THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY YUDICHAK, ERICKSON, COSTA, BLAKE, McILHINNEY, FONTANA, GREENLEAF AND WILLIAMS, MARCH 28, 2011

REFERRED TO ENVIRONMENTAL RESOURCES AND ENERGY, MARCH 28, 2011  

AN ACT

Amending the act of December 19, 1984 (P.L.1140, No.223),

entitled "An act relating to the development of oil and gas

and coal; imposing duties and powers on the Department of

Environmental Resources; imposing notification requirements

to protect landowners; and providing for definitions, for

various requirements to regulate the drilling and operation

of oil and gas wells, for gas storage reservoirs, for various

reporting requirements, including certain requirements

concerning the operation of coal mines, for well permits, for

well registration, for distance requirements, for well casing

requirements, for safety device requirements, for storage

reservoir obligations, for well bonding requirements, for a

Well Plugging Restricted Revenue Account to enforce oil and

gas well plugging requirements, for the creation of an Oil

and Gas Technical Advisory Board, for oil and gas well

inspections, for enforcement and for penalties," imposing a

natural gas severance tax; providing for collection of the

tax; establishing the Natural Gas Severance Tax Fund and the

Local Government Services Account; and providing for

transfers and distributions of certain funds.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  The act of December 19, 1984 (P.L.1140, No.223),

known as the Oil and Gas Act, is amended by adding a chapter to

read:

CHAPTER 5A

EFFECTS OF NATURAL GAS DRILLING

Section 5A01.  Definitions.

The following words and phrases when used in this chapter

shall have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Accredited laboratory."  A facility engaged in the testing

and calibration of scientific measurement devices and certified

by the Department of Environmental Protection as having met the

department's standards for accreditation.

"Association."  A partnership, limited partnership or any

other form of unincorporated enterprise owned or conducted by

two or more persons.

"Base rate."  The rate under section 5A02(a).

"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 this

Commonwealth, the United States or any other state, territory or

foreign country or dependency.

"Department."  The Department of Revenue of the Commonwealth.

"Fund."  The Natural Gas Severance Tax Fund established under

section 5A27.

"Meter."  A device to measure the passage of volumes of gases

or liquids past a certain point.

"Municipality."  A city, borough, incorporated town or

township.

"Natural gas."  A fossil fuel consisting of a mixture of

hydrocarbon gases, primarily methane, possibly including ethane,

propane, butane, pentane, 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, coal

beds, shale beds and other formations. The term does not include

coal bed methane.

"Nonproducing site."  A point of severance that is not

capable of producing natural gas in paying quantities.

"Paying quantities."  Profit to the producer, however small,

over the producer's current operating expenses.

"Person."  A natural person or a corporation, fiduciary,

association or other entity, including the Commonwealth, its

political subdivisions, instrumentalities and authorities. When

the term is used in a clause prescribing and imposing a penalty

or imposing a fine or imprisonment, or both, the term shall

include the members, as applied to an association, and the

officers, as applied to a corporation.

"Producer."  A person who engages or continues within this

Commonwealth in the business of severing natural gas for sale,

profit or commercial use. The term does not include a person who

severs natural gas from a storage field.

"Producing site."  A point of severance capable of producing

natural gas in paying quantities.

"Reporting period."  A calendar month in which natural gas is

severed.

"Secretary."  The Secretary of Revenue of the Commonwealth.

"Sever."  To extract or otherwise remove natural gas from the

soil or water of this Commonwealth.

"Severance."  The extraction or other removal of natural gas

from the soil or water of this Commonwealth.

"Severing."  Extracting or otherwise removing natural gas

from the soil or water of 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 injected into the formation or site.

"Stripper well."  A producing site or a nonproducing site

that is not capable of producing and does not produce more than

60,000 cubic feet of natural gas per day.

"Tax."  The tax imposed under this chapter.

"Taxpayer."  A person subject to the tax imposed by this

chapter.

"Unit."  A thousand cubic feet of natural gas measured at the

wellhead at a temperature of 60 degrees Fahrenheit and an

absolute pressure of 14.73 pounds per square inch in accordance

with American Gas Association Standards and according to Boyle's

Law for the measurement of gas under varying pressures with

deviations as follows:

(1)  The average absolute atmospheric pressure shall be

assumed to be 14.4 pounds to the square inch, regardless of

elevation or location of point of delivery above sea level or

variations in 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 to properly record the temperature of

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 is 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

annually by tests made by the use of an Edwards or Acme

gravity balance, or at intervals as found necessary in

practice. Specific gravity determinations shall be used in

computing gas volumes.

