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What are the Prospects of a Pennsylvania Severance Tax/Impact Fee on Marcellus Shale Gas Wells?

Energy & Resources

By George Adams

Many states have been dealing with budget deficits and looking for options to either generate additional revenue or find areas in which to cut spending. The Marcellus Shale drilling boom in Pennsylvania has provided the incentive for many groups to call for a severance tax on the production from the wells drilled in the state. However, Governor Tom Corbett is opposed to any new taxes specifically levied on the Marcellus Shale industry.

In the weeks leading up to the debate and subsequent passage of the Pennsylvania state budget, an impact fee was proposed as a way to direct money to the communities affected by Marcellus Shale drilling. The thought among lawmakers was that this would not be a new tax, which Governor Corbett would veto, but a fee on the industry that would generate money to help the affected communities but also provide funds to the State to help offset some of the spending cuts proposed to balance the budget. There have been several polls which indicate that a majority of Pennsylvanians are in favor of some type of severance tax or impact fee on Marcellus Shale gas production.

Generally, a severance tax imposes a flat rate on the gross value of the gas produced. The proposals related to a Marcellus Shale impact fee have ranged between $10,000 to $17,000 per-well rather than a percentage of the gross value of gas produced. There have been other proposals that have higher per-well fees payable annually with a reducing schedule per year during the life of the well. Revenues raised from these fees would be allocated to local communities where the wells or related pipelines are located with some portion of the revenue also going to the State.

Strong support remains in both the House and Senate for either a severance tax or an impact fee on the natural gas production industry. The Governor has stated adamantly that his executive commission, created to study the impact of natural gas drilling on Pennsylvania, must be allowed to conclude its work before any decision can be made regarding a fee structure on natural gas production. This commission is expected to issue its final report on July 22nd.

Pennsylvania remains the only state among the nation's top 15 states with significant natural gas production activities not to impose some form of severance tax on this industry. Now that the annual budget has been passed and signed into law without imposing any new taxes or impact fees on the oil and gas industry, it appears no new taxes will be enacted until this fall at the earliest.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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