Tax Day Fairness

Here is a piece about the gas industry and taxes that comes from Penn Futures.

Tomorrow brings the annual income tax deadline, and the media will
predictably cover those who complain the loudest about having to pay
taxes. But all the sound and fury misses the point – most citizens
regard paying taxes as their civic duty, but are disturbed by the lack
of fairness in the system.

In Pennsylvania, the folks complaining the most about paying taxes are
the Marcellus Shale gas drillers and their friends. These multi-
national corporations, which include CONSOL Energy and ExxonMobil, are
crying poor, claiming that charging them an extraction fee on the
liquid gold they are taking from our land would destroy an “infant”
industry.

Of course, the fee is one these same corporations happily pay in other
states. Out of the top 15 natural gas producing states, Pennsylvania
is the only one that doesn’t have a fee to compensate for the loss of
our natural resources and help fix the scars of extraction. An impact
fee (also called a severance tax) identical to the one in place in
West Virginia since 1987 would raise more than $100 million a year
initially, rising to more than $630 million annually

Pennsylvania is ideally situated close to large markets, and since the
cost to transport natural gas constitutes at least 40 percent of the
price consumers pay, Pennsylvania gas is among the most profitable in
the country for the drillers. Even with an impact fee, Pennsylvania
gas will still be a bonanza for the gas drillers.

Nevertheless, the drillers and the Pennsylvania Chamber of (some)
Business and Industry still cry. “We already pay way too much tax. We
have to pay this state’s awful corporate net income tax and adding a
new tax will kill our ability to create jobs.”

But not so fast. The multi-national energy companies rushing to drill
here aren’t dumb, and they can legally avoid the corporate net income
tax by simply choosing a particular corporate structure – a limited
liability corporation – or incorporating in the state of Delaware, a
tax avoidance move known as the Delaware loophole. In fact, 71 percent
of companies doing business in Pennsylvania paid zero corporate net
income tax – nada – last year. And 79 percent of the remaining
companies paid less than $10,000 each. So our current corporate tax
scheme in no way can be described as “job crushing,” as these multi-
national behemoths allege.

Without an extraction tax, the drillers get to take all the profits,
but local communities and our environment are left holding the bag.
Natural gas extraction imposes heavy costs on our communities and
environment – pipelines, drilling pads and wastewater storage pits
altering our landscapes and fragmenting wildlife habitat, heavy rigs
damaging our roads, billions of gallons of water taken from our
streams and operational errors contaminating our land and drinking
water.

Some of the money raised from a natural gas extraction tax could be
used to offset these costs, going back to the communities that “host”
the drilling operations. It could also be invested in watershed
restoration and protection, habitat conservation, public access to
outdoor recreation, and conservation of open space and farmland. This
can be accomplished by directing a portion of the tax to the
Environmental Stewardship Fund (Growing Greener) as well as the
Pennsylvania Game Commission and Fish and Boat Commission for habitat
improvement and public access purposes.

Passing an extraction tax to help pay Pennsylvanians for the use of
our resources and to pay for the damage left behind by the drillers
would go a long way to making our tax system fairer, which is what
most taxpayers want more than anything – especially on April 15.

http://www.pennfuture.org/UserFiles/PDFs/vol12no08_041410.pdf

Gas tax makes sense

http://www.philly.com/inquirer/opinion/20100118_Editorial__Gas_tax_makes_sense.html

Nice editorial from the Philadelphia Inquirer about taxing the energy companies for drilling int he Marcellus Shale in PA.

Next Years Severance Tax (better late than never?)

House to focus on drilling issues next year

by robert swift (harrisburg bureau chief)
Published: December 1, 2009

HARRISBURG – House Democratic leaders are making taxation and regulation of natural gas drilling in the Marcellus Shale formation top priorities next year.

The effort will get started with statewide hearings by the House Environmental Resources and Energy Committee and House Democratic Policy Committee, said Majority Leader Todd Eachus, D-116, Hazleton.

A renewed push to enact a state severance tax on gas production as well as legislation to address drilling-related issues ranging from protection of water supplies to royalties for landowners is part of the legislative focus.

“We are going to take up the issue of the Marcellus Shale extraction tax,” added Eachus in a recent interview. “We really think the development of the Marcellus Shale should have a social benefit.”

Interest in the impact of drilling activities in the Marcellus formation underlying Northeastern and Central Pennsylvania built steadily this year stemming both from fiscal concerns over the large state revenue deficit and environmental concerns highlighted by the recent federal lawsuit by 15 families in Susquehanna County alleging that Cabot Oil and Gas Corp. damaged their health and property.

Earlier this year, Gov. Ed Rendell proposed a five percent severance tax modeled on the West Virginia levy while the Department of Environmental Protection hired additional gas well inspectors with revenue from a fee hike on oil and gas exploration permits.

Rendell eventually said it would be premature to implement a severance tax for fiscal 2009-10, but House Democrats rallied behind the idea and included it in their version of the budget bill. The final $27.8 billion budget is without a severance tax. This is mainly due to because of opposition from Republican lawmakers who said a tax would discourage drilling companies from creating new jobs.

Rendell thinks the timing is right to include a severance tax as part of the 2010-11 budget, said John Hanger, acting Secretary of the Department of Environmental Protection.

“The governor is open to what the details of the severance tax would be,” he added.

One unresolved issue is the distribution of severance tax revenues.

“My (bill) would devote gas revenues to both the municipality and the county where natural gas is extracted, the Liquid Fuels Fund (for local road work), as well as to LIHEAP (low-income heating), environmental stewardship and state government,” said Rep. Camille George, D-74, Houtzdale, the environmental panel chairman.

Other drilling issues await Harrisburg’s attention.

George wants action to protect the existing 12.5 percent royalty to property owners for gas production on their land. He is awaiting a decision from the state Supreme Court on whether the royalty is to be calculated after deducting post-production expenses such as processing, marketing and transportion from the producer’s proceeds.