(4)  The deviation of the natural gas from Boyle's Law

shall be determined by annual tests or at other shorter

intervals as found necessary in practice. The apparatus and

method used in making the test shall be in accordance with

recommendations of the National Bureau of Standards or Report

No. 3 of the Gas Measurement Committee of the American Gas

Association, or amendments thereto. The results of the tests

shall be used in computing the volume of gas delivered under

this chapter.

"Wellhead meter."  A meter placed at a producing or

nonproducing site to measure the volume of natural gas severed

for which a wellhead meter certification has been issued.

"Wellhead meter certification."  A report issued by an

accredited laboratory certifying the accuracy of a wellhead

meter.

Section 5A02.  Imposition of tax.

(a)  Establishment.--Beginning July 1, 2011, there shall be 

levied a natural gas severance tax on every producer. The tax

shall not be imposed on units severed from a stripper well

unless the following apply:

(1)  The stripper well is one of multiple producing sites

or nonproducing sites, the combined volumes of gas produced

by all of which sites are measured by a single wellhead meter

as provided in section 5A05.

(2)  The combined volumes of gas produced by all the

producing sites or nonproducing sites described in paragraph

(1) is more than 60,000 cubic feet of natural gas per day.

(a.1)  Exemptions.--The tax shall not be imposed on the

following:

(1)  Units severed by a producer and sold and delivered

to a manufacturer of tangible personal property, as defined

in section 201(m) of the act of March 4, 1971 (P.L.6, No.2),

known as the Tax Reform Code of 1971, for the manufacturer's

use within this Commonwealth if the units have been severed

from one or more producing sites or nonproducing sites on

property owned by the manufacturer.

(2)  Units provided free of charge to the owner of the

surface under which the gas is severed if the surface owner

is the end user of the gas.

(b)  Rate.--

(1)  For the first three years of production of the well,

the tax imposed shall be 2% of the gross value of the units

severed at the wellhead during a reporting period. The 2%

severance tax rate shall apply to the first 36 consecutive

calendar months beginning on the date of first production

from the well, regardless of whether production commenced

prior to July 1, 2011; provided that all production

attributable to the period prior to July 1, 2011, shall be

taxed at the 2% rate in effect.

(2)  If the well has been in production for more than

three years on or after July 1, 2011, the tax rate shall be

5% of the gross value of the units severed at the wellhead

during a reporting period.

(3)  Notwithstanding paragraphs (1) and (2), the tax rate

for any well shall be 2% of the gross value of the units

severed at the wellhead if the rate of production from the

well is less than 150,000 cubic feet of natural gas per day

and above 60,000 cubic feet of natural gas per day.

Section 5A03.  Return and payment.

(a)  Requirement.--Every producer is required to file a

return with the department, on a form prescribed by the

department, which shall include all of the following:

(1)  The number of natural gas units severed by the

producer for the reporting period.

(2)  The number of producing sites used by the producer

for the severance of natural gas in each county and

municipality.

(3)  The amount of tax due under section 5A02.

(b)  Filing.--The return required by subsection (a) shall be

filed with the department within 15 days following the end of a

reporting period.

(c)  Deadline.--The tax imposed under section 5A02 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 5A04.  Natural gas severance tax registration.

(a)  Application.--Before a producer severs natural gas in

this Commonwealth, the producer shall apply to the department

for a natural gas severance tax registration certificate.

(a.1)  Application fee.--The department may charge an

application fee to cover the administrative costs associated

with the application and registration process. If the department

charges an application fee, the department shall not issue a

registration certificate until the producer has paid the

application fee.

(a.2)  Declaration.--The producer shall include in its

application a declaration of all producing sites and

nonproducing sites used by the producer for the severance of

natural gas. The declaration shall include copies of wellhead

meter certifications for each site. The producer is required to

update the declaration when the producer adds or removes a

producing site or nonproducing site in this Commonwealth or when

there is a change in the status of a producing site or

nonproducing site or when the producer uses a different

accredited laboratory to issue a wellhead meter certification.

The producer shall update the declaration within 30 days after a

calendar month in which a change to the declaration occurs.

(b)  Issuance.--Except as provided in subsection (c), after

the receipt of an application, the department shall issue a

registration certificate under subsection (a). The registration

certificate shall be nonassignable. All registrants shall be

required to renew their registration certificates and wellhead

meter certifications on a staggered renewal system established

by the department. After the initial staggered renewal period, a

registration certificate or a wellhead meter certification 

issued shall be valid for a period of five years.

