|Posted:||January 4, 2016 10:29 AM|
|From:||Representative P. Michael Sturla|
|To:||All House members|
|Subject:||Fair Marcellus Shale Severance Tax|
|In the near future, I plan to introduce legislation that will enact a severance tax on the value of wet and dry natural gas extracted in Pennsylvania. I waited until the state budget situation improved before circulating this memo.
Under my proposal, extraction companies would be allowed to deduct the current Marcellus impact fee liability, as established in Act 13 of 2012, from the severance tax due. Companies would also be able to recoup capital costs for wells drilled before applying the tax on the gas from the well. Additionally, producers could deduct post production costs when computing the tax, up to 12.5% of the gross value for contracts with lessors who otherwise would have had borne post production costs, in exchange for making that part of the contract null and void.
The legislation would also exempt from the severance tax natural gas in the following categories: (1) provided to a lessor for no consideration (2) severed from a stripper well; (3) severed from a storage field; and (4) used within 5 miles of the well for manufacturing in the state of Pennsylvania.
The severance tax applied to natural gas would vary depending on the value of the gas, ranging from 4% for gas selling below $1/mcf to 9% for gas selling above $5/mcf.
The severance tax structure will ensure that gas producers will be able to recoup all their costs in the early stages of production or when gas prices are at an all-time low, as they have been recently, before any tax is applied. This will encourage drilling, even when prices are low, and guarantee that the Marcellus impact fee will remain to aid local governments. Conversely, the tax rate would increase when the selling price is higher and the production and startup costs are easily covered by the return on investments (see below)
Tax rate Gas value
9% $5 and above/mcf
All revenue generated by the severance tax would be placed in a restricted fund account for the sole purpose of funding pension obligations in the following order:
1. Current unfunded liability in SERS and PSERS for obligations on employees prior to Act 120 of 2010 (Reducing payments from the state and local school districts by equal proportions until fully funded.).
2. Unfunded liability of municipal pension systems (Would require shifting management of and participation in a consolidated municipal pension system run by state, in order to qualify for funding with regulations established by the fund established in statute.).
3. Funding, in equal proportions, for the state and local school districts for any post Act 120 of 2010 pension obligations.
Please join me in sponsoring this important piece of legislation.
Introduced as HB2103