Regular Session 2017-2018 House Bill 1662 P.N. 2231

PRINTER'S NO. 2231

THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

No.

1662

Session of

2017

INTRODUCED BY PETRI, DEAN, MURT AND HARPER, JULY 19, 2017

REFERRED TO COMMITTEE ON ENVIRONMENTAL RESOURCES AND ENERGY,

JULY 19, 2017

AN ACT

Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An

act relating to tax reform and State taxation by codifying

and enumerating certain subjects of taxation and imposing

taxes thereon; providing procedures for the payment,

collection, administration and enforcement thereof; providing

for tax credits in certain cases; conferring powers and

imposing duties upon the Department of Revenue, certain

employers, fiduciaries, individuals, persons, corporations

and other entities; prescribing crimes, offenses and

penalties," providing for an unconventional natural gas

severance tax and for the Unconventional Natural Gas

Severance Tax Fund; establishing the Unconventional Gas Well

Employment Tax Credit Program; and making a related repeal.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1. The act of March 4, 1971 (P.L.6, No.2), known as

the Tax Reform Code of 1971, is amended by adding articles to

read:

ARTICLE XVI-C

UNCONVENTIONAL NATURAL GAS SEVERANCE TAX

PART I

DEFINITIONS AND IMPOSITION

Section 1601-C. Definitions.

The following words and phrases when used in this part shall

have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Bare drilling and completion costs." The actual cost to

prepare a site for drilling and to drill, complete and equip an

unconventional gas well for production, excluding the costs of

land acquisition, geophysical and geologic costs, internal

administrative costs and any costs incurred after production of

the gas.

"Date of first production." When used in reference to a

particular unconventional gas well, the first day in the month

an unconventional gas well produces natural gas for sale.

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

"Fund." The Unconventional Natural Gas Severance Tax Fund

established under Part II.

"Marginal gas well." An unconventional gas well incapable of

producing more than 4,500,000 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.

"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

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a third party for the activities on a volumetric basis.

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

township.

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

hydrocarbon gases, primarily methane, and 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.

"Number of producing unconventional gas wells." The most

recent numerical count of producing unconventional gas wells on

the inventory maintained by the Department of Environmental

Protection as of the last day of a calendar month.

"Payout." When the proceeds from the sale of natural gas

produced by an unconventional gas well equal the bare drilling

and completion costs for the well.

"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 to measure natural gas located at the

point where natural gas is sold or transported to a purchaser or

market.

"Sever." Natural gas taken or removed for commercial

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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 on natural gas imposed under

section 1602-C.

"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 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

natural gas from an unconventional formation.

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

nonproducing well site used to measure the volume of severed

natural gas.

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Section 1602-C. Imposition of tax.

(a) Establishment.--Beginning July 1, 2018, a natural gas

severance tax shall be levied on every producer.

(b) Rate.--The tax shall be imposed at the rate of 5% upon

the market value of natural gas sold during a reporting period.

(1) The producer of a proposed or existing gas well may

apply to the Department of Environmental Protection for a

letter ruling regarding whether the well qualifies as an

unconventional gas well, a marginal gas well or a stripper

well or to certify the date of first production of an

unconventional gas well.

(2) The Department of Environmental Protection shall

require an applicant to provide the information necessary to

issue a letter ruling under this subsection. The letter

ruling shall be issued within 15 calendar days of the receipt

of a complete application or a change to a previous

classification under paragraph (3).

(3) A producer shall notify the department of a change

in the classification of a well subject to a letter ruling

within 15 calendar days of the change.

(4) A determination regarding the classification of a

gas well shall not expire unless notice is made under

paragraph (3).

(5) A letter ruling shall be binding upon the department

until revoked or the ruling expires. A producer shall not be

subject to a penalty or an additional tax based upon its good

faith reliance upon a letter ruling.

(d) Exclusions.--The tax shall not be imposed on the

following:

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(1) natural gas severed through a stripper well;

(2) 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;

(3) 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; or

(4) a gas well collecting coal bed methane.

(e) Credit.--A credit against the severance tax shall be

allowed in the amount of 50% of the rate imposed in subsection

(b) upon the market value of natural gas sold and severed from

the earth through a marginal gas well.

(f) Deduction.--Except as provided in paragraphs (3), (4)

and (5), if a return is filed by a producer and the severance

tax shown to be due on the return less a deduction is paid

within the time prescribed, the producer shall be entitled to

apply against the market value of the natural gas sold for the

reporting period a deduction computed as follows:

(1) Multiply:

(i) seventy-five percent; by

(ii) the bare drilling and completion costs for each

unconventional gas well included in the return under

section 1603-C(b).

(2) Divide:

(i) the product under paragraph (1); by

(ii) thirty-six.

(3) The computation under paragraphs (1) and (2) shall

include unconventional gas wells for 36 months or until

payout, whichever occurs first.

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(4) The computation under paragraphs (1) and (2) shall

not include an unconventional gas well drilled before July 1,

2014.

(5) A deduction computed under paragraphs (1) and (2)

shall not exceed the market value of natural gas sold for a

reporting period.

