PRINTER'S NO. 2172

THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

No.

1626

Session of

2017

INTRODUCED BY MICCARELLI, BARRAR, SANTORA, CHARLTON AND

C. QUINN, JUNE 28, 2017

REFERRED TO COMMITTEE ON ENVIRONMENTAL RESOURCES AND ENERGY,

for meters, for assessments, for time for assessment, for

extension of assessment period, for reassessments, for

interest, for penalties, for administration of tax, for

criminal acts, for abatement of additions or penalties, for

bulk and auction sales, for collection upon failure to

request reassessment, review or appeal, for tax liens, for

tax suit reciprocity, for service, for refunds, for refund

petition, for rules and regulations, for recordkeeping, for

examinations, for unauthorized disclosure, for cooperation

with other governments, for bonds, for prohibition, for

§ 2301. 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:

* * *

"Stripper well." [An unconventional gas well incapable of

producing more than 90,000 cubic feet of gas per day during any

calendar month, including production from all zones and

multilateral well bores at a single well, without regard to

whether the production is separately metered.] As defined in

this Commonwealth, submit for publication in the Pennsylvania

Bulletin notice of the imposition.

(b) Date.--This chapter shall expire on the date of the

publication of the notice under subsection (a).]

Section 3. Title 58 is amended by adding a part to read:

Chapter

41. (Reserved)

43. Severance Tax

4302. Definitions.

4303. Imposition of tax.

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4303.1. Impact fee credits.

4304. Registration.

4305. Meters.

4306. Assessments.

4307. Time for assessment.

4308. Extension of assessment period.

4311. Penalties.

4311.1. Administration of tax.

4312. Criminal acts.

4313. Abatement of additions or penalties.

4314. Bulk and auction sales.

4315. Collection upon failure to request reassessment, review

or appeal.

4316. Tax liens.

4323. Examinations.

4324. Unauthorized disclosure.

4325. Cooperation with other governments.

4326. Bonds.

4327. Prohibition.

4328. Future agreements.

4329. Deposit of proceeds.

§ 4301. Scope of chapter.

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This chapter relates to taxation of the severance of natural

gas and natural gas liquids.

§ 4302. 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:

weighted by volume, on the last trading day for the month, for

the previous 12-month period ending on December 31 , as reported

in the sources of current market data which shall be selected by

the department and published in the Pennsylvania Bulletin at

least 30 days prior to the determination and publication of the

gas base rate adjustment and gas tax in accordance with section

4303 (relating to imposition of tax) .

"Average price of natural gas." The arithmetic mean of the

reported by all producers for all arm's-length transactions on

returns filed with the department.

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

"Gas base rate." Six and one-half percent of the gross value

of natural gas units or natural gas liquids.

"Gross value." The value, whether in money or other

property, actually proceeding from the sale of property prior to

the payment of any royalties or other payments to a lessor and

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without any other deduction or credits of any kind, except as

follows:

(1) In a transaction involving related parties, the

gross value 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, the gross value of the

(3) In a transaction where property is transferred for

the purpose of processing and resale, gross value of the

property transferred may not be less than the fair market

value of similar grade and quality property.

"Natural gas." As defined in section 2301 (relating to

definitions).

"Natural gas liquids." Hydrocarbons, including ethane,

propane, butane, isobutane and pentane, that are separated from

and any political subdivision, instrumentality and authority of

the Commonwealth.

"Producer." As defined in section 2301 (relating to

definitions).

"Related parties." Two or more people, organizations or

businesses owned or controlled directly or indirectly by the

same interests. Control exists if a contract or lease, either

written or oral, is entered into where one party severs or

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processes natural gas owned or held by another party and the

owner or lessor participates in the severing, processing or

marketing of the natural gas or receives any value other than an

arm's-length passive royalty interest.

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

severed.

"Sever." Extract or otherwise remove 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 transplanted into the formation or site.

"Stripper well." A natural gas well incapable of producing

more than 90,000 cubic feet of gas per day during any calendar

month, including production from all zones and multilateral well

absolute pressure of 14.73 pounds per square inch in accordance

with American Gas Association standards and according to Boyle's

l aw 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.

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(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

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

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

natural gas severed from an unconventional gas well.

§ 4303. Imposition of tax.

(a) Establishment.--Beginning July 1, 2017, a natural gas

severance tax is levied and payable by every producer.

(b) Rate.--

(1) Subject to annual adjustment under paragraph (2),

the rate of tax imposed in subsection (a) shall, for the

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fiscal year beginning July 1, 2017, be at an initial rate of

3.5% of the gross value of units severed during each

reporting period.

