On September 29, the House of Representatives passed a Marcellus Shale Extraction Tax and a Marcellus Shale Job Creation Credit Bill by a narrow 104-94 margin. The Bill (Senate Bill 1155) is now in the state Senate, where legislators will debate some of the following features of the proposed law.
Severance Tax – Effective January 1, 2011
- Applicable to wells with volumes exceeding 60,000 cubic feet per day.
- A base rate of 39 cents per unit with annual adjustments to be made by the Department of Revenue.
- Adjustments shall never be less that the base rate.
- An annual adjustment to the base rate will apply if 7% of the average New York Mercantile Exchange (NYMEX) Henry Hub settled price is greater than 39 cents.
- The adjusted rate will be 50% of the difference between 7% of the NYMEX Henry Hub price and 39 cents.
Marcellus Shale Job Creation Tax Credit
- Companies wishing to take advantage of the credit must submit a Job Creation Tax Credit application with the Department of Revenue.
- The application must include a copy of the permit issued by the Department of Environmental Protection (DEP) or a statement from DEP that the company has obtained the necessary drilling permits.
- Upon application approval, taxpayers will be able to claim a $1,000 credit per new job created up to the maximum job creation tax credit amount specified in the commitment letter.
- Credits can be applied against net income tax, capital stock and franchise tax, personal income tax and personal income tax of a shareholder of a company that is a Pennsylvania S Corporation.
- The credit will last for a term specified by the Department of Revenue not to exceed five years from the time the company first submits the credit.
- Credits will be nontransferable.
- The failure to create the jobs within three years from the time the company receives the credits will result in the company having to refund the credit amounts granted.
Estimates of additional net revenue to be generated by the severance tax and job creation credit are $110.2 million for fiscal year 2010-2011 and $316.1 million in fiscal year 2011-2012, the majority of which is scheduled to be distributed to the state’s General Fund and the Environmental Stewardship Fund.
Please revisit the Insights section of our website for further information regarding legislative developments. For further information on Marcellus Shale updates, visit our Energy & Resources Insight page here.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.