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PA State Rep: Taxes, Impact and Industry

Apr 20, 2015

In recent weeks – talk over taxes, natural gas producers, and the Marcellus Shale has been heating up.  Governor Tom Wolf is proposing that a new tax should be assessed on natural gas producers.  Right now, companies pay a tax that is called an impact fee.  And that is just one of the many taxes the industry and people that work in the industry pay not only to the state of Pennsylvania, but also to local counties and municipalities.

PA State Representative Rick Saccone (R-Washington & Allegheny Counties) has put together a comprehensive video that very simply lays out information about taxes and the natural gas industry in Pennsylvania. 

 

In the video, Saccone explains how the industry is taxed in Pennsylvania: No, we don’t have a severance tax.  We do have, however, an impact fee – something that no other state has. This fee generates about $220 million per year and was crafted to keep Pennsylvania competitive so that we can grow the industry and increase revenue for our local communities. Most citizens are unaware of this fee. 

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Additionally, the industry pays every other tax in Pennsylvania, such as corporate, personal income, sales and use, and liquid fuel taxes. All told, these taxes have generated more than $2.1 billion for the Commonwealth since 2008.

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So, the fact is that our natural gas industry is not only taxed like all other industries, but it also is specifically targeted by an impact fee.  The strength of the current approach is that the funds raised from the impact fee mostly remain in the areas directly impacted by drilling, though a remainder is distributed to all 67 counties.  By contrast, the governor’s proposed severance tax would take that money away from local communities and channel most of it to the General Fund. 

And when it comes to comparing how other states tax the natural gas industry – Saccone makes these points:

A fallacy in the governor’s logic is that when comparing tax environments, you must compare tax structures on a state-by-state basis.  Some states that levy a severance tax do not have a state income tax, while others assess much lower corporate income taxes.  Pennsylvania does have a state income tax, and not only that, we have the second-highest corporate income tax in the nation: 9.9 percent.  There are other taxes that could be mentioned but the point is you must evaluate the overall tax picture when discussing what the governor calls “fairness.”

Saccone also takes issue with the governor’s assertion that a so-called severance tax would generate $1 billion to fund education.  According to Saccone:

In reality, his plan would result in a much smaller amount for education: only about $150 million. While his tax scheme would raise about $416 million in total (still well below the $1 billion promised), the governor would siphon off most of these dollars to fund projects and initiatives that have nothing to do with education.

...Marcellus drillers so far have contributed over $830 million in impact fees, $35 billion in capital investments and in excess of $5 billion in royalties to local landowners.

As of 2012, the industry employed more than 60,000 people, with accompanying wages over $5 billion.  Those jobs average over $80,000 a year and generate a sizable amount of personal income tax (PIT).  Remember that PIT accounts for 41 percent of state revenues. 

Often overlooked, the industry contributed nearly $300 million in property taxes to local governments, helping fund important projects in the communities we live.


And in fact – a 2015 study released by Washington and Jefferson University shows that over a three year time span – the natural gas industry had a $6 billion dollar impact on Washington County.

Saccone goes on to say:

While to some, taxing success intuitively seems correct, it is in fact, a job-killing economic policy.  Throughout the recent recession, the jobs created from the Marcellus Shale industry accounted for 90 percent of the new jobs in our state.  Some 240,000 direct and indirect jobs helped reduce our unemployment from 8.2 percent just a few years ago, to 5.1 percent today.  Without those jobs, our economy would be in even worse condition.  More workers mean more revenues for the state and more money in the pockets of Pennsylvanians.

And for those who say the industry won’t pull out or pull back in Pennsylvania if subjected to a new severance tax – Saccone has this response:

Severance tax proponents like to support their tax grab by mockingly saying, “Where will the drillers go?  The shale isn’t going anywhere.”   That sounds like a clever talking point, but the truth is that there are nearly 20 shale deposits across North America and even more worldwide.  Corporations compete globally and will invest in the areas that provide the greatest return.  We want to keep the natural gas industry competitive by lowering risk and providing certainty in the tax structure to draw maximum investment to our state.  

Most people are unaware that drilling requires great investment at considerable risk.  Think of every well as a nearly $7 million construction project boosting a local economy while adding revenue to neighboring municipal coffers and businesses in various ways.  Uncertainty and tight economics have reduced the drilling rig count in Pennsylvania from 130 in 2012 to around 50 today.

Taxes discourage investment. A single drilling company I know invested over $800 million in Pennsylvania last year and was considering a larger investment this year but has suspended that investment because of the uncertainty of the severance tax.  The Commonwealth stands to lose billions in investment that would otherwise boost our economy and create jobs that generate sales and income tax dollars for the state.    

 
Read More:
MSC in the Tribune-Review: Higher Energy Taxes Stunt Pa.’s Economic Momentum
The Morning Call: Severance tax on gas drilling could slow American energy revolution