Wolf Proposes Natural Gas Severance Tax to Fund Capital Projects

Pennsylvania Governor Tom Wolf has expressed his intent to present legislation creating a natural gas severance tax in the Commonwealth. Pennsylvania currently implements an impact fee, as mandated by the Act 13 legislation.

Under the current PA Act 13 legislation, wells using unconventional drilling, also known as hydraulic fracturing or fracking, are subject to an impact fee. The impact fee is levied to finance operations to offset an unconventional wells impact on the community and is distributed between state agencies, local municipalities, and the Marcellus Legacy Fund which is used to fund infrastructure, environmental and developmental initiatives in the Commonwealth. They are calculated based on the productivity and age of the well of a given well. Impact fees are collected for the first 15 years of a wells ‘life’, with nearly 70% being collected within the first 3 years of a wells existence.

Critics do take issue with components of the impact fee, such as a loophole that allowed for oil and gas companies to bypass impact fee payments due to a loophole in the law that has recently been closed by the state Supreme Court.

Governor Wolf’s new plan would impose a severance tax either additionally or in lieu of the impact fee. The severance tax is structured in such a way that a tax is collected throughout the entire life cycle of a well, and is calculated by either the volume of production, the market value of the resource extracted or a combination of both. Though Pennsylvania does have an impact fee, it is the only natural gas producing state without a severance tax.

If approved, the severance tax will be used to find a $4.5 billion capital program including infrastructure to support high-speed internet for more people, bolstering storm and flood water protections, and brownfield development.