A look at what a Severance Tax could mean for PA

[vc_row animation=””][vc_column width=”1/2″]This past year the Impact Fees, which were enacted starting in 2012, generated $225 million in revenue to be used in counties impacted by the oil and gas industry as well as state-wide environmental improvement. A much-discussed alternative is a Severance Tax which we will look at in depth over the next week.
[/vc_column][vc_column width=”1/2″][vc_single_image css_animation=”” image=”6466″ border_color=”” img_link_large=”” link=”https://wellsaidcabot.com/wp-content/uploads/2014/06/images.jpg” img_link_target=”_self” img_size=”full”][/vc_column][/vc_row][vc_row animation=””][vc_column width=”1/1″][vc_custom_heading text=”The Current Act 13 Impact Fees” font_container=”tag:h3|font_size:30px|text_align:left|line_height:32px” google_fonts=”font_family:PT%20Sans%3Aregular%2Citalic%2C700%2C700italic|font_style:400%20regular%3A400%3Anormal”][/vc_column][/vc_row][vc_row animation=””][vc_column width=”1/1″][vc_column_text]
Part of legislation called Act 13 are Impact Fees that are placed on the oil and gas industry which have been in place since 2011. Under Act 13, all new unconventional oil and gas wells drilled in Pennsylvania are subject to this rule. Once a well is drilled, the clock starts on the payments which must be paid annual by the producer for 15 years.
[/vc_column_text][/vc_column][/vc_row][vc_row animation=””][vc_column width=”1/1″][vc_column_text]The amount varies from year to year based on several things, such as the price of natural gas. In 2013, producers paid $50,000 for each new horizontal well and $10,000 for vertical wells.
[/vc_column_text][/vc_column][/vc_row][vc_row animation=””][vc_column width=”1/1″][vc_column_text]The fees are all due annually by April 1 and to date Impact Fees have resulted in $630 million collected from producers. The funds are distributed as outlined in our post last week with the majority of the funds going to the areas with the largest number of oil and natural gas wells.
[/vc_column_text][/vc_column][/vc_row][vc_row animation=””][vc_column width=”1/1″][vc_custom_heading text=”Proposed Severance Tax” font_container=”tag:h3|font_size:30px|text_align:left|line_height:32px” google_fonts=”font_family:PT%20Sans%3Aregular%2Citalic%2C700%2C700italic|font_style:400%20regular%3A400%3Anormal”][/vc_column][/vc_row][vc_row animation=””][vc_column width=”1/1″][vc_column_text]
Right now there are multiple forms of a Severance Tax being discussed in Harrisburg. Rather than get into the nitty gritty details, we’ll take a look at the overall idea of the tax.
[/vc_column_text][/vc_column][/vc_row][vc_row animation=””][vc_column width=”1/1″][vc_column_text]Where the current Impact Fee collects payment for each drilled (or spudded) well which is paid annually by producers, the Severance Tax approach is different. A Severance Tax would instead create a tax on the production of oil and natural gas in Pennsylvania and collect for as long as that well is producing.
[/vc_column_text][/vc_column][/vc_row][vc_row animation=””][vc_column width=”1/1″][vc_column_text]Instead of having a lump-sum paid within the first 15 years of a producing well, this would be a percentage amount that will be levied on the producers. One notable difference is how the funds would be paid. In states that have a Severance Tax currently on oil and gas production, the Severance Tax isn’t paid strictly by the producers but instead is paid by the royalty owners as well.
[/vc_column_text][/vc_column][/vc_row][vc_row animation=””][vc_column width=”1/1″][vc_custom_heading text=”It’s more than a Tax vs. Fee issue” font_container=”tag:h3|font_size:30px|text_align:left|line_height:32px” google_fonts=”font_family:PT%20Sans%3Aregular%2Citalic%2C700%2C700italic|font_style:400%20regular%3A400%3Anormal”][/vc_column][/vc_row][vc_row animation=””][vc_column width=”1/1″][vc_column_text]
One of the recurrent reasons for why Pennsylvania needs a Severance Tax rather than an Impact Fee is that all other states have one. First, not EVERY state has one. Ohio, for example, does not require producers to pay anything for oil and gas wells drilled in state. One of the great things about this country is that the states are able to determine legislation that best fits their needs as this country is so vast and diverse.
[/vc_column_text][/vc_column][/vc_row][vc_row animation=””][vc_column width=”1/1″][vc_column_text]But let’s play with the “we want one, too” mentality by taking a look at West Virginia for a moment. For example, Pennsylvania is also the only state with an impact fee and boasts the second highest income tax in the country at 9.9%.
[/vc_column_text][/vc_column][/vc_row][vc_row animation=””][vc_column width=”1/1″][vc_column_text]Below is a comparison of Pennsylvania energy taxes verse West Virginia, who currently has a 5 percent severance tax but do not have a program comparable to Act 13.
[/vc_column_text][/vc_column][/vc_row][vc_row animation=””][vc_column width=”1/1″][vc_single_image css_animation=”” image=”6467″ border_color=”” img_link_large=”” link=”https://wellsaidcabot.com/wp-content/uploads/2014/06/sev-image-1.jpg” img_link_target=”_self” img_size=””][/vc_column][/vc_row][vc_row animation=””][vc_column width=”1/1″][vc_custom_heading text=”Laying out the facts” font_container=”tag:h3|font_size:30px|text_align:left|line_height:32px” google_fonts=”font_family:PT%20Sans%3Aregular%2Citalic%2C700%2C700italic|font_style:400%20regular%3A400%3Anormal”][/vc_column][/vc_row][vc_row animation=””][vc_column width=”1/1″][vc_column_text]
Over the next few days we will continue to lay out the facts of the Impact Fee, proposed Severance Tax and what they both mean for Pennsylvania. We encourage you to submit questions and comments for us to address as we walk through the ripple effect that taxes and fees have on the state, its residents, and the oil and gas industry’s future employees.[/vc_column_text][/vc_column][/vc_row]

George Stark

George grew up in Western PA, graduated from Dickinson College and has been involved in Public Policy matters since then. He has worked in Harrisburg and Pittsburgh on energy issues with a focus on Local, State and Federal matters. As the Director, External Affairs at Cabot Oil & Gas Corp, George directs the media, community and legislative relations for the company.

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