(c)  Refusal, suspension or revocation.--The department may

refuse to issue, suspend or revoke a registration certificate if

the applicant or registrant has not filed required State tax

reports and paid State taxes not subject to a timely perfected

administrative or judicial appeal or subject to a duly

authorized deferred payment plan. The department shall notify

the applicant or registrant of any 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 registrant

aggrieved by the determination of the department may file an

appeal under the provisions for administrative appeals in the

act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code

of 1971. In the case of a suspension or revocation which is

appealed, the registration certificate shall remain valid

pending a final outcome of the appeals process. Notwithstanding

sections 274, 353(f), 408(b), 603, 702, 802, 904 and 1102 of the

Tax Reform Code of 1971 or any other provision of law, 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 producer and the

fact that the producer's registration certificate has been

refused, suspended or revoked under this subsection. Disclosure

may include the basis for refusal, suspension or revocation.

(d)  Violation.--A person severing natural gas in this

Commonwealth without holding a valid registration certificate

under subsection (b) shall be guilty of a summary offense and

shall, upon conviction, be sentenced to pay a fine of not less

than $300 nor more than $1,500. In the event the person

convicted defaults in the payment of the fine, he shall be

sentenced to imprisonment for 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 this chapter. For

purposes of this subsection, the severing of natural gas during

any calendar day shall constitute a separate violation. The

secretary 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.

(e)  Failure to obtain registration certificate.--Failure to

obtain or hold a valid registration certificate does not relieve

a person from liability for the tax imposed by this chapter.

Section 5A05.  Meters.

(a)  General rule.--Except as provided in subsection (b), a 

producer shall provide for and maintain a discrete wellhead

meter where natural gas is severed. A producer shall ensure that

the meters are maintained according to industry standards. Any

wellhead meter installed after the effective date of this

section shall be a digital meter.

(b)  Exception.--If a producer has multiple producing sites

or nonproducing sites, the combined volumes of gas produced by

all of which sites are measured by a single wellhead meter, the

producer shall not be required to provide for a discrete

wellhead meter at any of those producing sites or nonproducing

sites that is also a stripper well.

Section 5A06.  Assessments.

(a)  Authorization and requirement.--The department is

authorized and shall make the inquiries, determinations and

assessments of the tax imposed under this chapter, including

interest, additions and penalties imposed under this chapter.

(b)  Notice.--The notice of assessment and demand for payment

shall be mailed to the taxpayer. The notice shall set forth the

basis of the assessment. The department shall send the notice of

assessment to the taxpayer at its registered address via

certified mail if the assessment increases the taxpayer's tax

liability by $300. Otherwise, the notice of assessment may be

sent via regular mail.

Section 5A07.  Time for assessment.

(a)  Requirement.--An assessment as provided under section

5A06 shall be made within three years after the date when the

return provided for by section 5A03 is filed or the end of the

year in which the tax liability arises, whichever shall occur

last. For the purposes of this subsection and subsection (b), a

return filed before the last day prescribed for the filing

period shall be considered as filed on the last day.

(b)  Exception.--If the taxpayer underpays the correct amount

of the tax due by 25% or more, the assessment shall be made

within six years after the date the return was filed.

(c)  Intent to evade.--Where no return is filed or where the

taxpayer files a false or fraudulent return with intent to evade

the tax imposed by this chapter, the assessment may be made at

any time.

(d)  Erroneous credit or refund.--Within three years of the

granting of a refund or credit or within the period in which an

assessment or reassessment may have been issued by the

department for the taxable period for which the refund was

granted, whichever period shall last occur, the department may

issue an assessment to recover a refund or credit made or

allowed erroneously.

Section 5A08.  Extension of assessment period.

Notwithstanding the provisions of this chapter, the

assessment period may be extended in the event a taxpayer has

provided written consent before the expiration of the period

provided in section 5A07 for a tax assessment. The amount of tax

due may be assessed at any time within the extended period. The

period may be extended further by subsequent written consents

made before the expiration of the extended period.

Section 5A09.  Reassessments.

A taxpayer against whom an assessment is made may petition

the department for a reassessment under Article XXVII of the act

of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of

1971.

Section 5A10.  Interest.

The department shall assess interest on any delinquent tax at

the rate prescribed under section 806 of the act of April 9,

1929 (P.L.343, No.176), known as The Fiscal Code.

Section 5A11.  Penalties.

The department shall enforce the following penalties:

(1)  A penalty against a producer without a natural gas

severance tax registration certificate. The penalty shall be

$1 for every unit severed without a valid registration 

certificate. The department may assess this penalty

separately from or in conjunction with any assessment of the

natural gas severance tax.

(2)  A penalty against a producer for failure to timely

file a return as required under section 5A03. The penalty

shall be 5% of the tax liability to be reported on the return

for each day beyond the due date that the return is not

filed.

(3)  In addition to the penalty under paragraph (2), a

penalty against the producer for a willful failure to timely

file a return. The penalty shall be 200% of the tax liability

required to be reported on the return.

