PRINTER'S NO. 1282
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
1086
Session of
2017
INTRODUCED BY THOMAS, APRIL 7, 2017
REFERRED TO COMMITTEE ON FINANCE, APRIL 7, 2017
AN ACT
Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
act relating to tax reform and State taxation by codifying
and enumerating certain subjects of taxation and imposing
taxes thereon; providing procedures for the payment,
collection, administration and enforcement thereof; providing
for tax credits in certain cases; conferring powers and
imposing duties upon the Department of Revenue, certain
employers, fiduciaries, individuals, persons, corporations
and other entities; prescribing crimes, offenses and
penalties," in personal income tax, further providing for
imposition of tax; and providing for imposition of severance
tax.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 302 of the act of March 4, 1971 (P.L.6,
No.2), known as the Tax Reform Code of 1971, is amended to read:
Section 302. Imposition of Tax.--(a) Every resident
individual, estate or trust shall be subject to, and shall pay
for the privilege of receiving each of the classes of income
hereinafter enumerated in section 303, a tax upon each dollar of
income received by that resident [during that resident's taxable
year at the rate of three and seven hundredths per cent.] as
follows:
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(1) During taxable years beginning before January 1, 2017, a
rate of three and seven hundredths per cent.
(2) During taxable years beginning on January 1, 2017, and
ending on December 31, 2019, a rate of three and seven-tenths
per cent.
(3) During taxable years beginning on or after January 1,
2020, a rate of three and seven hundredths per cent.
(b) Every nonresident individual, estate or trust shall be
subject to, and shall pay for the privilege of receiving each of
the classes of income hereinafter enumerated in section 303 from
sources within this Commonwealth, a tax upon each dollar of
income received by that nonresident [during that nonresident's
taxable year at the rate of three and seven hundredths per
cent.] as follows:
(1) During taxable years beginning before January 1, 2017, a
rate of three and seven hundredths per cent.
(2) During taxable years beginning on January 1, 2017, and
ending on December 31, 2019, a rate of three and seven-tenths
per cent.
(3) During taxable years beginning on or after January 1,
2020, a rate of three and seven hundredths per cent.
Section 2. The act is amended by adding an article to read:
ARTICLE XI-E
SEVERANCE TAX
Section 1101-E. 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:
"Association." A partnership, limited partnership or any
other form of unincorporated enterprise owned or conducted by
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two or more persons.
"Barrel." Forty-two United States gallons at an atmospheric
pressure of 231 cubic inches of liquid at a standard temperature
of 60 degrees Fahrenheit.
"Coal bed methane." Gas which can be produced from coal
beds, coal seams, mined-out areas or gob wells.
"Corporation." A corporation, joint stock association,
limited liability company, business trust or any other
incorporated enterprise organized under the laws of the United
States, this Commonwealth or any other state, territory or
foreign country or dependency.
"Department." The Department of Revenue of the Commonwealth.
"Dry natural gas." Hydrocarbon gases, consisting mostly of
methane, that remain after the natural gas liquid portion of the
natural gas stream has been removed and any volume of
nonhydrocarbon gases have been removed in sufficient quantity to
render the gas marketable. The term includes consumer-grade
natural gas or pipeline-quality natural gas.
"Gross proceeds." The value, whether in money or other
property, actually proceeding from the sale of property, without
a deduction for the cost of property sold or expenses of any
kind.
"Gross value." The gross proceeds received or receivable for
property transferred, except as follows:
(1) In a transaction involving related parties, gross
proceeds of the property transferred may not be less than the
fair market value of similar grade and quality property.
(2) In the absence of a sale, gross proceeds of the
property transferred may not be less than the fair market
value of similar grade and quality property.
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(3) In a transaction where property is transferred for
the purpose of processing and resale, gross proceeds of the
property transferred may not be less than the fair market
value of similar grade and quality property.
(4) Under no circumstance shall the gross proceeds be
less than $20.00 per barrel.
"Meter." A device to measure the passage of volumes of gases
or liquids past a certain point.
"Natural gas." A fossil fuel consisting of a mixture of
hydrocarbon gases, including methane, ethane, propane, butane,
carbon dioxide, oxygen, nitrogen and hydrogen sulfide and other
gas species. The term includes natural gas from oil fields known
as associated gas or casing head gas, natural gas fields known
as nonassociated gas, shale beds and other formations. The term
does not include coal bed methane.
"Natural gas liquids." Hydrocarbons including ethane,
propane, butane, isobutane and pentane that are separated from
natural gas as liquids through the process of absorption,
condensation, adsorption, cooling in gas separators, gas
processing or cycling plants.
"Person." Includes a corporation, partnership, limited
liability company, business trust, other association, a
government entity other than the Commonwealth, estate, trust,
foundation or natural person.
