Severance Tax

Here is an exchange from my Face Book page on October 5th concerning a severance tax on gas extraction.

Joelle Barnes You said you are against an extraction tax on the Marcellus Shale gas companies. Then where do we get the money for our infrastructure (PA has some of the worst bridges in the country), public education, seniors, etc.? Should the middle class be made to pay all the taxes, when the Marcellus Shale companies are worth billions? Texas is a staunch Republican state, except for Austin; but they tax the oil companies. By the way, are you taking campaign contributions from the Marcellus Shale gas companies?

Friends of Ernest Lemoncelli for PA State RepJoelle Barnes, I’m so glad you asked! I’ve read quite a bit recently about what is proposed in the way of severance tax and what I read doesn’t strike me as good for us. That’s not to say it can’t be improved to something I can support. First lets look at Texas. Texas has NO corporate income tax – PA has 9.9% corporate income tax. Texas applies the severance tax AFTER the well becomes profitable. That means all the costs have been covered first, then the severance tax of 7.5% kicks in. No tax until after the break even point. So if you want to compare Texas and PA, you have to look at the whole picture, not just if they have a severance tax or not. If you want to model our program after Texas, good luck getting the PA legislature to get rid of corporate income tax . Also in PA, we have Impact Fees which generate over $200 million a year and those fees are distributed mostly to the areas where the oil and gas industry operate. The Impact Fees are eliminated once the severance tax becomes law. The severance tax would be paid to the State and into the General Fund – so now we have no control over how it’s spent or what it is spent on…Harrisburg has that control…so good for Philly and Pittsburgh, maybe not so good for us. The proposed severance tax is only on FRACKED wells – so in effect, the tax is on a method of production. I believe this could set up a legal challenge if this law was passed, just like the casinos challenged the taxes they pay with the argument that the state has to tax all the casinos the same…and the casinos won. So it could end up that the severance tax is thrown out and we lost the impact fees too… A severance tax is a tax on natural resources that are removed. We’re talking about applying this tax ONLY to the gas and oil industry, but not other natural resources like coal, timber, sand, gravel etc. Why is that? Wouldn’t it make sense to tax all extraction of natural resources? So those are my thoughts. I’d like to know your ideas for the specifics of how a severance tax should be implemented and how the revenue could be distributed/spent. Lets try to find the right answer because we deserve better. Please, while you are doing your research, remember the old Texas saying – “Figures Lie and Liars Figure”. And I have no donations at all from the oil and gas industry…