For now, Pennsylvania has one of the lowest tax burdens in the nation for the industry, which is spending billions of dollars to tap thousands of wells into the Marcellus Shale formation, considered the nation's largest-known natural gas reservoir.
Two major gas states with the heaviest tax burdens, Colorado and Texas, impose a property tax on the value of oil and natural gas - to the tune of about $2 billion a year in Texas - as a way to address the local impact of drilling. In Texas, there's a separate state severance tax on gas and oil that raised almost as much in the 2010 fiscal year. And in Colorado, there's a conservation tax and a severance tax.
James LeBas, a tax policy analyst for the Texas Oil and Gas Association and that state's former chief revenue estimator, said a severance tax makes more sense if a state has a monopoly, as Texas essentially once did. But there's a good argument to be made against it if a state has to compete for the business, LeBas said.
"Texas will be happy as soon as Pennsylvania starts taxing oil and gas," LeBas said. "We'd like to get our rigs back, please."
However, Pennsylvania state Rep. Rick Mirabito (D., Lycoming) said it is fair for Pennsylvania's natural gas industry to pay a local impact fee as an obligation to the community, and it is fair to pay a severance tax as well, since so many other states impose one.
For years, Pennsylvania has imported natural gas from outside its borders to heat homes, and for all those years Pennsylvanians have paid the built-in cost of other states' severance taxes on the gas, Mirabito said.
So now that Pennsylvania is exporting gas thanks to more than 3,000 Marcellus Shale wells, it should impose one as well, he said.
"A severance tax is about tax equity," he said.