Section 1603-C. Administration.

(a) Registration.--A producer who is subject to the

severance tax shall, within 30 days of the date of first

production or 90 days of the effective date of this section,

whichever occurs later, apply for a certificate of registration

in the manner and subject to the requirements of section 208 to

the extent applicable to the severance tax. An application shall

include a list of unconventional gas wells in which the producer

has an interest and certification of the accuracy of the sales

meter at each unconventional gas well or well pad under

subsection (f).

(b) Returns and recordkeeping.--A producer shall file a

return with the department on a form prescribed by the

department. The return shall include the following:

(1) The market value of natural gas sold by the producer

for the reporting period.

(2) The volume of natural gas sold by the producer for

the reporting period.

(3) The number of producing unconventional gas wells

used by the producer for the sale of natural gas in each

county and municipality.

(4) The amount of severance tax due.

(5) Information to update the producer's registration

application submitted under subsection (a) occurring in the

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month for which returns are filed relating to:

(i) The addition to or removal from production of an

unconventional gas well.

(ii) A change in the classification of an

unconventional gas well.

filed with the department within 20 days of the second month

following the end of a reporting period. The first return shall

be due September 20, 2018.

(d) Deadline.--The severance tax shall be due on the day the

return is required to be filed and shall become delinquent if

not remitted to the department by the date required under

subsection (c).

(e) Deposit.--The severance tax shall be deposited into the

fund.

(f) Meters.--A producer shall provide and maintain or cause

to be provided and maintained a wellhead meter and a sales meter

for an unconventional gas well that is tested, calibrated and

maintained in accordance with industry standards adopted by the

American Gas Association or other standard adopted by the

department by regulation or, if the sale of gas is to a public

utility, by the Pennsylvania Public Utility Commission.

Wellhead and sales meters shall not be subject to 3 Pa.C.S. Ch.

41 (relating to weights and measures). Multiple wells located on

the same drilling pad may utilize the same meter. A wellhead

meter installed after the effective date of this section shall

be a digital meter.

(g) Applicability.--To the extent applicable to the

severance tax, the provisions of sections 230, 231, 232, 272,

274, 407.3, 407.4, 408 and 408.1 shall apply to the assessment,

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reassessment, enforcement, collection and the adoption of

regulations by the department.

(h) Interest, additions to tax, penalties and abatement.--

To the extent applicable to the severance tax, the provisions of

sections 266(a) and (b), 267, 268(a) and 269 and sections 806

and 806.1 of the act of April 9, 1929 (P.L.343, No. 176), known

as The Fiscal Code, shall apply to interest, additions to the

severance tax and penalties.

(i) Bulk and auction sales.--The following apply:

(1) A producer that sells or transfers or causes to be

sold at auction or in bulk 51% or more of the tangible assets

of a business association subject to the severance tax shall:

(i) give the department no less than ten days'

notice of the sale or transfer prior to the completion of

the transfer of the property; and

(ii) file severance tax reports with the department

up to and including the date of the proposed transfer of

property and pay the severance taxes due the Commonwealth

up to and including the date of the proposed transfer.

(2) Severance tax liability arising between the date of

the notice and the date of the sale or transfer may be

estimated by the producer.

(3) Within 30 days of the receipt of the notice under

this subsection, the department shall review the severance

tax reports filed and issue a notice to the producer and the

purchaser regarding deficiencies alleged to be payable to the

Commonwealth by the producer.

(4) Upon receipt of a timely notice from the department

regarding amounts due from the producer, the failure of the

purchaser or transferee to obtain evidence that the amounts

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have been paid by the producer, or that a bond, letter of

credit or other security acceptable to the department has

been provided to ensure the payment of all or any portion of

the amounts found to be due upon the completion of

proceedings to review the department's determination, shall

render the purchaser or transferee liable to the Commonwealth

for the unpaid severance taxes determined in the notice to be

due.

(5) The requirements of this subsection shall not apply

to:

(i) sales or transfers made under an order of a

court; or

(ii) sales or transfers made by:

(A) assignees for the benefit of creditors,

executors, administrators or receivers;

(B) a public officer in his official capacity;

(6) Nothing in this subsection shall be construed to

prevent the department from subsequently determining that

additional amounts are due from the seller or transferor in

the manner otherwise authorized by law, but assessments or

reassessments shall not become the obligation of the

purchaser or transferee.

(j) Liens.--The provisions of section 242 shall apply to

liens for the severance tax.

(k) Service.--The provisions of section 245 shall apply to

service under this article.

(l) Refunds.--The provisions of sections 2703, 2704, 3003.1

and 3003.5 shall apply to severance tax refunds under this

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article.

PART II

UNCONVENTIONAL NATURAL GAS SEVERANCE TAX

FUND AND DISTRIBUTION

Section 1621-C. Definitions.

The following words and phrases when used in this part shall

have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Commission." The Pennsylvania Public Utility Commission.

"Department." The Department of Environmental Protection of

the Commonwealth.

"Fund." The Unconventional Natural Gas Severance Tax Fund

established under section 1622-C.

