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Pa Legislators Propose Shale Gas Drilling Tax

A bipartisan group of four Pennsylvania legislators has floated a 4.9 percent severance tax on natural gas drilling – a move the lawmakers say would replace impact fees so that more of the state’s residents can benefit from Pennsylvania’s booming natural gas sector.

The new tax, which would be imposed based on the actual value of resources removed, could generate as much as $640 million in annual revenue for Pennsylvania, according to the legislators, while the current Marcellus Shale impact fee produces $200 million per year. Both the current levy and the proposed levy would address both local and statewide effects of drilling, while the proposed severance tax would also raise money for drug and alcohol programs, adults with special needs, rape and domestic violence victims, and veterans, which are currently funded by Commonwealth’s General Fund.

 “For years, we have been hearing about the large natural gas deposits throughout much of the commonwealth, and how Pennsylvania’s natural assets have the potential to help fund some of the most critical needs for our residents,” state Rep. Gene DiGirolamo, R-Bucks, said in a statement. “Although an impact fee was adopted a couple of years ago to help communities impacted by the development caused by drilling, there is still so much more potential.”

The current impact fee, based on production, was adopted in 2011 after the legislature declined to pass a severance tax.  At the time, the worry was that drillers would simply move their rigs to West Virginia, Ohio, or New York (which has a moratorium) to escape the levy. At the same time, the Legislature passed a controversial prohibition on local drilling restrictions (Act 13) on the “fracking” process to encourage drilling, which was recently overturned by the state Supreme Court, thus allowing Pennsylvania’s 2,500 local governments to each adopt different zoning regulations for the industry. (Much of the land in Bucks and Montgomery Counties is currently closed to drilling through a legislated moratorium and by the failure of the Delaware River Basin Commission to issue regulations governing how it can be done while protecting the region’s drinking water supply).

Though the severance tax proposal could mean millions in new tax revenues from the drilling companies to help Pennsylvania meet its balanced budget requirement by the June 30 deadline, some observers don’t think the measure will make it past the General Assembly, now firmly controlled (both Houses) by Republican Majorities. “To tax it now is killing the golden goose,” Kevin Shivers, state director of the National Federation of Independent Business, told Watchdog.org.

For additional information on the possible outcomes of the severance tax, contact Catherine M. (Kate) Harper, a partner at Timoney Knox since 1997. Ms. Harper is also a member of the Pennsylvania General Assembly in the House of Representatives, representing eastern MontgomeryCounty. She has a general practice, but focuses on land use (particularly municipal and zoning law), real estate and civil litigation in Bucks and Montgomery Counties.

Sources:

Pennsylvania Legislators Propose Gas Drilling Tax, JDSupra Business Advisor, 12/23/2013

Pennsylvania Lawmakers Want Severance Tax on Natural Gas Drillers, Watchdog.org, 12/18/2013

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