State report: Shale impact fee puts Pa. at the bottom for gas drilling taxes
The impact fee Pennsylvania collects on natural gas wells translates into a very low tax rate when compared with nearby and large gas-producing states, according to a report on Thursday from the state Independent Fiscal Office.
The report, requested by Sen. David Argall, R-Schuylkill County, puts Pennsylvania with Ohio at the bottom of 11 states when comparing what the state agency determined to be effective tax rates on gas from wells that begin production this year.
The report warns upfront that analysts could not factor into its comparison taxes based on income or sales because of differing corporate structures and a lack of public data on profits. But office director Matthew Knittel said it was able to calculate a tax rate based on gas production.
“We found we could get a good handle on severance taxes or the impact fee, and local taxes,” he said.
Gov. Tom Corbett’s office and industry leaders countered that the report was unfair. Pennsylvania’s per-well impact fee differs too greatly from extraction or severance taxes that are based on volume or value of gas coming out, and the report did not factor in other taxes that can be much higher, such as the state’s corporate net income tax, they said.
“This study offers very little, if any, new information, data, or policy analysis that we do not already know,” said Dave Spigelmyer, president of the Marcellus Shale Coalition, an industry lobbyist. “IFO states clearly that Pennsylvania has some of the highest business taxes and energy fees and that this is not an ‘apples to apples’ comparison of the total tax liability for oil and natural gas producers across states.”
Patrick Henderson, Corbett’s energy executive, said Pennsylvania went with a unique impact fee to balance a good tax climate for business with “making sure natural gas operators pay their fair share.” He noted that other states such as Texas charge companies a fraction of the corporate net income tax that Pennsylvania has.
Pennsylvania collects fees on wells that are not producing gas, he said. States with severance or extraction taxes make money only when gas is coming out of the ground.
Argall did not return calls for comment, and it was not immediately clear why he requested the review.
Candidates running for the Democratic nomination for governor in May have criticized Corbett’s approach and called for an extraction or severance tax. Experts say the booming shale gas industry and its related taxes will be a top issue in this year’s election.
“Unlike Tom Corbett, a Democratic governor would invest revenues from a severance tax in education or other initiatives that would help the middle class rather than out-of-state gas companies,” said state Democratic spokeswoman Beth Melena.
Billy Pitman, a spokesman for Corbett’s re-election campaign, said the Republican governor “doesn’t see raising taxes on anyone or anything to be the answer.”
Corbett’s primary opponent, Bob Guzzardi of Montgomery County, has said he is against any new taxes or fees, including targeted taxes on specific industries.
Henderson said the impact fee has brought in $400 million during the past two years — most of which goes to communities and counties — and another $200 million is expected in April.
David Conti is a staff writer for Trib Total Media. He can be reached at 412-388-5802 or [email protected].