"Highway mileage." The number of miles of public roads and

streets most recently certified by the Department of

Transportation as eligible for distribution of liquid fuels

funds under the act of June 1, 1956 (1955 P.L.1944, No.655),

referred to as the Liquid Fuels Tax Municipal Allocation Law.

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

township.

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

hydrocarbon gases, primarily methane, and 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.

"Number of spud unconventional gas wells." The most recent

numerical count of spud unconventional gas wells on the

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inventory maintained and provided to the commission by the

department as of the last day of each month.

"Producer." A person or its subsidiary, affiliate or holding

company that holds a permit or other authorization to engage 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.

"Severance tax." The tax imposed under section 1602-C.

"Small business." A company that is engaged in a for-profit

enterprise and that employs 100 or fewer individuals.

"Unconventional 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 by 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

natural gas from an unconventional formation.

Section 1622-C. Establishment of fund.

The Unconventional Natural Gas Severance Tax Fund is

established in the State Treasury. The money received by the

Commonwealth under the severance tax shall be deposited into the

fund.

Section 1623-C. Use of fund.

(a) Annual report.--The Governor shall report on the fund in

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the State budget under section 613 of the act of April 9, 1929

(P.L.177, No.175), known as The Administrative Code of 1929,

which shall include the amounts appropriated to the fund.

(b) Distributions.--Taxes, fines, additions to severance

tax, penalties and interest imposed and collected under this

article shall be deposited into the fund and distributed for the

fiscal years for the purposes provided in this section:

(1) For fiscal year 2018-2019, $60,000,000 shall be

transferred to the Unconventional Gas Well Fund.

(2) For fiscal year 2019-2020 and each fiscal year

thereafter, $120,000,000 shall be transferred to the

Unconventional Gas Well Fund.

(3) For fiscal year 2018-2019, $40,000,000 shall be

transferred to the Marcellus Legacy Fund.

(4) For fiscal year 2019-2020 and each fiscal year

thereafter, $80,000,000 shall be transferred to the Marcellus

Legacy Fund.

(5) For the payment of distributions under section 1630-

(6) For distribution to the commission under subsection

1624-C(b).

(7) For fiscal year 2018-2019, 95% of the remaining

money following the transfer or payment under paragraphs (1),

(3), (5) and (6) shall be transferred to the General Fund.

(8) For fiscal year 2018-2019, 5% of the remaining money

following the transfer or payment under paragraphs (1), (3),

(5) and (6) shall be transferred to the Unconventional Gas

Well Fund and the Marcellus Legacy Fund as follows:

(i) Sixty percent to the Unconventional Gas Well

Fund for distribution under section 1631-C(a).

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(ii) Forty percent to the Marcellus Legacy Fund.

(9) For fiscal year 2019-2020 and each fiscal year

thereafter, 90% of the remaining money following the transfer

or payment under paragraphs (2), (4), (5) and (6) shall be

transferred to the General Fund.

(10) For fiscal year 2019-2020 and each fiscal year

thereafter, 10% of the remaining money following the transfer

or payment under paragraphs (2), (4), (5) and (6) shall be

transferred to the Unconventional Gas Well Fund and the

Marcellus Legacy Fund as follows:

(i) Sixty percent to the Unconventional Gas Well

Fund for distribution under section 1631-C(a).

(ii) Forty percent to the Marcellus Legacy Fund.

Section 1624-C. Report to commission.

(a) Report.--By April 1, 2019, and April 1 of each year

thereafter, each producer shall submit to the commission a

report on a form prescribed by the commission for the previous

calendar year. The report shall include the following:

(1) Number of spud unconventional gas wells of a

producer in each municipality within each county.

(2) Date each unconventional gas well identified under

paragraph (1) was spud or ceased the production of natural

gas.

(b) Costs of commission.--The costs of the commission to

implement and administer the provisions of this part shall be

paid from the fund.

Section 1625-C. Well information.

(a) List.--Within 30 days of the effective date of this

section, the department shall provide the commission and, upon

request, a county, with a list of all spud unconventional gas

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wells from the department. The department shall update the list

and provide it to the commission on a monthly basis.

(b) Updates.--A producer shall notify the commission of the

following within 30 days after a calendar month in which the

change occurs:

(1) Spudding of an unconventional gas well.

(2) Initiation of production at an unconventional gas

well.

(3) Removal of an unconventional gas well from

production.

Section 1626-C. Duties of department.

(a) Confirmation of payment.--Prior to issuing a permit to

drill an unconventional gas well in this Commonwealth, the

department shall establish whether the producer has paid the

severance taxes owed. The Department of Revenue shall determine

whether the producer has paid the severance taxes owed and

notify the department of the determination.

(b) Permits and other authorizations.--With respect to the

equipment or facilities necessary for placing an unconventional

gas well subject to the severance tax into production and

maintaining production, the following apply:

(1) The applications for permits and other

authorizations shall receive priority review by the

applicable Commonwealth agencies. An application receiving

priority consideration shall include, but not be limited to,

permits for site preparation, drilling and completion of a

well, and the construction of the equipment necessary to

place the well into production, including the construction of

pipelines.

