H1401B1762A04100 MSP:CMD 10/17/17 #90 A04100
AMENDMENTS TO HOUSE BILL NO. 1401
Sponsor: REPRESENTATIVE O'NEILL
Printer's No. 1762
Amend Bill, page 1, lines 10 and 11, by striking out "natural
gas drilling tax investment" and inserting
volumetric severance tax; and making a related repeal
Amend Bill, page 1, lines 14 through 21; pages 2 through 27,
lines 1 through 30; page 28, lines 1 through 27; by striking out
all of said lines on said pages and inserting
Section 1. The act of March 4, 1971 (P.L.6, No.2), known as
the Tax Reform Code of 1971, is amended by adding an article to
read:
ARTICLE XXIV
VOLUMETRIC SEVERANCE TAX
Section 2401. Definitions.
The following words and phrases when used in this article
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Average annual price of natural gas." As defined in 58
Pa.C.S. § 2301 (relating to definitions).
"Commission." The Pennsylvania Public Utility Commission.
"Department." The Department Of Environmental Protection Of
The Commonwealth.
"Gross proceeds." Money generated from the sale by a lessee
of oil, natural gas or gas of any other designation or their
constituents removed or recovered under a lease in an arms-
length transaction designated and fixed at the actual point of
sale.
"Lease." An agreement conveying to a lessee the right to
remove or recover oil, natural gas or gas of any other
designation from land of the lessor.
"Meter." A device to measure the passage of volumes of gases
or liquids past a certain point.
"Natural gas." As defined in 58 Pa.C.S. § 2301.
"Producer." As defined in 58 Pa.C.S. § 2301.
"Royalty payment." A payment made by a lessee to a lessor in
accordance with a lease.
"Sever." The extraction or other removal of natural gas from
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an unconventional formation in this Commonwealth. The term does
not include natural gas, in gaseous or liquid form, which is
burned, used, consumed or otherwise employed in oil and gas
operations at a natural gas well site:
(1) for secondary recovery;
(2) for re-pressuring;
(3) for pressure maintenance; or
(4) as fuel for equipment.
"Storage field." A natural gas formation or other side that
is used to store natural gas that did not originate from and has
been transplanted into the formation or site.
"Trigger date." The date 60 days after the effective date of
this section.
"Unconventional formation." As defined in 58 Pa.C.S. § 2301.
"Unconventional gas well." As defined in 58 Pa.C.S. § 2301.
"Unit." A thousand cubic feet (MCF) of natural gas at a
temperature of 60 degrees Fahrenheit and an absolute pressure of
14.73 pounds per square inch, in accordance with American Gas
Association (AGA) standards and according to Boyle's law for the
measurement of gas under varying pressures with deviations
therefrom as follows:
(1) The average absolute atmospheric pressure shall be
assumed to be 14.4 pounds to the square inch, notwithstanding
the actual elevation or location of point of delivery above
sea level or variations in the atmospheric pressure.
(2) The temperature of the gas passing the meters shall
be determined by the continuous use of a recording
thermometer installed so that the thermometer may properly
record the temperature of the gas flowing through the meters.
The arithmetic average of the temperature recorded each 24-
hour day shall be used in computing gas volumes. If a
recording thermometer is not installed, or if installed and
not operating properly, an average flowing temperature of 60
degrees Fahrenheit shall be used in computing gas volume.
(3) The specific gravity of the gas shall be determined
by tests made by the use of an Edwards or Acme gravity
balance annually or at intervals as are found necessary in
practice. Specific gravity shall be used in computing gas
volumes.
(4) The deviation of the natural gas from Boyle's law
shall be determined by tests annually or at other shorter
intervals as are found necessary in practice. The apparatus
and the method to be used in making the tests shall be in
accordance with recommendations of the National Bureau of
Standards of the Department of Commerce or Report No. 3 of
the Gas Measurement Committee of the American Gas
Association, or any amendments of the report. The results of
the tests shall be used in computing the volume of gas
delivered.
"Wellhead meter." A meter placed at a producing site to
measure the actual volume of natural gas severed.
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Section 2402. Volumetric severance tax.
(a) Imposition.--Each producer subject to the unconventional
gas well fee imposed under 58 Pa.C.S. § 2302 (relating to
unconventional gas well fee) shall pay a volumetric severance
tax.
(b) Computation.--The volumetric severance tax for each
unconventional gas well shall be calculated by applying the
applicable rate under subsection (b.1) to natural gas severed
from the unconventional gas well during the imposition period
under subsection (b.2).
(b.1) Tax rate.--The tax rate shall be as follows:
(1) If the average annual price of natural gas for the
calendar year immediately preceding the start of the
imposition period is not more than $3.00, the surcharge rate
shall be $0.02 per unit severed.
(2) If the average annual price of natural gas for the
calendar year immediately preceding the start of the
imposition period is greater than $3.00 and less than $5.00,
the tax rate shall be $0.025 per unit severed.
(3) If the average annual price of natural gas for the
calendar year immediately preceding the start of the
imposition period is greater than $4.99 and less than $6.00,
the tax rate shall be $0.03 per unit severed.
(4) If the average annual price of natural gas for the
calendar year immediately preceding the start of the
imposition period is more than $5.99, the tax rate shall be
$0.035 per unit severed.
(b.2) Imposition period.--The imposition period shall be as
follows:
(1) For fiscal year 2017-2018, the imposition period
shall be from October 1, 2017, to April 30, 2018.