"Producer." A person who engages or continues within this
Commonwealth in the business of severing natural gas from
unconventional formations for sale, profit or commercial use.
"Producing site." A point of severance, including a well and
its associated zones and multilateral well bores, that is
capable of producing natural gas from an unconventional
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formation.
"Related parties." Two or more people, organizations or
businesses owned or controlled directly or indirectly by the
same interests. Control exists if a contract or lease, either
written or oral, is entered into where one party severs or
processes natural gas owned or held by another party and the
owner or lessor participates in the severing, processing or
marketing of the natural gas or receives any value other than an
arm's-length passive royalty interest.
"Reporting period." A calendar month in which natural gas is
severed.
"Sales meter." A meter at the point where natural gas is
sold or transported to a purchaser or the market.
"Sever." The extraction or other removal of natural gas from
an unconventional formation in this Commonwealth.
"Storage field." A natural formation or other site that is
used to store natural gas that did not originate from and has
been transplanted into the formation or site.
"Stripper well." A producing site that produced an average
of less than 50 units of natural gas per day during the calendar
year immediately preceding a reporting period.
"Tax." The tax imposed under this article.
"Taxpayer." A person subject to the tax imposed by this
article.
"Unconventional formation." A geological shale formation
existing below the base of the Elk Sandstone or its geologic
equivalent stratigraphic interval where natural gas generally
cannot be produced at economic flow rates or in economic volumes
except by vertical or horizontal well bores stimulated by
hydraulic fracture treatments or using multilateral well bores
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or other techniques to expose more of the formation to the well
bore.
"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, regardless of
actual elevation or location of point of delivery above sea
level or variations in the atmospheric pressure from time to
time.
(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
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and the method to be used in making the tests shall be in
accordance with recommendations of the Natural 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 thereof. 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.
Section 1102-E. Imposition of tax.
(a) Imposition.--There is hereby levied a privilege tax on
every producer.
(b) Rate.--The tax imposed under subsection (a) shall be the
sum of the following:
(1) Four and seven tenths cents for each unit of natural
gas severed measured at the wellhead meter.
(2) Five percent of the average market price as
calculated under section 1103-E of each unit of the dry
natural gas derived from the natural gas severed.
(3) Five percent of the gross value of the natural gas
liquids derived from the natural gas severed as shown by the
gross proceeds derived from the sale by the producer.
(c) Exemptions.--The tax imposed under subsection (a) shall
not be imposed upon the following:
(1) Natural gas, dry natural gas or natural gas liquids
severed under a natural gas lease and provided to a lessor
for no consideration for the lessor's own use.
(2) Natural gas, dry natural gas or natural gas liquids
severed from a stripper well.
(3) Natural gas, dry natural gas or natural gas liquids
severed from a storage field.
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Section 1103-E. Calculation and publication of average market
price.
The department shall calculate the average market price per
unit of dry natural gas for each calendar quarter. The average
market price shall be the weighted average price per unit for
all major Commonwealth distribution hubs on the interstate
natural gas pipeline system for the three months prior to the
calendar quarter. The department shall publish a notice of the
average market price which shall be at least $2.97 per unit for
each calendar quarter in the Pennsylvania Bulletin not later
than within 30 days of the beginning of each calendar quarter.
Section 1104-E. Prohibition.
A producer that severs natural gas under a natural gas lease
may not make the tax imposed under section 1102-E an obligation,
indebtedness or liability of a landowner, leaseholder or other
person in possession of real property upon which the removal or
extraction occurs and shall not otherwise require the landowner
to pay or reimburse the producer for the amount of the tax.
Section 1104.1-E. Existing agreements.
A provision of an agreement in existence prior to the
effective date of this section which violates section 1104-E is
declared to be illegal, contrary to public policy and null and
void.
Section 1104.2-E. Future agreements.
On or after the effective date of this section, a provision
of an agreement in violation of section 1104-E is declared to be
illegal, contrary to public policy and null and void.
Section 1105-E. Return and payment.
(a) Return.--Each producer is required to file a return with
the department, on a form to be prescribed by the department,
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reporting all severed natural gas per reporting period and the
tax due as imposed under section 1102-E.
(b) Filing.--The return required by subsection (a) must be
filed with the department on or before the 20th day of the
fourth calendar month after a reporting period.
(c) Due date.--The tax imposed under section 1102-E is due
on the day the return is required to be filed and becomes
delinquent if not remitted to the department by that date.
Section 1106-E. Natural gas severance tax licensing.
(a) License required.--Each producer subject to tax under
this part must apply to the department for a severance tax
license before severing natural gas from this Commonwealth.
Producers who have been severing natural gas from this
Commonwealth prior to the effective date of this part must
obtain a license from the department within six months from the
effective date of this section. All other producers must obtain
a license before severing natural gas from this Commonwealth. A
producer is liable for the tax imposed by this article without
regard to whether the producer obtains or is required to obtain
a license.
