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PRINTER'S NO. 3427
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
2103
Session of
2015
INTRODUCED BY STURLA, HARKINS, THOMAS, D. COSTA, GERGELY, LEWIS,
YOUNGBLOOD, COHEN, CONKLIN, RADER, DEAN, McNEILL, DRISCOLL,
GOODMAN AND BOYLE, MAY 25, 2016
REFERRED TO COMMITTEE ON ENVIRONMENTAL RESOURCES AND ENERGY,
MAY 25, 2016
AN ACT
Amending Title 58 (Oil and Gas) of the Pennsylvania Consolidated
Statutes, providing for natural gas severance tax; and
establishing the Severance Tax Restricted Account.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Title 58 of the Pennsylvania Consolidated
Statutes is amended by adding a part to read:
PART IV
TAXATION
Chapter
51. Natural Gas Severance Tax
53. Severance Tax Restricted Account and Distribution
CHAPTER 51
NATURAL GAS SEVERANCE TAX
Sec.
5101. Definitions.
5102. Imposition of tax.
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5103. Calculation and publication of average market price.
5104. Meters.
5105. Administration.
5106. Assessments.
5107. Records.
5108. Rules and regulations.
5109. Penalties.
§ 5101. 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
other form of unincorporated enterprise owned or conducted by
two or more persons.
"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
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 value." The gross proceeds received or receivable for
property transferred, except as follows:
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(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.
(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 per barrel.
"Market value." The producer's proceeds from the sale of gas
at arm's-length terms to the first purchaser less any payment
made to lessors holding a royalty interest and less the costs to
the producer of gathering, separating, processing,
fractionating, dehydrating, treating, compressing, marketing and
delivering the gas to the first purchaser. For purposes of
calculating the costs to the producer where costs are incurred
with an entity affiliated with the producer, the affiliated
entity may not charge more for the costs than the amount that
would be reasonably incurred in an arm's-length transaction with
a third party for the activities on a volumetric basis.
"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
includes natural gas liquids and dry natural gas. The term does
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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." A corporation, partnership, limited liability
company, business trust, other association, government entity
other than the Commonwealth, estate, trust, foundation or
natural person.
"Post-production costs." Include all of the following:
(1) Losses of produced volumes, whether by use as fuel,
line loss, flaring, venting or otherwise.
(2) Costs actually incurred by the lessee from and after
the wellhead to the point of sale, including, without
limitation, gathering, dehydration, compression, treatment,
processing, marketing and transportation costs incurred in
connection with the sale of such production.
"Producer." A person or its subsidiary, affiliate or holding
company that engages in the business of severing natural gas for
sale, profit or commercial use from an unconventional gas well
in this Commonwealth. The term does not include a producer that
severs natural gas from a site used to store natural gas that
did not originate from the site.
"Reporting period." A calendar month in which a producer
sells natural gas.
"Sales meter." A meter at the point where natural gas is
sold or transported to a purchaser or the market.
"Secretary." The Secretary of the Department of Revenue of
the Commonwealth.
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"Sever." Natural gas taken or removed for commercial
purposes from the soil or water. The term does not apply to:
(1) natural gas returned to a formation, in recycling,
repressuring, pressure maintenance operation or other
operation for the production of oil or other liquid
hydrocarbon; or
(2) hydrocarbons in gaseous or liquid form that are
burned, used, consumed or otherwise employed in oil and gas
operations, including, but not limited to, storage, secondary
recovery operations and fuel for equipment.
"Severance tax." The tax imposed under section 5102
(relating to imposition of tax).
"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 such formation or site.
"Stripper well." An unconventional gas well incapable of
producing more than 2,700,000 cubic feet of gas per month during
a calendar month, including production from the zones and
multilateral well bores at a single well, without regard to
whether the production is separately metered.
"Unconventional gas 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
or other techniques to expose more of the formation to the well
bore.
"Unconventional gas well." A bore hole drilled or being
drilled for the purpose of or to be used for the production of
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natural gas from an unconventional gas formation. The term does
not include a vertical gas well.
"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 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 such 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.
§ 5102. Imposition of tax.
(a) Establishment.--Beginning July 1, 2016, a natural gas
severance tax shall be levied on every producer.
(b) Rate.--The severance tax shall be imposed as follows
upon the market value of natural gas sold during a reporting
period:
(1) Four percent when the average market price of
natural gas is between $0 per unit and $0.99 per unit,
inclusive;
(2) Five percent when the average market price of
natural gas is between $1 per unit and $1.99 per unit,
inclusive;
(3) Six percent when the average market price of natural
gas is between $2 per unit and $2.99 per unit, inclusive;
(4) Seven percent when the average market price of
natural gas is between $3 per unit and $3.99 per unit,
inclusive;
(5) Eight percent when the average market price of
natural gas is between $4 per unit and $4.99 per unit,
inclusive;
(6) Nine percent when the average market price of
natural gas is $5 per unit or more.
