The Impact of (Proposed) Pennsylvania Severance Tax


Beginning in 2012, Pennsylvania placed an impact fee on natural gas producers unlike a severance tax structure in other gas-producing states. Pennsylvania Governor Tom Wolf is again proposing to levy a severance tax in Pennsylvania. The funds generated are said to be allocated to education, career training, and add funding to combating the opioid epidemic. Criticism from opponents of the severance tax would threaten jobs and raise energy costs for Pennsylvania residents. Opponents expect that the increased costs will be passed down to consumers.

Pennsylvania’s natural gas companies are subject to all other taxes that businesses within the Commonwealth are subject to including income and sales taxes in addition to the impact fee they are currently paying. Neighboring states West Virginia and Ohio levy the severance tax on drillers.

How the Impact fee compares to Severance taxes

Impact fee:

  • Is paid when a new shale well is drilled, regardless of production
  • “Drillers will keep drilling some new wells even in the down years in order to hold acreage in danger of slipping away due to leases expiring.”[1]
  • Year over year revenues have shown a decline
  • 2014-2016 impact fee revenues have decreased in Pennsylvania by 22%[2]

Severance tax:

  • Is paid by the amount of natural gas extracted from a well
  • “…with existing wells flowing gas, like those in WV, it’s easy to just turn the spigot off and wait for prices to go up again. No gas flowing, no severance tax revenue.”[3]
  • Year over year revenues have also shown a decline
  • 2014-2016 severance tax revenues have decreased in West Virginia by 61%[4]

The impact fee is a more stable structure than severance taxes. Over the past few years, the decrease of revenues have been less through the impact fee structure.

The bearing of an additional severance tax could potentially be felt by global consumers of natural gas. Saying that Pennsylvania does not have a severance tax is an accurate statement, but it does not explain the entire tax structure. Natural gas companies in the Commonwealth are in a unique position sitting on top of the shale play, but are now facing an additional tax to further compound the impact fee.

The topic of a severance tax seems to be a reoccurring theme within Pennsylvania politics, but the potential impact could have global repercussions.







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