellus and Utica Shale formations.
The Pennsylvania Budget and Policy Center, Policy Matters Ohio and the West Virginia Center on Budget and Policy Monday sent a letter to Govs. Tom Corbett, John Kasich and Earl Ray Tomblin, saying the three states should set severance tax rates no lower than that of West Virginia. West Virginia currently has the highest rate of taxation among the three neighboring states, with a 5 percent tax on the value of oil and gas extracted at the well head, and a volume tax of nearly 5 cents per thousand cubic feet of production.
“The tax should be structured using West Virginia’s as a floor, rather than a ceiling,” said Sharon Ward, director of the Pennsylvania Budget and Policy Center. “In a lot of discussions in both Ohio and Pennsylvania, the West Virginia rate seems to be the highest that anyone would go, and we believe the opposite should be the case.”
Currently, Pennsylvania levies an impact fee on each individual well, which could range anywhere from $5,000 to $60,000 per well depending on the price of gas and the number of years the well has been in operation. Pennsylvania is the largest natural gas producing state that does not have a severance tax.
The letter sent to the governors states that West Virginia’s regionally high tax rate actually puts them in the middle of the pack nationwide, whereas Pennsylvania’s and Ohio’s tax rates are among the lowest in the country.
Ward said a common rate across the three states would strengthen each state’s governor’s position with respect to the oil and gas industry, and would benefit the residents of all three states.
“A common rate would provide predictability for the industry, and bring this region more in line with gas-producing states in the South in the West,” Ward said. “Most importantly, we believe a common approach would take tax rates and structures out of the competitive equation and help to avoid what we have seen, which is a race to the bottom.”
In addition to a common tax rate across the three states, the letter calls for an end to tax holidays, exclusions and credits.
State Rep. Gene DiGirolamo (R-Bucks) said he is on board with a common tax proposal and called such a tax a “common sense, reasonable approach” to the natural gas industry in Pennsylvania.
“The people in Pennsylvania all across the state should benefit from this natural resource,” DiGirolamo said. “We want to make sure we take of the local communities. We want to make sure the jobs are still being created, but this is common sense, it’s reasonable, and I think we should have the debate about it here in Pennsylvania.”
DiGirolamo called natural gas and oil taxation a bi-partisan issue, saying that he has been working with Reps. Harry Readshaw (D-Allegheny), Pamela DeLissio (D-Montgomery), and Thomas Murt (R-Montgomery) on legislation that would create a 4.9 percent severance tax on oil and gas production in the state.
However, DiGirolamo said he is interested in working across state lines to establish common tax structures in all three states.
