A Harrisburg research group report concluded Monday that natural gas producers are not paying their fair share in taxes.
While natural gas producers argue the state corporate tax is one of the country’s highest, the Pennsylvania Budget and Policy Center says drillers have a bevy of loopholes and tax tricks for skirting these corporate revenue taxes.
Last year, drilling companies paid $10.3 million in corporate taxes, the report says. Of those total taxes paid, core industry operators paid 9 percent of these taxes, while auxiliary companies such as pipeline operators, haulers and excavation firms paid the other 91 percent, the report says.
Corporate tax revenue from oil and gas drillers peaked in 2011, rocketing up from $23 million the year before, to $105 million. The following year it sank to levels comparable to pre-boom revenue, about $7.5 million, and has been climbing slowly since then.
“(Drillers) can take advantage of federal tax incentives to reduce both state and federal taxable income and can establish subsidiaries that allow their investors to pay Pennsylvania’s low personal income tax rather than the (corporate net income tax),” the report says.
The center is a non-partisan research group and a subsidiary of the Keystone Research Center. It is funded largely by state grants and individual contributions.
The policy center calls for a 5 percent severance tax on natural gas at its wellhead price in addition to the impact fee drillers already pay established under Act 13 of 2012.
The current state administration under Republican Gov. Tom Corbett is staunchly opposed to a severance tax.
Last week at an industry briefing in a Mohegan Sun Casino conference room, state Revenue Secretary Dan Meuser said that if they’re squeezed too hard, the drillers will pack it up and leave the state.
It’s ignorant to believe that, because Pennsylvania hosts such vast reserves of gas, operators will pay whatever the state asks; these operators have interests around the country, and around the world, Meuser said.
Paul Hartman, northern regional director for America’s Natural Gas Alliance (ANGA), in an email said the average American household is now saving $1,000 a year by way of lower-cost natural gas.
The state’s budget deficit likely would be much greater without tax revenue from natural gas producers.
“Any proposal on tax policy should be undertaken carefully and with a consideration of the potential impacts on economic growth,” Hartman said.
In a written statement, the Marcellus Shale Coalition proclaimed its disdain at the persistent calls for “even higher taxes and bigger government.”
The industry is helping the state with job creation and stabilizing energy costs to consumers, a coalition spokesman said.
“Unfortunately, shortsighted election-year calls for new taxes on one of our most promising industries will lead to fewer jobs, lower energy production and less tax revenues,” the spokesman said.
Democratic gubernatorial hopeful Tom Wolf has made levying a severance tax a big facet of his campaign.
As much as 70 percent of the general fund budget is supported by individual income tax and sales tax revenue, Meuser said. So creating a welcome environment for drillers to set up shop ultimately will help fill the reserves, he said.
But at the heart of the matter, there’s immediate need.
The state’s 2014-15 general fund budget is short $1.5 billion. The center’s report says a 5 percent severance tax could fill in almost one-third of the deficit.
Tax could fuel science
A Wilkes University research group is due to submit a water-quality study for the state Department of Energy, but Ken Klemow, a biologist and associate director for the school’s Institute for Energy and Environmental Research, said its findings are incomplete.
“We really can’t continue because we don’t have the funding,” Klemow said.
Even if Harrisburg levies the 5 percent severance tax, there’s still a $1.1 billion shortfall, and Klemow acknowledged that, but he said he is hopeful more revenue through an additional tax would give state offices more flexibility in awarding grants.
“We would hope that by having a good severance tax, we would be able to do the science that’s needed to find out: Are there really impacts from gas drilling?” Klemow said.
He, too, has heard drilling folks say in earnest that if a new tax is levied, they’ll be forced to move elsewhere, but he doesn’t believe a new tax will break the industry.
“I think when push comes to shove, there is a lot of gas in the ground and it has a lot of value,” Klemow said.