TAX NEWS - 2010

Lawmakers may add gas production tax

Agreement in place calls for General Assembly to enact severance tax by October.

HARRISBURG – The 2010-11 state budget that could be approved by both the House and Senate today and sent to Gov. Ed Rendell for his signature does not include any revenues from a state severance tax on natural gas production. But such a tax is likely to be implemented later this year.

Brett Marcy, spokesman for House Majority Leader Todd A. Eachus, D-Butler Township, said that an agreement is in place among caucus leaders that calls for the General Assembly to enact a severance tax by October. Marcy said that no details are part of the agreement, just an agreement that a tax bill would be enacted.

He said language would be placed into the Fiscal Code Bill that "would effectively solidify that agreement." That bill is among a series of budget-related bills that will be approved once the actual budget is adopted.

Though the budget itself was criticized by Sharon Ward, director of the Pennsylvania Budget and Policy Center, for making too many cuts and for failing to close corporate tax loopholes or include taxes on cigars and smokeless tobacco, she had praise for the severance tax announcement.

"Despite our concerns about many aspects of this budget, we are pleased to see it set the stage for a severance tax on natural gas production by the start of 2011. There are still many details to work out, including the actual structure of the tax, the rate and the distribution of funds," Ward said.

State Rep. Mike Carroll, D-Avoca, is a co-sponsor of House Bill 1489, a severance tax bill that sits in the Appropriations Committee and has not been brought up for a final vote. He said he supports the idea but "I don't think I'd support just anything."

He said the tax revenue would have to be divided in "an equitable way" and the host community and county need to be involved in that.

"They can't be shut out," Carroll said.

State Rep. John Yudichak, D-Plymouth Township, said a severance tax "has to be responsible" and agreed it needs to include money for host communities and counties as well a fund to cover the remediation of any damage to infrastructure or the environment.

He also said that it was a good sign that Republican Senate members have agreed to the severance tax, something that some of them previously indicated would never happen.

Rep. Eddie Day Pashinski, D-Wilkes-Barre, said he too would favor a severance tax and that it should "be patterned similar to the gaming bill. The local communities that have it have to deal with more issues."

Like Yudichak, Pashinski said he was glad to see Republicans coming on board for an idea the House supported last year and included as part of its budget and tax code bill in 2009. The Senate sent back the bill with the tax language stripped out. Also proposed were taxes on cigars and smokeless tobacco.

The proposal called for imposing a severance tax on producers that extract natural gas at a rate of 5 percent of the gross value at the wellhead, plus 4.7 cents per 1,000 cubic feet, except for so-called "stripper wells" producing less than 60,000 cubic feet of gas per day. It called for a 4.5 percent distribution to host municipalities and the same percentage for host counties.

"I voted for a severance tax last year. I wish the Senate would have done the same," Pashinski said. "We would have had over a $100 million to work with if they had." He added that that money would have come in handy during these budget negotiations when so many cuts are being made.

"Whatever the cuts are, there would have been $100 million less of them (had the severance tax been implemented last year)," he said.

Carroll and his fellow legislators spent much of Tuesday reviewing the framework of a proposed $28 billion state budget that the Republican and Democratic leaders in the state House and Senate agreed to.

The proposal "will be as bare bones a budget as we could responsibly pass," Marcy said.

The Senate Appropriations Committee would have to amend a bill the state House sent over in March to include the consensus language. The full Senate would then vote on the budget bill and if it passes, the bill moves back to the House for its consideration.

A House rule forbids votes from taking place less than 24 hours after a bill is introduced, so the House may have to suspend the rule to meet today's midnight deadline for a budget to be approved on time for the first time in Gov. Ed Rendell's two terms.

While there is a cautious optimism from some legislators that the timing will allow for a final budget vote to take place today, Yudichak said he sees no reason to rush to a vote just to be able to say the deadline was met.

"I think if we can get this done by the end of the week, that will be satisfactory," he said. "We're not going to circumvent the process just for the sake of getting it done on time," Yudichak said.