(b) Fee.--The department may charge an application fee to
cover the administrative costs associated with the application
and licensing process. If the department charges an application
fee, the department may not issue a license until the producer
has paid the application fee.
(c) Declaration.--As part of the application for a license,
the producer shall provide a declaration of all sites in this
Commonwealth used by the producer for the severance of natural
gas. The declaration shall include all producing sites and sites
which are stripper wells. The producer shall update the
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declaration when the producer adds or removes a producing site
in this Commonwealth or when there is a change in the status of
a producing site. The producer shall update the declaration
within 30 days after any calendar month in which a change in the
information contained in the declaration occurs.
(d) Department duties.--The department shall, after the
receipt of an application, issue the license applied for under
subsection (a), if the applicant filed all required State tax
reports and paid any State taxes not subject to a timely
perfected administrative or judicial appeal or subject to a duly
authorized deferred payment plan. The license shall be
nonassignable. Each producer shall be required to renew the
license on a staggered renewal system established by the
department. After the initial staggered period, a license issued
shall be valid for a period of five years.
(e) State taxes.--If an applicant for a license or a person
holding a license has not filed all required State tax reports
and paid any State taxes not subject to a timely perfected
administrative or judicial appeal or subject to a duly
authorized deferred payment plan, the department may refuse to
issue, suspend or revoke the license. The department shall
notify the applicant or licensee of a refusal, suspension or
revocation. The notice shall contain a statement that the
refusal, suspension or revocation may be made public. The notice
shall be made by first class mail. An applicant or licensee
aggrieved by the determination of the department may file an
appeal of the determination in the same manner as provided for
reassessments of tax under section 1108-E. In the case of a
suspension or revocation which is appealed, the license shall
remain valid pending a final outcome of the appeal.
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Notwithstanding any other provision of law to the contrary, if
no appeal is taken or if an appeal is taken and denied at the
conclusion of the appeal process, the department may disclose,
by publication or otherwise, the identity of a person whose
license has been refused, suspended or revoked under this
subsection. Disclosure may include the basis for refusal,
suspension or revocation.
(f) Severing without a license.--A person that severs
natural gas in this Commonwealth without holding a valid license
under this section shall be guilty of a summary offense and,
upon conviction thereof, be sentenced to pay a fine of not less
than $300 nor more than $1,500 and, in default thereof, to
undergo imprisonment of not less than five days nor more than 30
days. The penalties imposed by this subsection shall be in
addition to any other penalties imposed by law. For purposes of
this subsection, the severing of natural gas during any calendar
day shall constitute a separate violation. The Secretary of
Revenue may designate employees of the department to enforce the
provisions of this subsection. The employees shall exhibit proof
of and be within the scope of the designation when instituting
proceedings as provided by the Pennsylvania Rules of Criminal
Procedure.
(g) Liability.--Failure to obtain a license does not relieve
a person from liability for the tax imposed by this part.
(h) Civil penalty.--In addition to any tax, interest or
other penalty due under this article, the department shall
impose a civil penalty of 10 ยข per unit severed during the period
a producer is required to and does not have a license. The
penalty shall be assessed and collected under this part.
Section 1107-E. Meters.
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A producer shall provide for and maintain discrete wellhead
and sales meters. A producer shall ensure that all meters are
maintained according to industry standards.
Section 1108-E. Administration of tax.
Unless otherwise noted to the contrary, Article II, Part VI,
Chapters IV-VIII shall apply to this article.
Section 1109-E. Records.
A producer shall maintain the following records:
(1) Wellhead and sales meter charts for each reporting
period and the meter calibration and maintenance records. If
turbine meters are in use, the maintenance records will be
made available to the department upon request.
(2) All records, statements and other instruments
furnished to a producer by a person to whom the producer
delivers for sale, transport or other delivery of any natural
gas.
(3) Records, statements and other instruments as the
department may prescribe by regulation.
Section 1110-E. Enforcement of article.
The department and the Department of Environmental Protection
shall have the ability to inspect records and locations to
ensure compliance with this article.
Section 1111-E. Use of revenue.
The revenue collected under this article shall be deposited
as follows:
(1) Twenty percent shall be deposited into the Marcellus
Legacy Fund.
(2) Forty percent shall be deposited into a restricted
account within the General Fund for distribution to
municipalities in which natural gas is severed.
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(3) Forty percent shall be deposited into the General
Fund.
Section 1112-E. Expiration.
The tax imposed by this article may not be levied on natural
gas severed after December 31, 2019.
Section 3. The addition of sections 1103-E and 1106-E of the
act shall be retroactive to July 1, 2017.
Section 4. This act shall take effect immediately.
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