Natural Gas Producers in PA Don’t Pay Their Fair Share


By Stephen Herzenberg and Jon White

In the past several months, Pennsylvania’s legislature has shown renewed interest in enacting a severance tax on natural gas extraction as part of the state’s overdue revenue package to fund the state budget. In that context, the natural gas industry has maintained a steady drumbeat of communications claiming that Pennsylvania already has a tax on gas extraction because of its per well impact fee which does not rise with the volume or value of gas drilled. The industry and its allies also continue to claim that Pennsylvania’s impact fee amounts to a tax that is higher (relative to the volume or value of gas produced) than the severance taxes in many other states.

This past weekend, for example, a letter to the Philadelphia Inquirer from the Marcellus Shale Coalition stated that “As to the tired claims that natural gas producers ‘don’t pay their fair share’? Pennsylvania’s impact fee has generated more than $1.2 billion in new revenue and brought in more last year than the severance tax collections from Ohio, West Virginia, Colorado and Arkansas, combined. Those states, by the way, produced more natural gas than the Commonwealth.”

This brief “fact checks” this claim and finds it represents the selective use of data by opponents of a natural gas severance tax. Compared to eight other states including the four cited by the letter:

  • Pennsylvania’s impact fee in 2016 raised less revenue per volume of gas produced than seven of the other states – all but Ohio.
  • Compared to a (gas production volume-weighted) average of the other eight states, Pennsylvania’s impact fee raised less than half as much revenue per volume of gas extracted.

This brief also highlights the finding of the Independent Fiscal Office (Office) that Pennsylvania’s (lifetime) effective tax rate due to the impact fee is low relative to five of six comparison states with a severance tax, all except Ohio. If Pennsylvania imposed a severance tax of 2.1% to 3.6% it would, combined with the impact fee, have an overall tax rate on gas extraction within the range of these other states.