On June 22, Pennsylvania Governor Tom Wolf signed into law a $32.7 billion state budget for fiscal year 2019. Noted as “bipartisan,” this is the first time in the Governor’s tenure that a budget has been signed before the June 30 deadline. The newly approved budget includes a 2% increase from FY2018, representing an additional $700 million in available spending.
One noteworthy omission from the approved budget is that it includes no severance tax on unconventional gas production. Governor Wolf was a proponent of imposing the tax, but abandoned efforts at the last minute as negotiations pushed, concessions were made and the budget deadline loomed. The proposed tax would have charged natural gas drillers a fee based on the volume of gas developed, which could have potentially brought the state more than $200 million in revenue annually. Pennsylvania is the only major gas developing state that does not currently levy a severance tax.
On the other hand, Pennsylvania drillers already pay impact fees on natural gas, which effectively taxes them for each well drilled. The fees were enacted into law in 2012 by then-Governor Tom Corbett and, since their origin, have allowed the state to collect nearly $1.5 billion in revenue from natural gas companies. In 2017 alone, $209.6 million in impact fees was collected. Many within the energy industry see the proposed severance tax as a “double tax,” which could ultimately prove harmful to small businesses and local job growth.
Even though the levy was not included in latest budget, Governor Wolf is still adamant about imposing severance tax legislation at some point in the future, as this has been a major point of debate for the past four years. Schneider Downs will continue to monitor developments concerning the matter and its possible effect on Pennsylvania energy companies.
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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.