OUR THOUGHTS ON:

Pennsylvania-Proposed Gas Severance Tax Legislation

Energy & Resources

By Jack Stewart

As part of the recently passed Pennsylvania budget, lawmakers have agreed to pass legislation regarding a gas severance tax by October 1, 2010 to take effect no later than January 1, 2011. Currently, there are three (3) bills residing in various committees of the Pennsylvania House of Representatives, any one of which may become law once the legislature returns from its summer recess in September. 

House Bill 325

HB 325 proposes a tax rate of 8% of the gross value of units (unit = 1,000 cubic feet of natural gas) severed at the wellhead during a reporting period plus 8 cents per unit extracted. The tax will not apply to units severed from stripper wells. Wellheads producing less than 60,000 cubic feet of gas per day would be exempt.

The bill is currently in the Appropriations Committee.


House Bill 1489

After a number of amendments, the current version of this bill would impose a tax rate of 35 cents per unit (unit = 1,000 cubic feet of natural gas) severed at the wellhead. There would be an annual adjustment made by the Secretary of Revenue every July 1, but the rate will never be less than 35 cents. The annual adjustments would be based upon the following:
• If, on the last trading day of the month, 5% of the average of the NYMEX Henry Hub settled price is less than 35 cents, the natural gas base rate adjustment shall be zero and the adjusted tax rate shall be 35 cents.
• If, on the last trading day of the month, 5% of the average of the NYMEX Henry Hub settled price is greater than 35 cents, the natural gas base rate adjustment shall be 50% of the difference between 5% of the average of the NYMEX Henry Hub settled price on the last trading day of the month and 35 cents. The adjusted tax rate shall be the resulting natural gas rate base plus 35 cents.

The bill is currently in Appropriations Committee.


House Bill 2443

HB 2443 imposes a tax rate of 25 cents per unit (unit = 1,000 cubic feet of natural gas) severed at the wellhead, but not on units severed from stripper wells. There would be an annual adjustment by the Secretary of Revenue each July 1, but the rate will never be less than 25 cents. Adjustments would be based upon the following:
• If, on the last trading day of the month, 5% of the average of the NYMEX Henry Hub settled price is less than 25 cents, then the natural gas base rate adjustment shall be zero and the adjusted tax rate shall be 25 cents.
• If, on the last trading day of the month, 5% of the average of the NYMEX Henry Hub settled price is greater than 25 cents, then the natural gas base rate adjustment shall be 50% of the difference between 5% of the average of the NYMEX Henry Hub settled price on the last trading day of the month and 25 cents. The adjusted tax rate shall be the resulting natural gas base rate plus 25 cents.

The bill is currently in the Finance Committee.

Please note that the final version of the gas severance tax legislation might differ greatly from these proposals. Please revisit the Insights section of our website for further information regarding legislative developments.

* We gratefully acknowledge the Pennsylvania Institute of Certified Public Accountants Office of Government Relations for providing information used in this article.

 

 

Schneider Downs provides accountingtax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH. 

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.

 

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