(4)  A penalty against a producer for failure to timely

pay the tax as required by section 5A03(c). The penalty shall

be 5% of the amount of tax due for each day beyond the

payment date that the tax is not paid.

Section 5A12.  Criminal acts.

(a)  Fraudulent return.--Any person with intent to defraud

the Commonwealth, who willfully makes or causes to be made a

return required by this chapter which is false, is guilty of a

misdemeanor and shall, upon conviction, be sentenced to pay a

fine of not more than $2,000 or to imprisonment for not more

than three years, or both.

(b)  Other crimes.--

(1)  Except as otherwise provided by subsection (a), a

person is guilty of a misdemeanor and shall, upon conviction,

be sentenced to pay a fine of not more than $1,000 and costs

of prosecution or to imprisonment for not more than one year,

or both, for any of the following:

(i)  Willfully failing to timely remit the tax to the

department.

(ii)  Willfully failing or neglecting to timely file

a return or report required by this chapter.

(iii)  Refusing to timely pay a tax, penalty or

interest imposed or provided for by this chapter.

(iv)  Willfully failing to preserve its books, papers

and records as directed by the department.

(v)  Refusing to permit the department or its

authorized agents to examine its books, records or

papers.

(vi)  Knowingly making any incomplete, false or

fraudulent return or report.

(vii)  Preventing or attempting to prevent the full

disclosure of the amount of natural gas severance tax

due.

(viii)  Providing any person with a false statement

as to the payment of the tax imposed under this chapter

with respect to any pertinent facts.

(ix)  Making, uttering or issuing a false or

fraudulent statement.

(2)  The penalties imposed by this section shall be in

addition to other penalties imposed by this chapter.

Section 5A13. Abatement of additions or penalties.

Upon the filing of a petition for reassessment or a petition

for refund by a taxpayer as provided under this chapter,

additions or penalties imposed upon the taxpayer by this chapter

may be waived or abated in whole or in part where the petitioner

establishes that he acted in good faith, without negligence and

with no intent to defraud.

Section 5A14.  Bulk and auction sales.

A person that sells or causes to be sold at auction, or that

sells or transfers in bulk, 51% or more of a stock of goods,

wares or merchandise of any kind, fixtures, machinery,

equipment, buildings or real estate involved in a business for

which the person holds a registration certificate or is required

to obtain a registration certificate under the provisions of

this chapter shall be subject to the provisions of section 1403

of the act of April 9, 1929 (P.L.343, No.176), known as The

Fiscal Code.

Section 5A15.  Collection upon failure to request reassessment,

review or appeal.

(a)  Power of department.--The department may collect the tax 

imposed under this chapter:

(1)  If an assessment of the tax is not paid within 30

days after notice to the taxpayer when no petition for

reassessment has been filed.

(2)  Within 60 days of the reassessment, if no petition

for review has been filed.

(3)  If no appeal has been made, within 30 days of:

(i)  the Board of Finance and Revenue's decision of a

petition for review; or

(ii)  the expiration of the board's time for acting

upon the petition.

(4)  In all cases of judicial sales, receiverships,

assignments or bankruptcies.

(b)  Prohibition.--In a case for the collection of taxes

under subsection (a), the taxpayer against whom they were

assessed shall not be permitted to set up a ground of defense

that might have been determined by the department, the Board of

Finance and Revenue or the courts, provided that the defense of

failure of the department to mail notice of assessment or

reassessment to the taxpayer and the defense of payment of

assessment or reassessment may be raised in proceedings for

collection by a motion to stay the proceedings.

Section 5A16.  Tax liens.

(a)  Lien imposed.--If any taxpayer neglects or refuses to

pay the tax imposed under this chapter for which the taxpayer is

liable under this chapter after demand, the amount, including

interest, addition or penalty, together with additional costs

that may accrue, shall be a lien in favor of the Commonwealth

upon the real and personal property of the taxpayer but only

after the same has been entered and docketed of record by the

prothonotary of the county where the property is situated. The

department may, at any time, transmit to the prothonotaries of

the respective counties certified copies of all liens imposed by

this section. It shall be the duty of the prothonotary receiving

the lien to enter and docket the same of record to the office of

the prothonotary. The lien shall be indexed as judgments are now

indexed. No prothonotary shall require as a condition precedent

to the entry of the lien the payment of costs incidental to its

entry.

(b)  Priority of lien and effect on judicial sale.--Except

for the costs of the sale and the writ upon which the sale was

made and real estate taxes and municipal claims against the

property, a lien imposed under this section shall have priority

from the date of its recording and shall be fully paid and

satisfied out of the proceeds of any judicial sale of property

subject to the lien, before any other obligation, judgment,

claim, lien or estate to which the property may subsequently

become subject, but shall be subordinate to mortgages and other

liens existing and duly recorded or entered of record prior to

the recording of the lien.

