Report: Severance Tax Proposal Could Cost PA’s Mineral Owners Millions

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STATE IMPACT PENNSYLVANIAA new analysis published Thursday by Pennsylvania’s Independent Fiscal Office estimates mineral owners could wind up losing tens of millions of dollars in natural gas royalties if Governor Tom Wolf’s proposed severance tax becomes law.

The calculation was requested by state Sen. Lisa Baker (R- Luzerne), who asked the IFO to examine how a potential severance tax could affect the post-production costs many landowners already see gas companies deducting from their monthly royalty checks.

“States that levy a natural gas gas severance tax allow those costs to be treated like a post-production cost,” IFO director Matthew Knittel wrote.

Post-production costs are the expenses of moving natural gas from the wellhead to the market. Some Pennsylvania landowners allege the costs are exorbitant and leave them with little to no royalty money. The controversy has spurred lawsuits and proposed legislation. Earlier this month, West Virginia passed a new law prohibiting gas and oil companies from deducting post-production expenses in certain types of leases.

Wolf’s severance tax proposal is based on volume, and varies depending on the price of natural gas. The IFO estimates it would bring in about $210 million in revenue next year, and $379 million in three years. The report projects $51 million could be withheld from mineral owners, in the third year.

Pennsylvania remains the only major gas-producing state in the country that does not tax production. Instead, it levies a per-well “impact fee.” Passing a severance tax on production has long been a major priority for Wolf, who calls it the “fairest and simplest” solution to the state’s budget woes.

The natural gas industry has lobbied hard against it. David Spigelmyer, president of the gas trade group, the Marcellus Shale Coalition, said the IFO report shows regular Pennsylvanians will feel the sting of a new tax.

“Lawmakers should heed this warning and focus instead on pro-growth policies that expand natural gas production and use,” said Spigelmyer.

In the report the IFO also attempted to calculate how much royalty money people in Pennsylvania’s top gas-producing counties have received. It is a difficult figure to pin down, because royalties are lumped in with rental, copyright, and patent income on state tax returns.

In Susquehanna, Washington, Bradford, Greene, Lycoming, Wyoming, Tioga, and Butler counties, the IFO estimates royalties shot up from $20 million in 2006 (before the Marcellus boom took off) to $919 million in 2012. The analysis finds royalties peaked at $1.6 billion in 2014 and have declined since then, hitting $639 million in 2016.

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