(2) The permits or other authorizations shall be granted

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within 45 days of application concurrent with the well permit

provided for in 58 Pa.C.S. § 3211 (relating to well permits),

if applied for concurrently, or within 45 days of

application, if submitted separately, unless denied for

reasons duly authorized by law. An application for coverage

under an applicable general permit shall be acted upon within

30 days of submission. Failure to act within the time

specified shall result in a deemed approval of the permit or

other authorization.

(3) A permit issued under 58 Pa.C.S. § 3211 shall be

valid for a period of two years from issuance.

(4) A permit required under 58 Pa.C.S. § 3211 may not be

required prior to earth disturbance for site preparation,

including access roads, provided that a permit applicable to

the earth disturbance activity has been issued.

(5) An extension granted under 58 Pa.C.S. § 3216(g)

(relating to well site restoration) may be granted for

successive two-year periods if the requirements for the

extensions are met.

drill an unconventional gas well unless the producer meets the

following requirements:

(1) filed severance tax reports required under this

article; and

(2) paid severance taxes that are not in dispute.

Section 1627-C. Powers of commission.

The commission may make inquiries and determinations

necessary to make distributions under this part.

Section 1628-C. Producers.

A producer subject to this part shall comply with regulations

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of the commission and make reports, render statements and keep

records as the commission deems sufficient to make distributions

under this part.

Section 1629-C. Examinations.

(a) Access and examination.--

(1) The commission shall have access to the relevant

documents and records of a producer in order to verify the

accuracy and completeness of a report filed under this part.

(2) The commission may do all of the following:

(i) Require preservation of documents and records

for an appropriate period not to exceed three years from

the end of the calendar year to which the records relate.

(ii) Under 66 Pa.C.S. § 309 (relating to oaths and

subpoenas):

(A) examine an employee of a producer under oath

concerning the severing of natural gas subject to

severance tax or a matter relating to the enforcement

of this part; and

(B) compel the production of a relevant document

or record and the attendance of a witness whom the

commission believes to have knowledge of a relevant

matter.

(b) Unauthorized disclosure.--Information obtained by the

commission as a result of a report, examination, investigation

or hearing under this part shall be confidential and shall not

be disclosed, except for official purposes, in accordance with

judicial order or as otherwise provided by law. A commissioner

or an employee of the commission who, without authorization,

divulges confidential information shall be subject to

disciplinary action by the commission.

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Section 1630-C. Distributions from fund.

Money deposited into the fund under section 1623-C(b) shall

be distributed by the commission as follows:

(1) The following apply to conservation districts:

(i) From taxes collected in a fiscal year, the

following amount shall be distributed from the fund to

county conservation districts under subparagraph (ii):

(A) In fiscal year 2018-2019, $7,500,000.

(B) In each succeeding fiscal year, the amount

under clause (A), increased by the percentage

increase in the Consumer Price Index for All Urban

Consumers for the most recent 12-month period for

which figures have been officially reported by the

Bureau of Labor Statistics immediately prior to

October 1.

(ii) Money under subparagraph (i) shall be

distributed in accordance with the following:

(A) One-half shall be distributed by dividing

the amount equally among conservation districts for

uses consistent with the act of May 15, 1945

(P.L.547, No.217), known as the Conservation District

Law.

(B) One-half shall be distributed by the State

Conservation Commission in a manner consistent with

the Conservation District Law and the provisions of

the State Conservation Commission's Conservation

District Fund Allocation Program-Statement of Policy

under 25 Pa. Code Ch. 83 Subch. B (relating to

Conservation District Fund Allocation Program-

Statement of Policy).

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(2) From severance taxes collected under this article

and deposited in the fund under section 1623-C(b), for fiscal

year 2018-2019 and each fiscal year thereafter, the following

shall apply:

(i) One million dollars shall be distributed to the

Pennsylvania Fish and Boat Commission for costs relating

to the review of applications for permits to drill

unconventional gas wells.

(ii) Six million dollars shall be distributed to the

department for the administration of this article and the

enforcement of acts relating to clean air and clean

water.

(iii) Seven hundred fifty thousand dollars shall be

distributed to the Pennsylvania Emergency Management

Agency for emergency response planning, training and

coordination related to natural gas production from

unconventional gas wells.

(iv) Seven hundred fifty thousand dollars shall be

distributed to the Office of the State Fire Commissioner

for the development, delivery and sustainment of training

and grant programs for first responders and the

acquisition of specialized equipment for response to

emergencies relating to natural gas production from

unconventional gas wells.

(v) One million dollars shall be distributed to the

Department of Transportation for rail freight assistance.

(vi) One million dollars shall be distributed to the

Department of Health for disseminating information,

preparing and conducting health care provider outreach

and education and other uses associated with

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unconventional natural gas production activity within

this Commonwealth.

(3) An agency or organization that receives money under

this subsection shall, by December 31, 2020, and December 31

of each year thereafter, submit to the Secretary of the

Budget and the Appropriations Committee of the Senate and the

Appropriations Committee of the House of Representatives a

report itemizing and explaining the use of the money.

