OUR THOUGHTS ON:

Get Ready for a Potential Extraction Tax on the Marcellus

Energy & Resources

By Patrick Kerns

Pennsylvania Governor-elect Tom Wolf made one the pillars of his campaign the passage of a severance tax on extraction of natural gas. After watching weeks of political ads, the time of action will be soon upon us.

Reading Tom Wolf’s campaign site, the details are scant, but his site notes, “If states like Texas, West Virginia, and Oklahoma are able to charge a severance tax on gas extraction to fund key priorities, it’s time Pennsylvania does too.” Tom Wolf proposes a 5% extraction tax that would be used primarily to fund education, transportation infrastructure and renewable energy. This idea is hardly unique, as Ohio is currently considering an extraction tax that may set its rate somewhere between 2.5% to 2.75%.

The Pennsylvania Independent Oil and Gas Association (PIOGA) pointed out on its website in a recent press release that the imposition of this new severance tax likely would invalidate the current impact fee, and this would result in reducing the tax revenue flowing to many municipalities that currently reap a large benefit from this fee, since much of the proposed tax will be earmarked for the purposes previously discussed.

What is yet to be defined is how the 5% tax will be calculated, and as a result, many in the natural gas industry are speculating on the impact of this new tax if it is passed. By comparison, West Virginia has had a 5% extraction tax in place for many years; however, all drilling equipment is exempt from the state’s sales tax, providing some relief to drillers.

Stay tuned once the new legislative term starts, as this is sure to be a hotly contested issue.

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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.

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© 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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