A Natural Gas Severance Tax C Daniel Hassell

A Natural Gas Severance Tax C. Daniel Hassell Acting Secretary of Revenue www. revenue. state. pa. us

Severance Tax Background • Why a severance tax? • Compensation for removal of a non-renewable resource • Compensation for environmental damage • Compensation for infrastructure costs www. revenue. state. pa. us

State Severance Taxes • 38 states have a severance tax • 28 states have a natural gas severance tax • 22 states have a percentage of value as one component • Pennsylvania is the 15 th largest gas producing state, but is the only state with significant natural gas production that does not impose a severance tax. www. revenue. state. pa. us

How Severance Taxes Work • Difference from sales tax: • Source vs. Destination • Per Unit vs. “Ad Valorem” (or percentage of value) Base • Some states have exemptions or lower rates for “stripper wells” or highcost gas www. revenue. state. pa. us

State Tax Rates • Texas: 7. 5% • Wyoming: 6% • Oklahoma: 7% • West Virginia: 5% + 4. 7 cents/MCF • Pennsylvania: none www. revenue. state. pa. us

Proposed Severance Tax • Proposal: 5% + 4. 7 cents/MCF • Monthly tax payments to state • Matches the WV rate www. revenue. state. pa. us

Legislation • House Bill 1489 • Exempts stripper wells under 60 MCF/day • Estimated First Year Revenue: $72 million • $30 million General Fund • $20 million Environment & Local Gov’t www. revenue. state. pa. us

Conclusion Questions? www. revenue. state. pa. us