FEBRUARY 9, 2012

Marcellus Shale Bill Summarized

Gov. Corbett is expected to sign HB 1950, a comprehensive bill addressing Marcellus Shale. What's inside the bill?

The Marcellus Shale impact tax included in HB 1950 falls short of being a principled impact fee. However, it is a victory for Pennsylvania workers and land owners that this was not imposed at the state level. Instead it allows counties to choose whether or not to enact the tax, which will hopefully create important tax competition.  Some counties have already said current relationships between government and the companies are already compensating for impacts.

One of the more negative aspects of the bill is that it is littered with corporate welfare. The graph below demonstrates how the revenue from the impact tax will be distributed. Right off the bat, an assortment of local and statewide programs are funded. The leftover revenue is split up with only 60% staying local and 40% going, again, statewide with much of the revenue going to non-drilling related projects. 

The bill also significantly increases drilling regulations and bonding requirements. Here's a synopsis of those changes:

Finally, the bill restricts local governments' ability to target drilling through zoning and other regulations. Local governments retain the authority to pass ordinances (noise, lighting, etc.) so long as they don't single out gas drilling. If a county's ordinances doesn't allow for the reasonable development of drilling (decided by the Pub­lic Util­ity Com­mis­sion or the courts), that county won't be eligible for impact tax revenue.

posted by KATRINA CURRIE | 06:15 PM | 0 comment

FEBRUARY 8, 2012

Senate Votes on Natural Gas Tax (HB1950)

On Tuesday, February 7, 2012, the Pennsylvania Senate passed HB 1950 Conference Committee Report by a 31-19 margin with 26 Republicans and 5 Democrats FOR it and 4 Republicans and 15 Democrats AGAINST it. 

posted by COMMONWEALTH FOUNDATION | 01:18 PM | 0 comment

FEBRUARY 8, 2012

Don't Feed the Sharks!

Many Republicans, who once opposed raising taxes, are justifying their anticipated vote to increase taxes on the natural gas industry (it's not a FEE to pay for uncompensated costs...something we support) by claiming that if they don't vote for this now, the tax will only get worse.

We heard this before when Republicans helped Ed Rendell pass a 10% increase in the Personal Income Tax in 2003.  How'd that work for them?  They ended up passing even more taxes in the following years!

So, Don't Feed the Sharks!  The tax will never be enough.  The idea you are "getting it done" is wrong.  You won't be done at all as the tax-eaters will be back again next year looking for another increase!

Take, for example, the following taxes that were supposed to "get it done" but have only skyrocketed!

• The state Sales & Use Tax first appeared in 1954 at the rate of 1%, but increased by 500% over the next 14 years to its current rate of 6%.
• Lawmakers then added the Capital Stock and Franchise Tax in 1968, as consumers started complaining about increases in the sales tax, then doubled its rate over the next 14 years.
• Policymakers added the Personal Income Tax in 1971 at the rate of 2.3%, which has increased 35% since then, to its current rate of 3.07%.
• State government also implemented the Inheritance Tax in 1971 which began taxing the estates of the recently deceased.
• In 2002, the state began taxing cell phone use for the first time under the Gross Receipts Tax and increased the Cigarette Tax by over 300%.
• In 2009, Governor Rendell got yet another increase of the Cigarette Tax.

Don't Feed the Sharks!

posted by MATTHEW BROUILLETTE | 01:15 PM | 0 comment

DECEMBER 30, 2011

PA Online Sales Tax Guidelines Claim First Casualty

When the Pennsylvania Department of Revenue issued a new bulletin instructing online vendors about collecting state sales tax, tax reform advocates expressed a lot of concern. The new guidelines were intended to clarify existing law, but still leave a lot of things unclear, and room for the department's judgment of "nexus."

Following the new directive, at least one online retailer has cut off all Pennsylvania ties. The online store ThinkGeek.com told the Commonwealth Foundation that "we did recently terminate our PA Affiliate Relationships based on the recent PA tax legislation" [though there was no legislation].

This means less revenue for Pennsylvania residents who sell or advertise with the site.

Federal courts have ruled that states can only require businesses with a "nexus" in the state to collect sales tax from shoppers, based on the Interstate Commerce clause. Residents are still responsible for the "use tax" on goods they buy out of state. While state law has always had broad definition of "nexus," going beyond simply having a physical presence, the new memo implies that almost any connection -- including advertising on Pennsylvania-based web sites -- could subject a company to state law.

Recently states have tried to go after Internet-only retailers to collect more revenue. Often this comes in the form of "Amazon taxes," targeted at Amazon.com, the largest online retailer, though the company on average represents a small portion of online sales. In fact, Amazon has come up with a new strategy to profit off of state efforts -- offering to serve as "tax collector" for other retailers for a fee.

But other retailers, particular smaller ones, will face significant compliance costs to figure out which of the more than 8,000 sales tax rates across the country to charge each user. And Amazon taxes have backfired in other states, resulting in online retailers dropping all local ties and pulling out of the state, and frequently fail to generate significant revenue.

Background Info:

• In recent Congressional Testimony, Joe Henchman of the Tax Foundation discusses the issue of online retailers and sales tax compliance.
• Tax Foundation Special Report on Amazon Taxes.
  