Section 1631-C. Unconventional Gas Well Fund.

(a) Distribution.--The money transferred to the

Unconventional Gas Well Fund in fiscal year 2018-2019 and each

fiscal year thereafter under section 1623-C shall be distributed

to counties and municipalities for purposes authorized under

subsection (d). It is the intent of this section that counties

and municipalities, where appropriate, jointly fund projects

that cross jurisdictional lines. The commission, after making a

disbursement under subsection (c), shall distribute the

remaining funds appropriated as follows by October 1, 2019, and

each October 1 thereafter:

(1) Thirty-six percent shall be distributed to each

county in which a spud unconventional gas well is located.

The amount shall be determined under the following formula:

(i) Divide:

(A) the number of spud unconventional gas wells

in the county; by

(B) the number of spud unconventional gas wells

in this Commonwealth.

(ii) Multiply:

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

(B) the amount available for distribution under

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this paragraph.

(2) Thirty-seven percent shall be distributed to each

municipality in which a spud unconventional gas well is

located. The amount shall be determined under the following

formula:

(i) Divide:

(A) the number of spud unconventional gas wells

in the municipality; by

(B) the number of spud unconventional gas wells

in this Commonwealth.

(ii) Multiply:

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

(B) the amount available for distribution under

this paragraph.

(3) Twenty-seven percent shall be distributed to each

municipality located in a county in which a spud

unconventional gas well is located. Distribution shall be

made as follows:

(i) Divide:

(A) the number of spud unconventional gas wells

in the county; by

(B) the number of spud unconventional gas wells

in this Commonwealth.

(ii) Multiply:

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

(B) the amount available for distribution under

this paragraph.

(iii) Fifty percent of the product under

subparagraph (ii) shall be distributed to each

municipality in which a spud unconventional gas well is

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located, that is contiguous with a municipality in which

a spud unconventional gas well is located or that is

located within five linear miles of a spud unconventional

gas well. The distribution shall be made as follows:

(A) Fifty percent of the amount available under

this subparagraph to each municipality under the

following formula:

(I) Divide:

(a) the population of the eligible

municipality within the county; by

(b) the total population of all eligible

municipalities within the county.

(II) Multiply:

(a) the quotient under subclause (I); by

(b) the amount allocated to the county

under this subparagraph.

(B) Fifty percent of the amount available under

this subparagraph shall be distributed to each

municipality under the following formula:

(I) Divide:

(a) the highway mileage of the eligible

municipality within the county; by

(b) the total highway mileage of all

eligible municipalities within the county.

(II) Multiply:

(a) the quotient under subclause (I); by

(b) the amount allocated to the county

under this subparagraph.

(iv) Fifty percent of the product under subparagraph

(ii) shall be distributed to each municipality in the

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county regardless of whether an unconventional gas well

is located in the municipality. The distribution shall be

made as follows:

(A) Fifty percent of the amount available under

this subparagraph shall be distributed to each

municipality under the following formula:

(I) Divide:

(a) the population of the municipality

within the county; by

(b) the total population of the county.

(II) Multiply:

(a) the quotient under subclause (I); by

(b) the amount allocated to the county

under this subparagraph.

(B) Fifty percent of the amount available under

this subparagraph shall be distributed to each

municipality under the following formula:

(I) Divide:

(a) the highway mileage of the

municipality within the county; by

(b) the total highway mileage of the

county.

(II) Multiply:

(a) the quotient under subclause (I); by

(b) the amount allocated to the county

under this subparagraph.

(b) Restriction.--

(1) The amount allocated to each municipality under

subsection (a) may not exceed the greater of $500,000 or 50%

of the total budget for the prior fiscal year beginning with

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the 2010 budget year and continuing every year thereafter,

adjusted to reflect any upward changes in the Consumer Price

Index for all Urban Consumers for the Pennsylvania, New

Jersey, Delaware and Maryland area in the preceding 12

months. Any remaining money after allocation under subsection

(a) shall be retained by the commission and transferred to

the Commonwealth Financing Authority.

(2) Remaining funds under paragraph (1) shall be used

for grants to schools, hospitals and small businesses to

obtain access to natural gas as follows:

(i) The Commonwealth Financing Authority shall give

priority to applications that will result in adjoining

residential and nonresidential properties obtaining

natural gas.

(ii) Grants may provide for up to 50% of the cost of

the project.

Fund.--

(1) From severance taxes collected in fiscal year 2018-

2019 and each fiscal year thereafter, $5,000,000 from the

fund shall be transfered to the Housing Affordability and

Rehabilitation Enhancement Fund.

(2) Funds under paragraph (1) shall be used for the

following purposes:

(i) To provide support to projects in a county in

which producing unconventional gas wells are located that

increase availability of quality, safe, affordable

housing for low-income and moderate-income individuals or

families, individuals with disabilities or elderly

individuals.

20170HB1662PN2231 - 24 -

(ii) To provide rental assistance in a county in

which producing unconventional gas wells are located to

individuals or families whose household income does not

exceed the area median income.

