House Co-Sponsorship Memoranda

In the near future, I intend to introduce legislation that seeks to equitably generate the revenue needed to address our transportation funding shortfall without placing the financial burden on the backs of the middle class. Last session the General Assembly missed the best opportunity to raise this much revenue by failing to collect from two sources that would have avoided the Governor’s newest proposal to increase taxes on middle class families; Combined Reporting and a Severance Fee. Together, combined reporting and a natural gas severance fee would raise at least $500 million annually. This would generate enough revenue to close the five year, $2.5 billion goal set by the Transportation Funding Advisory Commission.

Earlier this year, Governor Corbett finally began formal discussion of his plan to cover the transportation funding shortfall. Increased fuel efficiency, a statutory cap on the Oil Company Franchise Tax, and raiding of the Motor License Fund has all contributed to the drastic underfunding of Pennsylvania’s transportation infrastructure. The consequences of inaction will impact our economy, environment, and quality of life as Pennsylvania will not be able to relieve traffic congestion, undertake new projects, and will continue to fall further behind in maintenance of our structurally deficient roads and bridges.
The Governor’s plan to uncap the Oil Company Franchise Tax would indeed raise a significant amount of revenue ($1.8 billion by the Governor’s estimate). However, uncapping the tax will be felt the most by middle class families who will see an increase of hundreds of dollars annually in their fuel costs. My proposal takes the burden off of the middle class and places it on large corporations that still have yet to pay their fair share in Pennsylvania.

The first stream of revenue would come from implementing unitary combined reporting for Corporate Net Income Tax purposes. This action would not only close the infamous “Delaware loophole” but it would eliminate a much wider swath of tax avoidance strategies and loopholes that large corporations use to avoid paying their fair share of taxes. According to the Pennsylvania Department of Revenue, over 70% of corporations that filed in Pennsylvania paid zero Corporate Net Income Taxes in 2008, while an additional 12% paid $1,000 or less. Combined reporting will make it easier for the Department of Revenue to collect taxes due on corporate income earned in Pennsylvania. The majority of the 45 states with corporate income taxes have adopted combined reporting. 30 of the Commonwealth’s largest private sector employers already operate in states with combined reporting and prepare single company tax returns.

The second source of revenue for my transportation funding reform package is a sensible severance fee on every unit (mcf) of natural gas extracted within the Commonwealth. Every commodity from gold to oil to corn receives its value based on weight or quantity or density. Moreover, every other significant natural gas producing state has some form of a severance fee. Not to mention, Pennsylvania is the ONLY state where producers pay ZERO property taxes on natural gas development. My proposal assesses a modest base fee of $0.05 per mcf, which would generate a minimum of approximately $50 million annually. Motorists in the Commonwealth pay a per-volume fee of $0.31 per gallon they pump in their vehicles, so there is simply no reason the multi-national companies extracting natural gas in our state can’t pay a reasonable severance fee of $0.05 per mcf.

The revenues collected by these two initiatives are estimated to generate at least $500 million annually and will be placed into the newly created Safe Roads and Bridges Fund to be used for transportation infrastructure throughout the commonwealth.

Please join me in reducing the tax burden on middle class families and making sure everyone in Pennsylvania pays their fair share before we raise gas prices any further.