• Wall Street Journal debate on taxing online retailers.
• Mercatus Backgrounder on The Internet, Sales Taxes, and Tax Competition.
• ATR Policy Brief on Internet and e-Commerce Taxation.
  

posted by NATHAN BENEFIELD | 00:33 PM | 0 comment

DECEMBER 29, 2011

Tax-Exempt Government Property Adds to Harrisburg's Woes

The city of Harrisburg is facing a fiscal crisis primarily brought on by over-spending, accruing too much debt, and getting into areas government has no business—from the incinerator to owning a baseball team to collecting wild west artifacts.

But the Capitol City's woes are aided by the abundance of tax exempt properties. Nearly half of all property value in the city of Harrisburg is owned by government or hospitals and other charities exempt from property taxes. Yet these properties still receive city services, including fire and police protection, and benefit from other core city responsibilities, like road repair and clearing the streets of snow (more or less, as anyone who has driven in Harrisburg after a snowstorm can attest).

According to information from the Mayor's Office and the Dauphin County Assessor detailing Harrisburg tax-exempt government properties, assessing the municipal property tax rate on land (not on improvements, or imposing the school property taxes) would generate around $6 million per year, not an insignificant sum.

The city receives payment in lieu of taxes (PILOTs) to offset some of these costs. According to the Act 47 report, the city gets about $410,000 in PILOTs from 13 organizations. The state budget also includes $500,000 (down significantly from years past) for Capital Fire Protection. But these payments are a far cry from what these entities would pay if their property—even just the land portion—was taxable.

The tax exemption creates a perverse incentive for government and tax exempt organizations to acquire more property than they need. More importantly, these exemptions—combined with over-spending—require higher property taxes on businesses and homeowners.

According to a comparison in the Act 47 plan, property owners in the city of Harrisburg would pay two to three times as much as those in the surrounding suburbs, on average. This high tax burden helps explain why so many are moving out of the city: Harrisburg has lost 45% of its population since it peaked in 1950.

posted by NATHAN BENEFIELD | 11:08 AM | 0 comment

DECEMBER 28, 2011

Map: PA Among Highest Unemployment Tax Rates

The Tax Foundation has a new map showing unemployment insurance tax rates. As you can see, Pennsylvania has one of the highest tax rates in the nation.

The unemployment insurance tax is a payroll tax imposed on employers/employees—a higher rate makes it more expensive to hire workers.

Moreover, the effective rate is expected to go up, as Pennsylvania's Unemployment Trust Fund is more than $3 billion in debt. Last week the state House passed legislation to issue $3.5 billion in bonds, to pay off the loans owed to the federal government, and effectively get a lower interest rate, while legislation passed this summer would provide modest savings.

But neither solves the inherent problems of an unemployment system that is quickly drained during recessions, making it increasingly costly to hire workers in a bad economy.

posted by NATHAN BENEFIELD | 02:03 PM | 0 comment

DECEMBER 1, 2011

Chart of the Day: Shale Growth Fuels Tax Growth

We noted previously how the boom from Marcellus Shale natural gas has fueled a dramatic increase in state corporate tax collections.  Pennsylvania Department of Revenue data also show a major increase in other state taxes in counties with shale drilling. 

The top five drilling counties in 2011 (Bradford, Lycoming, Susquehanna, Tioga and Washington) saw sales tax collections grow by 15 percent last year, more than double the state totals.  Motor vehicle sales tax and inheritance taxes (partly due to dramatic wealth increases) in shale outpaced state growth even more dramatically.  And realty transfer taxes—on homes sold—grew by 19 percent in shale counties while declining statewide.  Indeed, the shale boom is one of few things keeping the housing market from continuing its decline.

When debating an "impact fee," lawmakers must consider the tax revenue already being generated from natural gas drilling and related economic growth.

posted by NATHAN BENEFIELD | 08:30 AM | 0 comment

NOVEMBER 14, 2011

Are Gas Drillers Paying Their "Fair Share"?

The Scranton Times-Tribune and the Patriot-News criticize HB 1950 (the natural gas fee proposal) for not taxing gas drillers enough, yet fail to include basic information about natural gas taxes in Pennsylvania and throughout the country.

States like Texas and Wyoming have higher natural gas taxes compared to HB 1950's, but these states also have friendlier business climates and lower taxes across the board. For instance, Texas and Wyoming have neither personal income nor corporate income taxes. Pennsylvania currently has the 10th-highest tax burden in the nation and is one of the most expensive states in which to drill: It costs $1 million more to drill a shale well in Pennsylvania than in Texas.

Pennsylvania doesn't need a unique and extra tax on drillers to benefit from the shale boom. The Pennsylvania Department of Revenue reports tax collections from mining corporations, which include natural gas drilling, increased by a whopping 592 percent over two years. All other industries' tax payments increased by a mere 1 percent.

This growth of close to $140 million in two years is on top of what the industry pays in personal income tax, sales tax, Capital Stock and Franchise Tax, and fees to the state and local governments. Not to mention the billions drillers have paid in royalties to landowners—which are also taxed.

Natural gas companies are paying their "fair share."

posted by ELIZABETH STELLE, NATHAN BENEFIELD | 05:10 PM | 0 comment

OCTOBER 17, 2011

Pennsylvania's Inheritance Tax

The Pennsylvania House Finance Committee held a hearing today on a number of proposals to eliminate, reduce, or change the state inheritance tax. The Pennsylvania inheritance tax applies to all estates left to adult children (4.5 percent rate), siblings (12 percent rate) or other designated heirs (15 percent rate). Estates left to spouses, children under age 21, or charities, are not taxed.

You can read my testimony here.

Joining me was David Logan, an economist with the Tax Foundation. His written testimony can be found here.

posted by NATHAN BENEFIELD | 01:00 PM | 0 comment