(2) For fiscal year 2018-2019, and each fiscal year
thereafter, the imposition period shall be from May 1 of the
preceding fiscal year to April 30 of the current fiscal year.
(b.3) Payment.--The volumetric severance tax imposed under
this article shall be due on the same day the report is due
under subsection (b.4). The tax shall become delinquent if not
remitted to the commission on the reporting date.
(b.4) Report.--By June 15, 2018, and June 15 of each year
thereafter, each producer shall submit payment of the volumetric
severance tax to the commission and a report on a form
prescribed by the commission for the imposition period.
(b.5) Exemptions.--The volumetric severance tax imposed
under this article shall not be imposed on the following:
(1) natural gas severed, sold and delivered by a
producer at or within five miles of the producing site for
the processing or manufacture of tangible personal property
as defined under section 201;
(2) natural gas severed under a natural gas lease and
provided to a lessor for no consideration for the lessor's
own use; or
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(3) natural gas severed from a storage field.
(c) Volume measurement.--
(1) Except as provided under paragraph (2), for purposes
of computing the volumetric severance tax, natural gas
severed shall be measured at the wellhead meter.
(2) Natural gas severed prior to the trigger date shall
be measured according to the standards and methods used for
reporting natural gas production to the department.
(d) Administration.--The volumetric severance tax shall be
administered and enforced in the same manner as the
unconventional gas well fee under 58 Pa.C.S. Ch. 23 (relating to
unconventional gas well fee).
(e) Use of funds.--Money collected from the volumetric
severance tax under this section shall be transferred to the
State Treasurer to be deposited into the General Fund.
(f) Independent Fiscal Office.--Beginning September 30,
2018, and quarterly thereafter, the Independent Fiscal Office
shall publish a report on its publicly accessible Internet
website that shows the calculation of an average effective tax
rate of the volumetric severance tax imposed under this article
and the unconventional gas well fee imposed under 58 Pa.C.S. Ch.
23, imposed for the preceding imposition period. The average
effective tax rate shall quantify the implicit tax burden
imposed on a producer by both the volumetric severance tax and
the unconventional gas well fee in a given year. The average
effective tax rate shall be based upon the market value of
natural gas at the wellhead using regional price information
from hubs located in this Commonwealth and postproduction costs
shall be deducted to approximate the value of natural gas at the
wellhead. The report shall include the methodology used to
calculate the average effective tax rate.
(g) Payment of tax.--A producer may not make the tax imposed
under this section on natural gas severed under a lease an
obligation, indebtedness or liability of the lessor and may not
otherwise require the lessor to reimburse the producer for the
amount of the tax.
Section 2403. Minimum royalty.
(a) Amount.--
(1) The minimum royalty payment made under the act of
July 20, 1979 (P.L.183, No.60), known as the Oil and Gas
Lease Act, to a lessor under a lease may not be less than
one-eighth of the gross proceeds received by the lessee for
the oil, natural gas or gas of any other designation
recovered by the lessee under the lease.
(2) A deduction or allocation of costs, expenses or
other adjustments may not be taken or made to gross proceeds
before calculating the amount of a royalty payment due to a
lessor under paragraph (1).
(b) Applicability.--The requirement to pay a minimum royalty
under subsection (a) shall only apply to oil, natural gas or gas
of any other designation recovered and sold by a lessee after
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the effective date of this section.
Section 2404. Remedy.
(a) Civil action and venue.--A lessor who is party to a
lease may file an action for failure of the lessee to pay the
minimum royalty under section 2403 in the court of common pleas
of the county where the land of the lessor is located or the
county in this Commonwealth in which the lessor resides.
(b) Burden of proof.--
(1) Demonstration by a lessor who is party to a lease
that the lessee has made a royalty payment which is less than
the amount required under section 2403(a) shall create a
presumption that a violation of section 2403 has occurred.
(2) The presumption under paragraph (1) may be rebutted
if the lessee presents clear and convincing evidence that the
required minimum royalty payment was made.
(c) Effect of notice and failure to cure.--In an action in
which a court finds that the lessee who is party to a lease has
violated the terms of section 2403, the lessor shall be entitled
to the remedies under subsections (d) and (e) if, before filing
suit, the lessor gave to the lessee 30 days' written notice by
certified mail of the deficiency and the lessee failed to cure
the deficiency.
(d) Additional remedies.--In addition to actual damages and
any other remedy deemed appropriate by the court, the court
shall award to the lessor reasonable attorney fees and costs in
bringing the action, including expert witness fees.
(e) Treble damages.--If the court finds that the lessee
acted willfully in failing to pay the minimum royalty payment
due or where a lessee has been previously found to have failed
to pay the minimum royalty payment due, the court may award
treble damages to the lessor.
(f) Other remedies not precluded.--The remedies provided
under this section are not exclusive of, do not require
exhaustion of and shall be in addition to any other remedies
provided by the lease, by law or in equity.
Section 2405. Severability.
The provisions of this article are severable. If any
provision of this article or its application to any person or
circumstance is held invalid, the invalidity shall not affect
other provisions or applications of this article which can be
given effect without the invalid provision or application.
Section 2. The following shall apply retroactively to
October 1, 2017:
(1) The addition of Article XXIV of the act, except for
sections 2403 and 2404.
(2) Section 3 of this act.
Section 3. Repeals are as follows:
(1) The General Assembly declares that the repeal under
paragraph (2) is necessary to effectuate the addition of
Article XXIV of the act.
(2) 58 Pa.C.S. § 2318 is repealed.
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Section 4. This act shall take effect immediately.
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See A04100 in
the context
of HB1401