Debate heats up
The argument over taxes on the Marcellus shale industry will certainly be heating up in light of a recent report by the Independent Fiscal Office, a nonpartisan office of the state Legislature.
According to the report, Pennsylvania taxes on the Marcellus shale are among the lowest in the nation. The report looked at 11 states and found that a Pennsylvania well that began producing in 2014 will be taxed at an effective rate of at most 1.6 percent. By comparison, a similar well in West Virginia will be taxed at 7.2 percent, a Texas well at 4.6 percent, a Colorado well at about 5.6 percent, and Ohio at 1.8 percent.
Pennsylvania is the only state with significant production that doesn’t impose a severance tax based on the volume or market value of the gas produced. Instead the state imposes an impact fee on each well drilled, no matter what it produces. Most of the money from those fees goes back to the municipalities where the drilling takes place.
The report noted that with wells producing more gas, the severance tax will yield more revenue than the impact fees.
“As both price and production go up, the effective tax rate in Pennsylvania declines,” said IFO Executive Director Matthew Knittel.
According to the report, the impact fee generated $204 million in 2012, which was 34 percent higher than what a 5 percent severance tax would have garnered. But production doubled in 2013, and the $202 million in impact fees distributed was about 14 percent less than what a 5 percent severance tax would have raised.
The Marcellus Shale Coalition, an industry group, maintained the analysis is flawed because Pennsylvania has the highest corporate income tax rate among energy-producing states, noting Ohio and Texas don’t levy such taxes.
The issue of taxing the Marcellus shale has divided Pennsylvania politicians along party lines with Gov. Tom Corbett and his fellow Republicans in the state legislature, favoring the impact fees. They contend that high taxes will drive the Marcellus shale industry out of Pennsylvania to other states.
However, candidates seeking the Democratic Party nomination for governor are urging increases to the Pennsylvania tax rates that could raise more than $1 billion a year from the industry. They maintain the Marcellus shale companies have no other feasible alternatives but to drill in Pennsylvania, and residents across the state should share in the tax revenue generated from the industry.
Among the candidates, U.S. Rep. Allyson Schwartz, former DEP Secretary Katie McGinty and York businessman Tom Wolf have all embraced an 5 percent extraction tax while state Treasurer Rob McCord is calling for a 10 percent severance tax, which he claims would yield $1.63 billion next year and rise to $3.25 billion by 2020.
Many local municipalities are receiving money from the impact fees and it will be interesting to see how they might be affected by a severance tax. In 2012, Fayette County municipalities received $1,448,536 in impact fees, while municipalities in Greene and Washington counties received $3,130,609 and $4,438,257 respectively. Impact fees gong to municipalities in the tri-county area ranged from Cumberland Township, which received $1,039,586, to Ohiopyle Borough,which collected $398.44
It all serves as one more reason for local residents to pay close attention to the upcoming gubernatorial primary and general elections. Fayette, Greene and Washington counties supported Corbett when he first ran for governor back in 2012, and whether he wins here again could well depend on how residents feel about keeping the impact fee or switching to a severance tax.