Harrisburg PA Double Tax on Natural Gas

HARRISBURG -- Natural gas from the vast Marcellus Shale reserve will be taxed under the ground and when it is extracted, if Democratic lawmakers and the governor have their way.

Fifty-four of 67 counties would be able to levy real estate taxes on the underground value of natural gas and oil under a bill proposed Monday by House Majority Whip Bill DeWeese, D-Greene County.

It's similar to a bill DeWeese introduced in May 2007 that died in the House Finance Committee.

"The Marcellus Shale phenomenon was not at its dizzying zenith (then)," DeWeese said, when asked how the bill differs from the one that stalled.

Gov. Ed Rendell last month proposed a state severance tax on extracted natural gas. Rep. Bud George, D-Clearfield County, is expected to propose the severance tax in legislation.

Forty-five of the poorest school districts would benefit from levying a real estate tax on natural gas, said Timothy Allwein, an official with the Pennsylvania School Boards Association, one of several groups that joined DeWeese at a news conference.

DeWeese and other officials said the real estate tax is not a new tax. Counties could assess natural resources as property until a Supreme Court decision negated the practice in 2002. The court held that the Legislature did not explicitly recognize gas and oil as taxable.

Coal has long been taxed as property, officials said.

DeWeese said the real estate tax on natural gas would hit developers and drillers, not landowners and farmers.

David Coder, chairman of the County Commissioners Association of Pennsylvania, said the revenue would be used to lower property taxes or prevent the rise of property taxes.

Considering the economic downturn and drop in natural gas market prices, "This would be a very bad time to impose any additional taxes," said Matt Pitzarella, spokesman for Range Resources LLC, which has drilled more than 120 wells in Washington County.

Natural gas is selling for $3.87 per thousand cubic feet, or mcf, compared to $13.10 last July. The number of onshore drilling rigs in operation nationwide is down to 917 from 1,306 last fall and is expected to continue dropping.

The industry is especially vulnerable in Western Pennsylvania because the Marcellus Shale play is in its early stages of development, he said. More taxes "would ultimately cost people jobs and reduce the economic investment that the companies would be able to make," Pitzarella said.

Lou D'Amico, executive director of the Independent Oil & Gas Association of Pennsylvania, said DeWeese's proposal likely will spark court challenges if passed in its current form.

"He said this would be on the operator and not the land owner, and that's nice to say. I'd say it if I were a politician," D'Amico said, but state case law prohibits taxing the same revenue stream at different rates.

Thus a farmer who owns property in the Marcellus region would have to pay the same levy as a gas producer who leases the mineral rights to that land, he said.