Pennsylvania

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Corbett says taxing natural gas may be a future option

Governor Corbett discussing his budget proposal on witf's Smart Talk Friday.

Heather Woolridge/ witf

Governor Corbett speaking at WITF.

Governor Tom Corbett says he’s thinks taxing natural gas could be an option. Just three weeks before the election, the governor is battling for his political future. In an exclusive interview with StateImpact Pennsylvania, Corbett said he thinks rather than the extraction tax advocated by his Democratic opponent Tom Wolf, it may be better to tax the transport of the gas within the state.

“Maybe the tax instead of being at the wellhead, should be in the transmission line,” said Corbett. “Now we can probably only tax it in the transmission line that is intrastate because if it goes into interstate, that is a Washington issue.”

Back in 2012 Governor Corbett enacted the impact fee, which charges Marcellus Shale gas drillers $50,000 per well.  Critics, including his Democratic opponent Tom Wolf, say that method leaves a lot of money on the table. Pennsylvania is the only major gas producing state without a severance tax, which taxes the value of the gas extracted. Wolf has proposed a five percent severance tax. Corbett continues to oppose this kind of tax for now, saying it would cut too much into the drillers bottom line, causing them to move out of state. But he’s no longer calling it “un-American.” Instead, he says once the vast majority of the wells are drilled, it may be time to enact a tax.

“If this industry was 10-15 years old already, I think we’d be having a different conversation,” said Corbett.

Corbett gave no details of what a transmission gas tax would mean. But pipelines that cross state lines are regulated by the federal government, so the state would be limited to the transmission lines within Pennsylvania. Pipeline companies may be an easy taxation target because they already benefit from tax breaks. Natural gas transmission companies are exempt from both federal corporate income tax and Pennsylvania’s gross receipts tax.

Corbett says Pennsylvania’s 10 percent corporate income tax makes up for the comparatively lower revenue generated by the impact fee. But it’s a difficult calculation to assess. Texas, the largest producer of natural gas, charges a 7.5 percent tax on the market value of the gas. But the state doesn’t have a corporate income tax. When Corbett talks about tax revenue generated by the industry, he casts a wide net by including the local businesses that serve the shale gas boom. Many Marcellus Shale drillers are registered out of state, and its unclear how much corporate tax they end up paying. Corbett told StateImpact that his administration has not done an analysis of what the Marcellus Shale drillers have paid in corporate income tax.

But he says the key issue is keeping drill rigs in Pennsylvania and getting the wells drilled while costs are still competitive with other states. He points to recent moves by big oil producing states like Alaska, to cut their severance taxes. The impact fee Corbett backed three years ago has brought in $630 million dollars.

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