According to an analysis released by Pennsylvania’s Independent Fiscal Office (IFO), the state’s gas impact fee on Marcellus Shale drillers is on a steady decline.
In a brief released on Thursday, the IFO discovered that the effective tax rate on natural gas drillers has been decreasing for the last four years, going from 5.3 percent in 2011 to 2.1 percent in 2014. IFO Director Matthew Knittle says the decline is due to an increase in production:
Over time the effective tax rate of the impact fee has declined … That is mainly due to the large increase in the production of natural gas.
Under Pennsylvania’s 2012 oil and gas law, Act 13, gas companies are required to pay a flat impact fee for each well they develop. The fee has brought in an average of $210 million per year and the IFO estimates the impact fee will bring in about $220 million for 2015. However, the impact fee is not related to gas production levels or prices, so the measure of the tax burden relative to sales isn’t available. To find the drillers’ effective tax rate, the IFO divided the impact fee revenue by the total market values of unconventional gas production. Knittle explained how the IFO has found “the volatility of natural gas prices to be very high,” and because of this the effective tax rate could fluctuate up or down next year.
Last year, the IFO released a report comparing Pennsylvania’s effective gas tax rate to 10 other prominent shale states. The report concluded that Pennsylvania has one of the lowest rates in the U.S. However, last year’s report and this latest brief only analyze the impact fee, not the tax burden on the entire industry, like sales and corporate income tax. Yet, it makes it difficult to determine how many of those other taxes go into state coffers because many drillers are large multi-state or multi-national corporations and only a percentage of their operations are in Pennsylvania, explained Knittle.
The IFO’s recent news brief was created after the Pennsylvania Department of Environmental Protection released data showing that producers in the Marcellus Shale broke another record by producing 4 trillion cubic feet of gas during 2014.