TAX NEWS - JUNE 2010

Pennsylvania Tax: County to push for oil, gas tax

by Chris Rosenblum, 02 June 2010 -- After hearing about lost revenue for a local school district, the Centre County Board of Commissioners unanimously agreed Tuesday to lobby for a property tax on oil and natural gas wells.

Dan Fisher, superintendent of the Bald Eagle Area School District, told the commissioners that the district is losing $1.5 million to $2 million a year because the drilling operations are exempt from being taxed. In 2002, the state Supreme Court struck down taxation of oil and gas, saying that state law didn't specifically allow it.

On behalf of the Centre County Natural Gas Task Force, Fisher asked the commissioners to work with state legislators and other gas-producing counties to restore the tax and allow county governments and school districts to benefit from the growing number of wells drilled in the Marcellus Shale region.

"No other properties other than churches, charitable organizations and government-owned properties are allowed to escape tax-free," Fisher said.

Before the 2002 court ruling, Fisher said, the school district received about $65,000 in a year in taxes from a few shallow gas wells in the country's remote northwest mountains. He said the large, rural school district's 340 square miles contain 80,000 acres of state gamelands but few industries, stores, hotels, malls, theaters, medical centers and other taxable resources.

An oil and gas tax, he said, would give his and 200 similar districts statewide a consistent revenue source and make them less dependent on the state legislature.

"If you're a school superintendent, it's like playing the lottery," Fisher said. "Sometimes you get a big revenue; sometimes you don't."

Commissioners also heard from Jeff Kern, a mineral appraiser, president of State College-based Resource Technologies Corp. and a task force member. He said the county contains 224,000 acres of Marcellus Shale, but only two out of the county's more than 800 active wells tap into the gas.

That suggests, he said, that gas drilling — and potential local tax revenue — will be around for years, if not decades.

Kern said Pennsylvania, unlike Texas, Oklahoma and other states that levy gas taxes, is letting energy companies use roads, bridges and local services for free. In essence, he said, that means low-to moderate- income residents are asked to subsidize the companies by bearing a larger tax burden.

"That just doesn't seem fair," he said.

Debate continues among state legislators on a proposed bill that would impose a gas extraction tax. The state House Appropriations Committee has approved the measure.

But Fisher and Kern said Tuesday that without a property tax component, school districts could see little benefit. Neither do they buy tax opponents' arguments that taxes would stymie the industry. Kern said companies accept taxes elsewhere as a cost of doing business and will continue to flock to the state for its high-quality gas.

In the end, commissioners unanimously voted to lend their support to the task force.

"I think it's something that deserves a real hard look," Steve Dershem said.

Chairman Jon Eich said the County Commissioners Association of Pennsylvania has discussed the issue before. Only if gas-producing counties join forces to champion the property tax and persuade state legislators will school districts ever benefit, Fisher said.

"We just can't ignore it," he said. "It's too big to ignore."