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(c) Impact fee liability credit.--A credit against the
severance tax shall be allowed in the amount of the
unconventional gas well fee paid under section 2302 (relating to
unconventional gas well fee).
(d) Post-production cost deduction.--A producer may apply
against the market value of the natural gas sold during a
reporting period a deduction equal to the amount of post-
production costs charged to a landowner not affiliated with the
producer. The producer agrees to void the provisions that
required the landowner to pay post-production costs of the
lease.
(e) Exemptions.--The severance tax may not be imposed upon
the following:
(1) natural gas severed from a stripper well;
(2) natural gas severed from a storage field;
(3) natural gas severed, sold and delivered by a
producer at or within five miles of the producing site for
the processing or manufacture of tangible personal property
as defined under section 201 of the act of March 4, 1971
(P.L.6, No.2), known as the Tax Reform Code of 1971; or
(4) natural gas 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.
§ 5103. 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
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average market price in the Pennsylvania Bulletin not later than
30 days of the beginning of each calendar quarter.
§ 5104. Meters.
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.
§ 5105. Administration.
(a) Returns.--A producer shall file a return with the
department, on a form to be prescribed by the department,
reporting all severed natural gas per reporting period and the
severance tax due.
(b) Filing.-- The return required under 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 severance tax is due on the day the
return is required to be filed and becomes delinquent if not
remitted to the department by that date.
(d) 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.
(e) Liens.--The provisions of section 242 of the Tax Reform
Code of 1971 shall apply to liens for the severance tax.
§ 5106. Assessments.
(a) Authorization and requirement.--The department is
authorized and shall make inquiries, determinations and
assessments of the severance tax, 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
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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.
(c) Time for assessment.--An assessment shall be made within
three years after the date when the return provided for under
section 5105 (relating to administration) is filed or the end of
the year in which the tax liability arises, whichever shall
occur last. For the purposes of this subsection, a return filed
before the last day prescribed for the filing period shall be
considered as filed on the last day. This limitation is subject
to the following exceptions:
(1) If the taxpayer underpays the correct amount of the
tax due by 25% or more, the tax may be assessed within six
years after the date the return was filed.
(2) 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 occur last, the department may
issue an assessment to recover a refund or credit made or
allowed erroneously.
(e) 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
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before the expiration of the period provided in subsection (c)
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.
(f) 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.
§ 5107. Records.
(a) Recordkeeping.--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 any 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.
(b) Examinations.-- The department shall have the ability to
inspect records and locations to ensure compliance with this
part.
(c) 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
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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.
§ 5108. 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.
§ 5109. Penalties.
The department shall enforce the following penalties:
(1) A penalty against a producer for failure to timely
file a return as required under section 5105 (relating to
administration). 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.
(2) In addition to the penalty under paragraph (1), 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.
(3) A penalty against a producer for failure to timely
pay the tax as required under section 5105(b). The penalty
shall be 5% of the amount of tax due for each day beyond the
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payment date that the tax is not paid.
CHAPTER 53
SEVERANCE TAX RESTRICTED ACCOUNT AND DISTRIBUTION
Sec.
5301. Definitions.
5302. Establishment of account.
5303. Distributions.
§ 5301. 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:
"Account." The Severance Tax Restricted Account established
under this chapter.
"PSERS." The Pennsylvania Public School Employees'
Retirement System.
"SERS." The Pennsylvania State Employees' Retirement System.
"Severance tax." The natural gas severance tax imposed under
section 5102 (relating to imposition of tax).
§ 5302. Establishment of account.
The Severance Tax Restricted Account is established in the
State Treasury. The money received by the Commonwealth under the
severance tax shall be deposited into the account.
§ 5303. Distributions.
Taxes, additions to severance tax, penalties and interest
imposed and collected under this part shall be deposited into
the account and distributed for the purposes set forth in this
section:
(1) The department shall transfer to PSERS the amount
necessary to fund the unfunded liability of school districts
for obligations incurred prior to July 1, 2011.
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(2) After the distributions required under subsection
(a) are made, the department shall transfer to PSERS the
amount necessary to fund the unfunded liability of the
Commonwealth for obligations incurred prior to July 1, 2011.
(3) Any money remaining after the distributions required
under subsections (a) and (b) are made shall be distributed
in accordance with the Basic Education Funding Commission
formula developed under section 123(h) of the act of March
10, 1949 (P.L.30, No.14), known as the Public School Code of
1949.
Section 2. This act shall take effect in 60 days.
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