PA Environment Digest

Revenue: Drilling Industry Paid More Than $1 Billion in State Taxes Since 2006

At the direction of Gov. Tom Corbett, the Department of Revenue this week released an analysis showing that companies engaged in and related to natural gas drilling activities in Pennsylvania have paid more than $1.1 billion in state taxes since 2006.

Those taxes came on top of the billions of dollars of infrastructure investments, royalty payments and permit fees paid by the industry.

The Revenue Department’s analysis, which breaks out tax payments from oil and gas companies and their affiliates through April 2011, indicates that 857 of these companies have already paid $238.4 million in capital stock/foreign franchise tax, corporate net income tax, sales/use tax and employer withholding to the state in 2011.

These figures from the first quarter of this year already exceed by nearly $20 million the total tax payments made in all of 2010.

The department’s analysis also identified $214.2 million in personal income taxes paid since 2006 attributable to Marcellus Shale lease payments to individuals, royalty income and sales of assets.

A comprehensive analysis of personal income tax paid on Marcellus Shale business profits is not feasible because the department cannot conclusively determine what profits from Marcellus Shale partnerships, S corporations and LLCs were passed through to individuals as opposed to C corporations, which are taxed at 3.07 percent and 9.99 percent, respectively.

However, the department can determine that these oil and gas companies, and their affiliates, include 1,096 pass-through businesses. These businesses reported $675.4 million in 2008 income.

These numbers will be updated monthly.

Sharon Ward, Director of the PA Budget and Policy Center, said the Department of Revenue's report goes well beyond the taxes paid by drilling companies. The Center issued a report last week saying 85 percent of natural gas drilling companies paid nothing in taxes in 2008.

She issued this statement on the agency's report:

"The Department of Revenue's new analysis makes an apples to oranges comparison of the taxes paid by companies engaged in natural gas drilling.

"It alters the definition of drilling companies from what was reported in the Governor's budget just two months ago. The definition was expanded to include companies that do not drill at all and would not be subject to a drilling tax, such as pipeline operators and suppliers of sand used in the fracking process. It also counts taxes paid by individuals and customers as taxes paid by the industry.

"The Department's analysis obscures as much as it illuminates. The largest tax contributions in each category come from a group of taxpayers identified as "other," which is not defined. The analysis tells us how many filers pay taxes but not how many filers owed nothing in taxes, which is a departure from previous Revenue analyses. When pressed, the Department indicated that only 20% of corporate tax filers paid any corporate income tax in 2010, which is fairly consistent with 2008 Revenue data cited in a report we released last week.

"It's also important to remember that the natural gas industry is thriving in states with robust drilling taxes and we would expect that to be the case in Pennsylvania too. According to World Oil Online, gas companies drilled more wells in West Virginia, which imposes a drilling tax, than they did in Pennsylvania last year. Credible studies and comments by industry analysts indicate that a tax will not deter development of the Marcellus Shale.

"We welcome responsible drilling to the commonwealth, but believe that any analysis of the impact of a drilling tax should start with an understanding of the actual taxes paid by the companies that would be directly impacted."

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