OUR THOUGHTS ON:

Severance Tax on the Horizon?

Energy & Resources|Tax

By Victoria Sarver

Currently, the Pennsylvania legislature is in the process of approving and finalizing the fiscal year 2017-2018 budget. The revenue portion of the state budget may or may not include a severance tax impacting Pennsylvania’s natural gas industry.

On July 27, the Pennsylvania Senate approved the revenue portion of the FY 2017-2018 state budget, which included a severance tax on unconventional natural gas production. Initially, the tax would be $0.02 per Mcf, but could increase to as much as $0.035, depending on the price of natural gas. This package would also affect consumers of natural gas. The gross receipts tax (GRT), a tax on the sale of natural gas, would be reinstated at a rate of 5.7%. Under the Senate-passed legislation, the GRT would increase from 5.9% to 6.5% for electricity and from 5% to 6% for telecommunications bills. In order to offset the severance tax, the Senate-passed legislation targets permitting. Under the legislation, any permit related to unconventional oil and gas development would be approved if the state Department of Environmental Protection has not acted within certain time frames.

On September 13, the Pennsylvania House of Representatives voted 103-91 to approve an amended version of the previously discussed Senate-passed legislation. This House Bill 453 does not include the severance tax for unconventional natural gas, nor does it include the GRT for consumers of natural gas. The following week, the bill returned to the Senate, where it voted 43-7 to non-concur the amendments made to House Bill 453. The bill will now be sent to a Conference Committee of three senators and three representatives for differences to be mediated.    

Many Pennsylvanian oil and gas companies have been part of the lobbying campaign to fight the Senate’s proposed severance tax. These industry supporters favor keeping the impact fee on unconventional natural gas wells passed in 2012 in lieu of a severance tax. Under the Senate-proposed budget, the impact fee would remain along with the severance tax. The Senate is not scheduled to return to session until mid-October. Until then, the impact of Pennsylvania’s state budget on the natural gas industry is uncertain.

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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.

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