(3) No less than 50% of the funds available under this

subsection may be used in fifth, sixth, seventh and eighth

class counties.

(d) Use of funds.--A county or municipality receiving funds

under subsection (c) shall use the funds received only for the

following purposes associated with natural gas production from

unconventional gas wells within the county or municipality and

in a manner consistent with the provisions of 58 Pa.C.S. Ch.33

(relating to local ordinances relating to oil and gas

operations):

(1) Construction, reconstruction, maintenance and repair

of roadways, bridges and public infrastructure.

(2) Water, storm water and sewer systems, including

construction, reconstruction, maintenance and repair.

(3) Emergency preparedness and public safety, including

law enforcement and fire services, hazardous material

response, 911 service operations, equipment acquisition and

other services.

(4) Environmental programs, including trails, parks and

recreation, open space, flood plain management, conservation

districts and agricultural preservation.

(5) Preservation and reclamation of surface and

subsurface waters and water supplies.

(6) Tax reductions, including homestead exclusions.

(7) Projects to increase the availability of safe and

affordable housing to residents.

20170HB1662PN2231 - 25 -

(8) Records management systems and personnel in the

office of recorder of deeds, geographic information systems

and information technology.

(9) The delivery of social services.

(10) Judicial services.

(11) For deposit into the county or municipality's

capital reserve fund, if the funds are used solely for a

purpose under this subsection.

(12) Career and technical centers for training of

workers in the oil and gas industry.

(13) Local or regional planning initiatives under the

act of July 31, 1968 (P.L.805, No.247), known as the

Pennsylvania Municipalities Planning Code.

(14) Grants to residential property owners, schools,

hospitals and small businesses to obtain access to natural

gas.

(e) Prohibition.--Funds distributed under subsection (a) may

not be used for the purpose of public relations.

(f) Reporting.--

(1) The commission shall submit an annual report on all

funds in the Unconventional Gas Well Fund. The report shall

include a detailed listing of all deposits and expenditures

of the fund and be submitted to the chair and the minority

chair of the Appropriations Committee of the Senate, the

chair and the minority chair of the Environmental Resources

and Energy Committee of the Senate, the chair and the

minority chair of the Appropriations Committee of the House

of Representatives and the chair and the minority chair of

the Environmental Resources and Energy Committee of the House

of Representatives. The report shall be submitted by October

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31, 2019, and by October 31 of each year thereafter.

(2) Each county and municipality receiving funds from

the Unconventional Gas Well Fund under this section shall

submit information to the commission on a form prepared by

the commission that provides the amount and use of the funds

received in the prior calendar year. The form shall state

whether or not the funds received were committed to a

specific project or use as authorized in this section. Each

report shall be published annually on the county's or

municipality's publicly accessible Internet website. The

commission may examine the relevant documents and records of

a county or municipality in order to verify the accuracy and

completeness of a report submitted under this paragraph. The

commission may withhold funds in future years from a county

or municipality that does not file accurate and timely

reports under this paragraph.

(g) Availability of funds.--Distribution of funds under this

section shall be contingent on availability of funds in the

Unconventional Gas Well Fund. If sufficient funds are not

available, the commission shall disburse funds on a pro rata

basis.

(h) Population.--For the purposes of this section, the

following apply:

(1) A population of a county shall be determined using

the United States Census Bureau's most recently released

Annual Estimates of the Resident Population for Counties of

Pennsylvania.

(2) A population of a municipality shall be determined

using the United States Census Bureau's most recently

released Annual Estimates for the Resident Population for

20170HB1662PN2231 - 27 -

Incorporated Places in Pennsylvania.

(3) A population of a municipality not included in the

report referenced under paragraph (2) shall be determined

using the United States Census Bureau's most recently

released Annual Estimates of the Resident Population for

Minor Civil Divisions in Pennsylvania.

Section 1632-C. Marcellus Legacy Fund.

(a) Distribution.--The money transferred to the Marcellus

Legacy Fund in fiscal year 2018-2019 and each fiscal year

thereafter pursuant to section 1623-C shall be distributed by

the commission by October 1, 2019, and each October 1 thereafter

as follows:

(1) Twenty percent to the Commonwealth Financing

Authority for grants to eligible applicants for the

following:

(i) Acid mines, including damage, abatement and

cleanup and mine reclamation, with priority given to

projects that recycle and treat water for use in drilling

operations.

(ii) Orphan or abandoned oil and gas well plugging.

(iii) Complying with the act of January 24, 1966

(1965 P.L.1535, No.537), known as the Pennsylvania Sewage

Facilities Act.

(iv) Planning acquisition, development,

rehabilitation and repair of greenways, recreational

trails, open space, parks and beautification projects.

(v) Programs to establish baseline water quality

data on private water supplies.

(vi) Watershed programs and related projects.

(vii) Flood control projects. Up to 25% of the funds

20170HB1662PN2231 - 28 -

distributed to the Commonwealth Financing Authority under

this paragraph may be utilized for projects under this

subparagraph.

(2) Ten percent to the Environmental Stewardship Fund.

