PRINTER'S NO. 603

THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

No.

528

Session of

2015

INTRODUCED BY CONKLIN, V. BROWN, BROWNLEE, DEAN, MAHONEY AND

THOMAS, FEBRUARY 23, 2015

REFERRED TO COMMITTEE ON ENVIRONMENTAL RESOURCES AND ENERGY,

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1. Title 72 is amended by adding a chapter to read:

Sec.

1601. Scope of chapter.

1602. Definitions.

1603. Imposition of tax.

1603.1. Rate adjustment index.

1610. Interest.

1611. Criminal acts.

1612. Abatement of additions or penalties.

1613. Bulk and auction sales.

1614. Collection upon failure to request reassessment, review

or appeal.

1615. Tax liens.

1616. Tax suit reciprocity.

1617. Service.

1618. Refunds.

1619. Refund petition.

1626. Deposit of proceeds.

1627. Penalties.

§ 1601. Scope of chapter.

This chapter relates to the implementation of a natural gas

severance tax.

§ 1602. 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:

"Association." A partnership, limited partnership or any

of the New York Mercantile Exchange (NYMEX) Henry Hub settled

price on the last trading day of each month of a calendar year

as reported by the Wall Street Journal for the 12-month period

ending March 31.

"Base rate." The rate under section 1603 (relating to

imposition of tax).

"Coal bed methane." Gas that 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

definitions).

"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." Any natural person, corporation, fiduciary,

association or other entity. The term includes the Commonwealth

and any political subdivision, instrumentality and authority of

the Commonwealth.

"Producer." As defined in 58 Pa.C.S. § 2301 (relating to

"Reporting period." Every three successive calendar months

beginning January 1, 2016.

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

"Sever." Extract or otherwise remove natural gas from the

soil or water of this Commonwealth.

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

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

90,000 cubic feet of natural gas per day.

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

chapter.

"Unconventional gas well." As defined in 58 Pa.C.S. § 2301

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 per square inch, regardless of

elevation or location of point of delivery above sea level or

variations in atmospheric pressure.

(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

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

"Wellhead meter." A meter that measures the volume of

natural gas severed from an unconventional gas well.

§ 1603. Imposition of tax.

(a) Establishment.--Beginning July 1, 2015, there shall be

levied a natural gas severance tax payable on every producer.

The tax shall not be imposed on units severed from a stripper

well unless:

(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

(1) is more than 90,000 cubic feet of natural gas per day.

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

following:

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

to a manufacturer of tangible personal property 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.

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

producer for the reporting period and the gross value of the

units.

(2) The amount of tax due under subsection (b).

(3) Other information reasonably required by the

department.

(d) Filing.--The return required by subsection (c) shall be

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

reporting period. The tax is due on the day the return is

required to be filed under this subsection and shall become

(a) Annual adjustment.--The base rate shall be adjusted

annually by the amount of the rate adjustment index as

calculated under subsection (c), provided that the adjusted rate

shall never be less than the base rate. The adjusted rate shall

be effective for the next fiscal year.

(b) Determination of adjustment.--On or before April 30 of

each year following the effective date of this section, the

department shall calculate and determine the amount of the rate

adjustment index.

(c) Calculation of adjustment.--The rate adjustment index

shall be determined as follows:

price of natural gas and the base rate. The adjusted rate

shall be the resulting rate adjustment index plus the base

rate rounded to the nearest whole cent.

(d) Publication of adjustment.--The department shall forward

the amount of the rate adjustment index and the adjusted rate,

as determined under subsection (c), to the Legislative Reference

Bureau for publication in the Pennsylvania Bulletin by May 1 of

each year and shall simultaneously provide the information to

producers by written notice. Failure to publish or provide to

producers the amount of the rate adjustment index and the

Henry Hub average monthly natural gas price data is

discontinued, the adjusted rate then in effect shall not be

adjusted until a comparable method for determining the rate

adjustment index is adopted by the General Assembly.

(f) Other adjustments.--If the base data of the NYMEX Henry

Hub average monthly natural gas price is substantially revised,

the department shall, when determining the amount of the rate

adjustment index under subsection (c), make appropriate changes

to ensure that the rate adjustment index is reasonably

consistent with the result that would have been attained had the

substantial revision not been made. If the department is unable

imposed under section 1603 (relating to imposition of tax). The

provisions of this section are not intended nor shall they be

construed to affect any other determination, including, but not

limited to, the determination of royalty due under mineral

leases. Notwithstanding any other provision of law, the tax

imposed under section 1603 shall not reduce any royalty payments

due under mineral leases, and the producer shall not recover any

portion of the tax paid from the royalty owner through other

means of deduction or reallocation, notwithstanding any

provision in the lease, contract or agreement.

December 31, 2014, the producer shall apply to the department

for a registration certificate. The department may charge an

application fee to cover the administrative costs associated

with the application and registration process.

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

the receipt of an application and the required application fee,

the department shall issue a registration certificate to the

producer. The registration certificate is nonassignable. A

registrant is required to renew the registration certificate on

a staggered renewal system established by the department. After

the initial staggered renewal period, a registration certificate

or judicial appeal or an authorized deferred payment plan.

(2) The department shall notify the applicant or

registrant 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.

(3) 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

(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 on the record prior

to the recording of the lien.

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 10 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

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) Penalty.--A prothonotary who intentionally violates this

section commits a misdemeanor of the third degree 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.

(e) Priority.--

(1) Except as provided in this chapter, if there is

distribution, voluntary or compulsory, in receivership,

claims and liens, except as the laws of the United States may

give priority to a claim to the Federal Government.

(2) 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

collection of debts.

§ 1616. Tax suit reciprocity.

The courts of the 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.

§ 1617. 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

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.

§ 1618. 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

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.

(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 1606 (relating to assessments)

shall be made only where the person who has paid the tax files

with the department a petition for 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

§ 1620. 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.

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.

(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

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

under this chapter for the period where separate records were

not maintained.

§ 1622. 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

facilities and opportunity for examinations and investigations

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.

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.

§ 1624. Cooperation with other governments.

Notwithstanding the provisions of section 1616 (relating to

tax suit reciprocity), 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

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.

§ 1625. 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

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

after notice is given by the department unless, within five

days, the taxpayer shall request in writing a hearing before the

secretary or the secretary's 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

under section 1615 (relating to tax liens) 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 the taxpayer does not

owe any payment to the department.

§ 1626. Deposit of proceeds.

The proceeds of the tax imposed under section 1603 (relating

to imposition of tax) and penalties and interest imposed under

this chapter, shall be deposited into the General Fund and shall

$300,000,000 of revenue shall be allocated to the Low-Income

Home Energy Assistance Program.

(2) Any remaining revenue shall be allocated to property

tax or rent rebate under Chapter 13 of the act of June 27,

2006 (1st Sp.Sess., P.L.1873, No.1), known as the Taxpayer

Relief Act.

§ 1627. Penalties.

The department shall enforce the following penalties:

(1) A penalty against a producer without a registration

certificate required under section 1604 (relating to

registration). The penalty shall be $1 for every unit severed

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 1603(d). The penalty shall

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

payment date that the tax is not paid.