The Pennsylvania House last week passed a new 39-cent tax on the extraction of natural gas. But Senate Republicans do not support the initiative because they believe the “ridiculous” tax rate would push the industry out of the state.
Democrats control the House. They estimate that a severance tax of 39 cents per thousand cubic feet would generate $120.2 million of revenue in fiscal 2011, which began July 1, and $326.1 million in fiscal 2012, according to a fiscal note regarding the legislation.
About two-thirds of the state is made up of the Marcellus Shale region, which holds natural gas in its rock formations.
Senate President Joe Scarnati last week said the Senate would not take up the measure because the “punitive” tax rate would discourage companies from wanting to extract natural gas.
“I think they built all their assumptions on revenue on a very false premise that the industry is going to continue to invest here,” Scarnati said during a press conference. “And I think that we’re going to see diminished returns if this bill should make it to the goal line. It won’t, in my view. The tax rate is totally unacceptable.”
Senate Republicans are seeking a lower tax rate on natural gas extraction, similar to the Arkansas model in which companies pay an initial 1.5% tax to access gas reserves for two to three years. Rates then rise to up to 5%, depending upon a particular well’s production levels.
From fiscal 2011 through fiscal 2013, the House initiative would direct the first $75 million of revenue into a natural gas severance-tax account, with $70 million going to the general fund.
The remaining revenue, and all revenue collected in fiscal 2014 and beyond, would then be allocated: 40% to the general fund, 16% to counties and municipalities affected by natural gas drilling, and 44% for environmental initiatives.
The House passed the plan on Wednesday on a vote of 106 to 92.