(3) Twenty-five percent to the Highway Bridge

Improvement Restricted Account within the Motor License Fund

to counties to be distributed to fund the cost of the

replacement or repair of locally owned at-risk deteriorated

bridges. Funds shall be distributed to counties

proportionately based on the population of the county as

follows:

(i) In each county, the distribution shall be

according to the following formula:

(A) Divide:

(I) the total population of the county; by

(II) the total population of the

Commonwealth;

(B) Express the quotient under clause (A) as a

percentage.

(I) the percentage under clause (B); by

(II) the amount of money to be distributed

under this paragraph.

(ii) Each county shall receive a minimum of $40,000,

to the extent funds are available.

(iii) The Department of Transportation shall release

money under this paragraph upon approval of a plan

submitted by a county or municipality to repair an at-

risk deteriorated bridge. The plan shall include funding

for replacement or repair.

20170HB1662PN2231 - 29 -

(iv) A county of the first or second class may

submit a plan to use the county's funds under this

paragraph for at-risk deteriorated bridges owned by a

public transportation authority.

(4) Twenty-five percent for water and sewer projects.

The following shall apply:

(i) Fifty percent of the amount distributed under

this paragraph shall be transfered to the Pennsylvania

Infrastructure Investment Authority to be used in

accordance with the act of March 1, 1988 (P.L.82, No.16),

known as the Pennsylvania Infrastructure Investment

Authority Act.

(ii) Fifty percent of the amount distributed under

this paragraph shall be transfered to the H2O PA program

to be used by the Commonwealth Financing Authority in

accordance with section 301 of the act of July 9, 2008

(P.L.908, No.63), known as the H2O PA Act. The

prohibition on grants for projects located in a city or

county of the first or second class under section 301 of

the H2O PA Act shall not apply to funds distributed to

the H2O PA program under this subparagraph.

(5) Fifteen percent for the planning, acquisition,

development, rehabilitation and repair of greenways,

recreational trails, open space, natural areas, community

conservation and beautification projects, community and

heritage parks and water resource management. Funds may be

used to acquire lands for recreational or conservation

purposes and land damaged or prone to drainage by storms or

flooding. Funds shall be distributed to counties

proportionately based on the population of the county as

20170HB1662PN2231 - 30 -

follows:

(i) In each county, the distribution shall be

according to the following formula:

(A) Divide:

(I) the total population of the county; by

(II) the total population of the

Commonwealth.

(B) Express the quotient under clause (A) as a

percentage.

(I) the percentage under clause (B); by

(II) the amount of funds available under

this paragraph.

(ii) Each county shall receive a minimum of $25,000

to the extent funds are available.

(6) Five percent for transfer to the Hazardous Sites

Cleanup Fund.

(b) Availability of funds.--Distribution of funds under this

section shall be contingent on availability of funds in the

Marcellus Legacy Fund. If sufficient funds are not available,

the commission shall disburse funds on a pro rata basis.

(1) Funds distributed under subsection (a) may not be

used for the purpose of public relations, outreach not

directly related to project implementation, communications,

lobbying or litigation.

(2) Funds distributed under subsection (a) may not be

used by an authorized organization as defined in 27 Pa.C.S. §

6103 (relating to definitions) for land acquisition unless

the authorized organization has obtained the written consent

20170HB1662PN2231 - 31 -

of the county and municipality in which the land is situated.

(d) Coordination.--The department and the Department of

Conservation and Natural Resources shall review each application

for funding as requested by the Commonwealth Financing Authority

and provide recommendations on priority of projects and project

approval.

(e) Population.--For the purposes of this section, the

population of this Commonwealth and population of a county shall

be determined using the United States Census Bureau's most

recently released Annual Estimates of the Resident Population

for Counties of Pennsylvania.

PART III

RESPONSIBILITY FOR TAX

Section 1651-C. Prohibition.

The severance tax liability imposed on producers may not be

passed onto lessors who hold a royalty interest.

PART IV

ADJUSTMENT TO AND EXPIRATION OF UNCONVENTIONAL

GAS WELL FEE

Section 1671-C. Adjustment.

Notwithstanding 58 Pa.C.S. § 2302 (relating to unconventional

gas well fee), the amount of the unconventional gas well fee due

from every producer for calendar year 2018 shall be 50% of the

amount due under 58 Pa.C.S. § 2302 for an unconventional gas

well spud prior to July 1, 2018. An unconventional gas well spud

on or after July 1, 2018, shall not be subject to the fee

imposed under 58 Pa.C.S. § 2302.

Section 1672-C. Expiration.

The unconventional gas well fee imposed under 58 Pa.C.S. §

2302 (relating to unconventional gas well fee) may not be

20170HB1662PN2231 - 32 -

imposed after July 1, 2018.

ARTICLE XVI-D

UNCONVENTIONAL GAS WELL EMPLOYMENT TAX CREDIT

Section 1601-D. Establishment.

The Unconventional Gas Well Employment Tax Credit Program is

established.

Section 1602-D. Definitions.

