OUR THOUGHTS ON:

Proposed Taxes: Damaging to Users and Producers of Natural Gas in PA

Energy & Resources

By Matthew Kraemer

Earlier in the summer, in an attempt to close the budget gap for the 2017-18 fiscal year, the Pennsylvania Senate passed a bill to assess an additional severance tax on natural gas production, as well as a tax on the use of natural gas by Pennsylvanians. Taxes on natural gas production and use are two of the several proposals by the Senate as part of the $2.2 billion revenue package voted on and approved in July 2017. Other provisions include tax increases for electric service, telephone service, online sales, and expansion of casino gambling. The Senate also plans on borrowing approximately $1.3 billion against future revenues over the next 20 years.

The taxation on natural gas production will focus on production in Marcellus Shale region in Pennsylvania and is expected to generate approximately $80 million. The severance tax will vary between 1.5 cents per MCF to 3.5 cents per MCF and is based on the previous year’s average annual price of natural gas. The tax for 2017-18 will be assessed at 2 cents per MCF.

The gross receipts tax applied to natural gas, which is expected to impact the home heating bills of approximately half of Pennsylvania households, will be assessed to users at 5.7%. This tax rate increase, along with the taxes on electric service and telephone service, are expected to generate over $400 million. These taxes will cost an average family of four over $125 per year.

While this plan appears to close the gap in the 2017-18 budget, the new taxes will impact both producers of natural gas in Pennsylvania as well as the users of natural gas. In the current natural gas market, the implications of the severance tax to natural gas producers could be very damaging and, in some cases, disastrous. The struggles of some natural gas producers could lead to additional job cuts, which coupled with additional taxes on users, could also severely impact the quality of life of many Pennsylvania residents. 

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