Extras on Excise: Pennsylvania to See Another Round of Severance Tax Proposals


 

For the second year in a row Pennsylvania, facing a budget deficit, is contemplating a severance tax on natural gas. During the 2015 legislative session, H.B. 1743, S.B. 415, and S.B. 519 were left at a standstill after being referred to the Environmental Resources and Energy Committee. Now, two new draft proposals by Republicans for a severance tax are being looked over by the Environmental Resources and Energy Committee. 

The proposal drafted by Representative Kate Harper would impose a 3.5 percent severance tax on top of per-well impact fees already being charged. Representative Harper’s bill would reportedly result in an increase in revenue of at least $200 million annually could be achieved on top of the expected impact fee proceeds of $220 million. 

The proposal drafted by Representative Scott Petri imposes a 5 percent tax on the market value of gas sold and remove the impact fees already placed on the industry. The tax is estimated to gain $30 to $50 million in revenue. His proposal also includes building a pipeline to distribute gasoline from the west side of the state to the east. 

Governor Wolf, who previously proposed a failed 5 percent tax last year, has suggested a 6.5 percent tax on Marcellus Shale during his budget address Feb. 9th. He estimates a revenue increase of about $218 million dollars for the 2016-2017 fiscal year. 

Pennsylvania is now the only state that produces natural gas and does not impose a severance tax. Eight states rely on the severance tax as a significant portion (at least 10 percent of gross domestic product) of tax revenue. These states include Alaska, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, West Virginia and Wyoming. Although the gas prices falling has resulted in a significant reduction in tax revenue from severance taxes for most of these states, some revenue is always better than none. As Governor Wolf has stated regarding the state’s budget issue, Pennsylvania could benefit from the extra revenue of a severance tax.

 

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Will Pennsylvania be able to pass a severance tax during this legislative session?

 

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