Testimony: Proposed Pennsylvania Energy Tax Hike Biggest In Nation

Published June 12, 2016

A proposed plan to collect taxes on energy companies doing business in Pennsylvania would make the state’s business tax burden the biggest in the nation, according to a state financial expert’s testimony before lawmakers.

In May, Matthew Knittel, director of the Pennsylvania Independent Fiscal Office (IFO), testified before state lawmakers, explaining the nonpartisan government agency’s economic study on a proposal from Gov. Tom Wolf (D) to begin taxing the extraction of natural gas.

The proposal, included in Wolf’s budget bill, would replace the state’s impact fee with a 5 percent severance tax to the value of gas extracted, and add 4.7 cents to the cost of each 1,000 cubic feet of gas, by volume.

According to IFO’s calculations, if Wolf’s proposal is approved by lawmakers, the state would be charging an effective severance tax rate of 8.5 percent, making Pennsylvania the most expensive state from which to extract natural gas in the nation.

No ‘Straight-Up Severance Tax’
Isaac Orr, a research fellow with The Heartland Institute, which publishes Environment & Climate News says Pennsylvania currently enjoys an advantage over other mineral-producing states.

“Pennsylvania’s actually the only major oil-producing state that that doesn’t have a straight-up severance tax,” Orr said. “They have what’s known as an impact fee, so they assess a fee for every well that gets put in. That’s usually a flat fee, so they’re different in that regard. The impact fee concentrates the revenue, they go to county governments, rather than the state coffers.”

Orr says Wolf’s proposal could drive job creation to other states in the region, such as Ohio.

“If all things were equal, as far as what’s the cost of drilling, they might decide to concentrate on drilling in Ohio, if the severance tax is higher in Pennsylvania,” Orr said.

‘Highest’ Tax in the Country
Bob Dick, a policy analyst with the Commonwealth Foundation, says the plan would make Pennsylvania number-one, in a bad way.

“Gov. Wolf’s proposal, if it were to be enacted by the legislature would be the highest effective severance tax in the country,” Dick said. “That would be just devastating to the natural gas industry, and all the people who depend on it to put food on the table.

Dick says energy companies will leave Pennsylvania for friendlier states with natural resources, or cut back on production.

“These companies that are drilling in Pennsylvania could pick up and move to other places that have a lower tax burden and encourage drilling,” Dick said, “If it’s not profitable to do it in Pennsylvania, then they’re not going to do it, it’s that simple.

Impact on Families
Dick says filling the state government’s coffers comes at the expense of everyday people, and their families.

“We’re not just talking about wealthy natural-gas drillers, we’re talking about people who have families to sustain with their jobs,” Dick said. “They’re going to lose those jobs if the governor proposes this tax increase on them.”

Jesse Hathaway ([email protected]) is managing editor of Budget & Tax News.