The following words and phrases when used in this article

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

context clearly indicates otherwise:

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

"Pass-through entity." A partnership as defined under

section 301(n.0) or a Pennsylvania S corporation as defined

under section 301(n.1).

"Qualified tax liability." The liability for taxes imposed

under Article III, IV or VI. The term shall not include any tax

withheld by an employer from an employee under Article III.

"Taxpayer." An entity subject to tax under Article III, IV

or VI.

"Unconventional gas well." As defined in section 1601-C.

"Unconventional gas well employment tax credit." The credit

provided under this article.

Section 1603-D. Eligible applicants.

(a) General rule.--A taxpayer who has a permit from the

Department of Environmental Protection to drill for natural gas

by means of an unconventional gas well in this Commonwealth may

apply for an unconventional gas well employment tax credit as

provided under this article. By September 15, 2019, a taxpayer

shall submit an application to the department on a form

prescribed by the department, providing the type of job in this

20170HB1662PN2231 - 33 -

Commonwealth that will be filled and the salary that will be

paid in the taxable year that ended in the prior calendar year.

(b) Application.--An application shall be developed by the

department and shall include:

(1) Type and location in this Commonwealth of the

position.

(2) Permits issued by the Department of Environmental

Protection to allow the company to drill in this

Commonwealth.

(3) Total cost of salary and benefits.

(4) Other information deemed appropriate by the

department.

Section 1604-D. Award of tax credits.

If the department approves the company's application, the

department and the company shall execute a commitment letter

containing the following:

(1) A description of the project.

(2) The number of new jobs to be created in this

Commonwealth.

(3) The amount of private capital investment in the

project.

(4) The maximum job creation tax credit amount the

company may claim.

(5) A signed statement from the company that the company

will provide to the department a list of workers for which

the company will claim tax credit, including documentation of

each worker's status as a resident of and job location in

this Commonwealth.

(6) Other information as the department deems

appropriate.

20170HB1662PN2231 - 34 -

Section 1605-D. Tax credit.

(a) Maximum amount.--A company may claim a tax credit of

$1,000 per new job created in this Commonwealth and up to the

maximum job creation tax credit amount specified in a commitment

letter from the department.

(b) Determination of new jobs created.--

(1) New jobs shall be deemed created in year one to the

extent that the company's average employment by quarter

during year one exceeds the company's average employment

level during the company's base period, as adjusted for jobs

held by nonresidents during the period which are no longer

held by nonresidents.

(2) New jobs shall be deemed created in year two to the

extent that the company's average employment by quarter

during year two exceeds the company's average employment by

quarter during year one.

(3) New jobs shall be deemed created in year three to

the extent that the company's average employment by quarter

during year three exceeds the company's average employment by

quarter during year two.

100% of the company's corporate net income tax, capital stock

and franchise tax or the capital stock and franchise tax of a

shareholder of the company if the company is a Pennsylvania S

corporation, personal income tax or the personal income tax of

shareholders of a Pennsylvania S corporation or any combination

thereof.

(d) Term.--A company may claim the job creation tax credit

for each new job created as approved by the department for a

period determined by the department but not to exceed five years

20170HB1662PN2231 - 35 -

from the date the company first submits a job creation tax

credit certificate.

(e) Availability.--Each fiscal year, $2,000,000 in tax

credits shall be made available to the department and may be

awarded by the department in accordance with this article.

Section 1606-D. Prohibitions.

(a) Prohibitions.--The following actions with regard to job

creation tax credits are prohibited:

(1) Approval of jobs created prior to the start date,

unless the job was held by a nonresident who has been

replaced by a resident.

(2) The assignment, transfer or use of credits by

another company, however, tax credits may be assigned in

whole or in part to an affiliated entity.

(b) Definition.--As used in this section, the term

"affiliated entity" means an entity which is part of the same

"affiliated group," as defined by section 1504(a)(1) of the

Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §

1504(a)(1)), as the company awarded the credit.

Section 1607-D. Penalties.

(a) Failure to create jobs.--A company which receives a job

creation tax credit and fails to create the approved number of

new jobs in this Commonwealth within three years of the start

date shall refund to the Commonwealth the amount of credit

granted.

(b) Waiver.--The department may waive the penalties outlined

in subsection (a) if it is determined that a company's

operations were not maintained or the new jobs were not created

in this Commonwealth because of circumstances beyond the

company's control. The circumstances include natural disasters

20170HB1662PN2231 - 36 -

or unforeseen industry trends.

Section 1608-D. Notice.

The department shall publish notice of the availability of

the job creation tax credit on its publicly accessible Internet

website and make information available annually to the Workforce

Investment Board of the Department of Labor and Industry for

distribution to local boards.

Section 2. Repeals are as follows:

(1) The repeal under paragraph (2) is necessary to

effectuate the addition of section 1603-C of the act.

(2) Section 1403 of the act of April 9, 1929 (P.L.343,

No.176), known as The Fiscal Code.

Section 3. The tax imposed under Article XVI-C of the act

shall apply to natural gas sold after June 30, 2019.

Section 4. This act shall take effect immediately.

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