(c)  No discharge by sale on junior lien.--In the case of a

judicial sale of property subject to a lien imposed under this

section, upon a lien or claim over which the lien imposed under

this section has priority, the sale shall discharge the lien

imposed under this section to the extent only that the proceeds

are applied to its payment, and the lien shall continue in full

force and effect as to the balance remaining unpaid. There shall

be no inquisition or condemnation upon any judicial sale of real

estate made by the Commonwealth under the provisions of this

chapter. The lien shall continue as provided in the act of April

9, 1929 (P.L.343, No.176), known as The Fiscal Code, and a writ

of execution may directly issue upon the lien without the

issuance and prosecution to judgment of a writ of scire facias,

provided that not less than ten days before issuance of any

execution on the lien, notice of the filing and the effect of

the lien shall be sent by registered mail to the taxpayer at its

last known post office address, provided further that the lien

shall have no effect upon any stock of goods, wares or

merchandise regularly sold or leased in the ordinary course of

business by the taxpayer against whom the lien has been entered,

unless and until a writ of execution has been issued and a levy

made upon the stock of goods, wares and merchandise.

(d)  Duty of prothonotary.--Any willful failure of any

prothonotary to carry out any duty imposed upon him by this

section shall be a misdemeanor. Upon conviction, he shall be

sentenced to pay a fine of not more than $1,000 and costs of

prosecution or to imprisonment for not more than one year, or

both.

(e)  Priority.--Except as provided in this chapter, the

distribution, voluntary or compulsory, in receivership,

bankruptcy or otherwise of the property or estate of any person,

all taxes imposed by this chapter which are due and unpaid and

are not collectible under the provisions of section 225 of the

act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code

of 1971, shall be paid from the first money available for

distribution in priority to all other claims and liens, except

as the laws of the United States may give priority to a claim to

the Federal Government. A person charged with the administration

or distribution of the property or estate who violates the

provisions of this section shall be personally liable for the

taxes imposed by this chapter which are accrued and unpaid and

chargeable against the person whose property or estate is being

administered or distributed.

(f)  Other remedies.--Subject to the limitations contained in

this chapter as to the assessment of taxes, nothing contained in

this section shall be construed to restrict, prohibit or limit

the use by the department in collecting taxes due and payable of

another remedy or procedure available at law or equity for the

collection of debts.

Section 5A17.  Tax suit reciprocity.

The courts of this Commonwealth shall recognize and enforce

liabilities for natural gas severance or extraction taxes

lawfully imposed by any other state, provided that the other

state recognizes and enforces the tax imposed under this

chapter.

Section 5A18.  Service.

A producer is deemed to have appointed the Secretary of the

Commonwealth its agent for the acceptance of service of process

or notice in a proceeding for the enforcement of the civil

provisions of this chapter and service made upon the Secretary

of the Commonwealth as agent shall be of the same legal force

and validity as if the service had been personally made upon the

producer. Where service cannot be made upon the producer in the

manner provided by other laws of this Commonwealth relating to

service of process, service may be made upon the Secretary of

the Commonwealth. In that case, a copy of the process or notice

shall be personally served upon any agent or representative of

the producer who may be found within this Commonwealth or, where

no agent or representative may be found, a copy of the process

or notice shall be sent via registered mail to the producer at

the last known address of its principal place of business, home

office or residence.

Section 5A19.  Refunds.

Under Article XXVII of the act of March 4, 1971 (P.L.6,

No.2), known as the Tax Reform Code of 1971, the department

shall refund all taxes, interest and penalties paid to the

Commonwealth under the provisions of this chapter to which the

Commonwealth is not rightfully entitled. The refunds shall be

made to the person or the person's heirs, successors, assigns or

other personal representatives who paid the tax, provided that

no refund shall be made under this section regarding a payment

made by reason of an assessment where a taxpayer has filed a

petition for reassessment under section 2702 of the Tax Reform

Code of 1971 to the extent the petition is adverse to the

taxpayer by a decision which is no longer subject to further

review or appeal. Nothing in this chapter shall prohibit a

taxpayer who has filed a timely petition for reassessment from

amending it to a petition for refund where the petitioner paid

the tax assessed.

Section 5A20.  Refund petition.

(a)  General rule.--Except as provided for in subsection (b),

the refund or credit of tax, interest or penalty provided for by

section 5A19 shall be made only where the person who has paid

the tax files a petition for refund with the department under

Article XXVII of the act of March 4, 1971 (P.L.6, No.2), known

as the Tax Reform Code of 1971, within the time limits of

section 3003.1 of the Tax Reform Code of 1971.