(2) (i) The rate of the tax imposed in subsection (a)

shall be adjusted annually on July 1 for the ensuing 12

calendar months, but may not be less than 3% nor more

thereafter, the secretary shall determine, using the gas

base rate adjustment as provided in subparagraph (iii),

the new gas tax rate for the 12 calendar months beginning

July 1, 2018, and respectively for each 12-month period

beginning thereafter. The gas tax rate shall be

determined by multiplying the gas base rate by the gas

base rate adjustment.

(iii) The gas base rate adjustment for the

last trading day for each month of a calendar year for

the previous 12-month period ending on December 31.

(iv) The secretary shall publish the gas base rate

adjustment and the gas tax rate, as determined under this

paragraph, in the Pennsylvania Bulletin by May 1 of each

year and shall provide the gas base rate adjustment and

the gas tax rate to affected producers by written notice

mailed 60 days prior to the effective date thereof.

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Failure to comply with this subparagraph shall not affect

the validity of the new gas tax rate.

(c) Return and payment.--A producer subject to the

provisions of this chapter shall file a return with the

department on a form prescribed by the department. The return

shall include the following:

(i) the number of such units sold by the producer

during the reporting period in arm's-length transactions;

(ii) the number of such units sold by the producer

during the reporting period in non-arm's-length

transactions or exchanged for something other than cash;

and

(iii) the number of such units not yet sold or

exchanged as of the end of the reporting period.

(1) 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

delinquent if not remitted to the department by the required

date.

(2) A producer shall commence filing the returns

required under subsection (c) within 75 days following the

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No.2), known as the Tax Reform Code of 1971, shall apply to this

subarticle.

§ 4312. 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

than three years, or both.

(b) Other crimes.--

(1) Except as otherwise provided under 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

books, papers and records as directed by the department.

(v) Refusing to permit the department or the

person's authorized agents to examine the person's 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

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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.

§ 4313. Abatement of additions or penalties.

Upon the filing of a petition for reassessment or a petition

for refund by a producer as provided under this chapter,

additions or penalties imposed upon the producer 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.

§ 4314. Bulk and auction sales.

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.

§ 4315. 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

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days after notice to the producer 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

Revenue'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 p roducer against whom the taxes were

assessed may not 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

(1) If a p roducer neglects or refuses to pay the tax

imposed under this chapter for which the producer 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 p roducer, but only

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

prothonotary of the county where the property is situated.

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(2) The department may, at any time, transmit to the

prothonotaries of the respective counties certified copies of

all liens imposed by this section .

(3) The prothonotary receiving the lien shall enter and

docket the lien of record to the office of the prothonotary.

The lien shall be indexed as judgments are now indexed. No

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,

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.

(2) There shall be no inquisition or condemnation upon

any judicial sale of real estate made by the Commonwealth

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under the provisions of this chapter.

(3) 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

to the producer's 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 producer 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

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

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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

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.

§ 4317. Tax suit reciprocity.

The courts of the Commonwealth shall recognize and enforce

liabilities for natural gas severance or extraction taxes

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 on 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

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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 t he producer's

principal place of business, home office or residence.

§ 4319. Refunds.

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

producer has filed a petition for reassessment under section

refund where the petitioner paid the tax assessed.

§ 4320. 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 4319 (relating to refunds) 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

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time limits of section 3003.1 of the Tax Reform Code of 1971.

(b) Natural gas severance tax.--

(1) A refund or credit of tax, interest or penalty paid

as a result of an assessment made by the department under

section 4306 (relating to assessments) shall be made only

where the person who has paid the tax files a petition for a

of the Tax Reform Code of 1971.

(2) 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 payment of the assessment.

§ 4321. Rules and regulations.

The department is charged with the enforcement of the

provisions of this chapter and is authorized and empowered to

rules and regulations shall be applied without retroactive

effect.

§ 4322. 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

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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.

(b) Records.--Records to be maintained are:

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.

(c) Records of nonresidents.--

to retain records outside this Commonwealth to assume

reasonable out-of-State audit expenses.

(d) Keeping of separate records.--

(1) A producer that 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

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business activities not taxable hereunder.

(2) 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.

§ 4323. Examinations.

examine the books, papers, records and locations of any

producer in order to verify the accuracy and completeness of

any return made or, if no return were 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 the department but not to exceed

three years from the end of the calendar year to which the

records relate.

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 believed to have knowledge of relevant matters.

(b) Procedure.--The procedure for the hearings or

examinations shall be the same as that provided under the act of

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

§ 4324. Unauthorized disclosure.

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