(b)  Natural gas severance tax.--A refund or credit of tax,

interest or penalty paid as a result of an assessment made by

the department under section 5A04 shall be made only where the

person who has paid the tax files with the department a petition

for a refund with the department under Article XXVII of the Tax

Reform Code of 1971 within the time limits of section 3003.1 of

the Tax Reform Code of 1971. The filing of a petition for

refund, under the provisions of this subsection, shall not

affect the abatement of interest, additions or penalties to

which the person may be entitled by reason of his payment of the

assessment.

Section 5A21.  Rules and regulations.

The department is charged with the enforcement of the

provisions of this chapter and is authorized and empowered to

prescribe, adopt, promulgate and enforce rules and regulations

not inconsistent with the provisions of this chapter relating to

any matter or thing pertaining to the administration and

enforcement of the provisions of this chapter and the collection

of taxes, penalties and interest imposed by this chapter. The

department may prescribe the extent, if any, to which any of the

rules and regulations shall be applied without retroactive

effect.

Section 5A22.  Recordkeeping.

(a)  General rule.--Every person liable for any tax imposed

by this chapter, or for the collection of the tax, shall keep

records, including those enumerated in subsection (b), render

statements, make returns and comply with the rules and

regulations as the department may prescribe regarding matters

pertinent to the person's business. Whenever it is necessary,

the department may require a person, by notice served upon the

person or by regulations, to make returns, render statements or

keep records as the department deems sufficient to show whether

or not a person is liable to pay tax under this chapter.

(a.1)  Records.--Records to be maintained are:

(1)  Wellhead 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)  Records, statements and other instruments furnished

to a producer by a person to whom the producer delivers for

sale, transport or delivery of natural gas.

(3)  Records, statements and other instruments as the

department may prescribe by regulation.

(b)  Records of nonresidents.--A nonresident who does

business in this Commonwealth as a producer shall keep adequate

records of the business and of the tax due as a result. The

records shall be retained within this Commonwealth unless

retention outside this Commonwealth is authorized by the

department. The department may require a taxpayer who desires to

retain records outside this Commonwealth to assume reasonable

out-of-State audit expenses.

(c)  Keeping of separate records.--A producer who is engaged

in another business or businesses which do not involve the

severing of natural gas taxable under this chapter shall keep

separate books and records of the businesses so as to show the

taxable severing of natural gas under this chapter separately

from other business activities not taxable hereunder. If any

person fails to keep separate books and records, the person

shall be liable for a penalty equaling 100% of tax due under

this chapter for the period where separate records were not

maintained.

Section 5A23.  Examinations.

The department or any of its authorized agents are authorized

to examine the books, papers and records of any taxpayer in

order to verify the accuracy and completeness of any return made

or, if no return was made, to ascertain and assess the tax

imposed by this chapter. The department may require the

preservation of all books, papers and records for any period

deemed proper by it but not to exceed three years from the end

of the calendar year to which the records relate. Every taxpayer

is required to give to the department or its agent the means,

facilities and opportunity for examinations and investigation

under this section. The department is further authorized to

examine any person, under oath, concerning the taxable severing

of natural gas by any taxpayer or concerning any other matter

relating to the enforcement or administration of this chapter,

and to this end may compel the production of books, papers and

records and the attendance of all persons whether as parties or

witnesses whom it believes to have knowledge of relevant

matters. The procedure for the hearings or examinations shall be

the same as that provided by the act of April 9, 1929 (P.L.343,

No. 176), known as The Fiscal Code.

Section 5A24.  Unauthorized disclosure.

Any information gained by the department as a result of any

return, examination, investigation, hearing or verification

required or authorized by this chapter shall be confidential

except for official purposes and except in accordance with

proper judicial order or as otherwise provided by law, and any

person unlawfully divulging the information shall be guilty of a

misdemeanor and shall, upon conviction, be sentenced to pay a

fine of not more than $1,000 and costs of prosecution or to

imprisonment for not more than one year, or both.

Section 5A25.  Cooperation with other governments.

Notwithstanding the provisions of section 5A17, the

department may permit the Commissioner of the Internal Revenue

Service of the United States, the proper officer of any state or

the authorized representative of either of them to inspect the

tax returns of any taxpayer, or may furnish to the commissioner

or officer or to either of their authorized representative an

abstract of the return of any taxpayer, or supply him with

information concerning any item contained in any return or

disclosed by the report of any examination or investigation of

the return of any taxpayer. This permission shall be granted

only if the laws of the United States or another state grant

substantially similar privileges to the proper officer of the

Commonwealth charged with the administration of this chapter.

Section 5A26.  Bonds.

(a)  Taxpayer to file bond.--The department may require a

nonresident natural person or any foreign corporation,

association, fiduciary or other entity, not authorized to do

business within this Commonwealth or not having an established

place of business in this Commonwealth and subject to the tax

imposed by section 5A02, to file a bond issued by a surety

company authorized to do business in this Commonwealth and

approved by the Insurance Commissioner as to solvency and

responsibility, in amounts as it may fix, to secure the payment

of any tax or penalties due or which may become due from a

nonresident natural person, corporation, association, fiduciary

or other entity whenever it deems it necessary to protect the

revenues obtained under this chapter. The department may also

require a bond of a person petitioning the department for

reassessment in the case of any assessment over $500 or where,

in its opinion, the ultimate collection is in jeopardy. For a

period of three years, the department may require a bond of any

person who has, on three or more occasions within a 12-month

period, either filed a return or made payment to the department

more than 30 days late. In the event the department determines a

taxpayer is required to file a bond, it shall give notice to the

taxpayer specifying the amount of the bond required. The

taxpayer shall file the bond within five days after notice is

given by the department unless, within five days, the taxpayer

shall request in writing a hearing before the secretary or his

representative. At the hearing, the necessity, propriety and

amount of the bond shall be determined by the secretary or the

secretary's representative. The determination shall be final and

the taxpayer shall comply with it within 15 days after notice is

mailed to the taxpayer.

(b)  Securities in lieu of bond.--In lieu of the bond

required by this section securities approved by the department

or cash in a prescribed amount may be deposited. The securities

or cash shall be kept in the custody of the department. The

department may apply the securities or cash to the tax imposed

by this chapter and interest or penalties due without notice to

the depositor. The securities may be sold by the department to

pay the tax and/or interest or penalties due at public or

private sale upon five days' written notice to the depositor.

(c)  Failure to file bond.--The department may file a lien

under section 5A16 against any taxpayer who fails to file a bond

when required to do so under this section. All funds received

upon execution of the judgment on the lien shall be refunded to

the taxpayer with 3% interest, should a final determination be

made that it does not owe any payment to the department.

Section 5A27.  Funds and accounts established.

(a)  Natural Gas Severance Tax Fund.--

(1)  The Natural Gas Severance Tax Fund is established as

a restricted account within the General Fund.

(2)  The proceeds of the tax imposed under section 5A02

and penalties and interest imposed under this chapter, less

the amounts transferred to the department under section 5A30,

shall be deposited into the fund.

(3)  The money in the fund shall only be used in

accordance with sections 5A28 and 5A29.

(b)  Local Government Services Account.--

(1)  The Local Government Services Account is established

as a restricted account within the fund.

(2)  The allocation under section 5A28(3) shall be

deposited into the Local Government Services Account and

shall be distributed as provided in section 5A29(c).

Section 5A28.  Transfers from fund.

For fiscal year 2011-2012 and each fiscal year thereafter,

the State Treasurer shall transfer the moneys in the fund at the

end of each month as follows:

(1)  Thirty-three percent to the Commonwealth Financing

Authority established under 64 Pa.C.S. Ch. 15 (relating to

Commonwealth Financing Authority) for projects defined in the

act of July 9, 2008 (P.L.908, No.63), known as the H2O PA

Act.

(2)  Thirty three percent to the Environmental

Stewardship Fund established pursuant to 27 Pa.C.S. § 6104

(relating to fund).

(3)  Thirty-four percent to the Local Government Services

Account established in section 5A27.

Section 5A29.  Distributions from local government services

account.

(a)  Quarterly distributions.--On the last business day of

each period of three calendar months, the State Treasurer shall

make the following distributions from the money in the Local

Government Services Account:

(1)  Thirty-five percent to counties with producing sites

to be used as provided in subsection (c). The money under

this subparagraph shall be distributed to each eligible

county based on the following formula:

(i)  Divide:

(A)  the number of producing sites in the county;

by

(B)  the total number of producing sites in all

the counties in this Commonwealth.

(ii)  Multiply:

(A)  the quotient under subparagraph (i); by

(B)  the amount of money available for

distribution under this paragraph.

(2)  Fifty-five percent to municipalities with producing

sites. The money under this subparagraph shall be distributed

to each eligible municipality based on the following formula:

(i)  Divide:

(A)  the number of producing sites in the

municipality; by

(B)  the total number of producing sites in all

municipalities in this Commonwealth.

(ii)  Multiply:

(A)  the quotient under subparagraph (i); by

(B)  the amount of money available for

distribution under this paragraph.

(iii)  The amount distributed to a municipality shall

not exceed 50% of the municipality's total budget for

fiscal year 2010-2011, adjusted for inflation in

subsequent years by an amount not to exceed an annual

cost-of-living adjustment calculated by applying the

Annual Percent Change in the Consumer Price Index for all

Urban Consumers immediately prior to the date the

adjustment is due to take effect. The amount distributed

under this subparagraph shall be used for the following

purposes:

(A)  Reconstruction, maintenance and repair of

municipal roadways and bridges, which the

municipality has determined have been or are being

used extensively to transport natural gas or

equipment related to the production of natural gas.

(B)  Preservation and improvement of municipal

water supplies.

(C)  Maintenance and capital improvements to

municipal waste and sewage systems.

(D)  Preservation and reclamation of the surface

waters of the municipality.

(E)  Other lawful purposes reasonably related to

the health, welfare and safety consequences of

severing natural gas in the municipality.

Any funds not distributed to the municipalities in a

county because of the budgetary limitations under

subparagraph (i) shall be distributed to the county to be

used solely for grants to municipalities to defer the

cost of regional cooperation endeavors undertaken by the

municipalities within the county.

(3)  Fifteen percent to municipalities with no producing

sites located in a county with producing sites. The money

under this subparagraph shall be distributed to each eligible

municipality based on the following formula:

(i)  Divide:

(A)  the number of producing sites in the county;

by

(B)  the total number of producing sites in all

counties in this Commonwealth.

(ii)  Multiply:

(A)  the quotient under subparagraph (i); by

(B)  the amount of money available for

distribution under this paragraph.

(iii)  The State Treasurer shall distribute an equal

share to each eligible municipality within the same

county. The amount distributed to a municipality shall

not exceed 50% of the municipality's total budget for

fiscal year 2010-2011, adjusted for inflation in

subsequent years by an amount not to exceed an annual

cost-of-living adjustment calculated by applying the

Annual Percent Change in the Consumer Price Index for all

Urban Consumers immediately prior to the date the

adjustment is due to take effect and shall be used for

the following purposes:

(A)  Reconstruction, maintenance and repair of

municipal roadways and bridges, which the

municipality has determined have been, or are being,

used extensively to transport natural gas or

equipment related to the production of natural gas.

(B)  Preservation and improvement of municipal

water supplies.

(C)  Maintenance and capital improvements to

municipal waste and sewage systems.

(D)  Preservation and reclamation of surface

waters of the municipality.

(E)  Other lawful purposes reasonably related to

the health, welfare and safety consequences of

severing natural gas in municipalities within the

county.

Any funds not distributed to the municipalities in a

county because of the budgetary limitations under

subparagraph (ii) shall be distributed to the county to

be used solely for grants to municipalities to defer the

cost of regional cooperation endeavors undertaken by the

municipalities within the county.

(b)  Limitations.--Only producing sites and nonproducing

sites on which the tax is levied under section 5A02(a) during

the three-month period for which transfers and distributions are

made shall be included in any of the calculations made under

paragraphs (1), (2) and (3) for that three-month period.

(c)  Administration of funds by counties.--

(1)  The governing body of each county receiving

distributions under subsection (c)(1) shall administer the

funds received. The governing body shall give priority to the

reconstruction, repair and maintenance of county roadways and

bridges, which the governing body has determined have been or

are being used to transport natural gas or equipment related

to the production of natural gas. The governing body shall

allocate the remainder to the county or its municipalities

for any of the purposes enumerated in subsection (c)(3) or

(5). A simple majority vote of all of the members of the

governing body shall be required for any action under this

paragraph.

(2)  Commencing in 2012, before February 1, each county

receiving distributions under subsection (c)(1) shall prepare

and deliver a report to the Governor, the Secretary of the

Senate and the Chief Clerk of the House of Representatives

detailing the expenditure of funds. The Department of

Community and Economic Development shall have the authority

to audit a county's use of such funds and each county

receiving funds shall make their financial records and other

documents relating to its use of funds available to the

Department of Community and Economical Development.

(d)  Administration of funds by municipalities.--

(1)  The governing body of a municipality receiving

distributions under subsection (a)(2) or (3) shall administer

the funds received.

(2)  Commencing in 2012, before February 1, each

municipality receiving distributions under this paragraph or

paragraph (3) shall prepare and deliver a report to the

Governor, the Secretary of the Senate and the Chief Clerk of

the House of Representatives detailing the expenditure of

funds.

(3)  The Department of Community and Economic Development

shall have the authority to audit a municipality's use of the

funds. Each municipality receiving funds shall make financial

records and other documents relating to its use of the funds

available to the Department of Community and Economic

Development.

(e)  Administration.--The department shall make the

calculations required for the transfers and distributions under

this section and shall submit the calculations to the State

Treasurer in sufficient time for the State Treasurer to make the

transfers and distributions as required by this section.

Section 5A30.  Administration of costs.

Annually, the State Treasurer shall transfer from the fund an

amount not to exceed $3,000,000 to the department to be used for

costs associated with the enforcement or administration of this