Fair Share? How Pennsylvania Gas Taxes Compare

Pennsylvania is the only top natural gas producing state that doesn't tax drilling. Sound familiar? It's a favorite argument of tax proponents, but it misses the big picture. Pennsylvania taxes the natural gas industry many ways that don’t exist in other drilling states. For example, there is no corporate income tax or personal income tax in Texas or Wyoming, and the corporate income tax in West Virginia is 6.5%, compared to Pennsylvania’s 9.99% rate.

The chart below demonstrates that Pennsylvania's economy is far less inviting to natural gas development, even absent a severance tax.

Top Natural Gas Producing States 2013

States

Severance Tax on Natural Gas

Exemptions and Incentives for Unconventional Wells

Top Corporate Net Income Tax Rate

State and Local Tax Burden (as a percentage of State income/national rank)

1

Texas

7.5% of market value

Rate reduction appr. 2% for up to 10 years

none

7.5% / 47

2

Pennsylvania

2.1% *

 

9.99%

10.3% / 10

3

Louisiana

$0.03-0.13 per MCF

Severance tax suspension on horizontally drilled well for 2 years or until payback

8%

7.6% / 46

4

Oklahoma

7% plus 0.095% excise tax

Exempt from severance tax for 4 years or until gas production pays for the cost of the well

6%

8.5% / 39

5

Wyoming

6% of taxable value

Gas transportation costs subtracted from the taxable value

none

6.9% / 50

6

Colorado

2% - 5% based on gross income

Allows producers to deduct 87.5% of their property taxes paid to gov. from severance tax to state

4.63%

9% / 32

7

New Mexico

3.75%

 

7.3%

8.6% / 37

8

Arkansas

5%

1.5% on new discovery wells for 24 months and on high cost wells for 36 months (can get extension)

6.5%

10.3% / 12

9

West Virginia

5% + $0.047 per MCF

 

6.5%

9.7% / 19

10

Utah

3% - 5%

6 months exemption for development wells

5%

9.4% / 28

11

Alaska

25% - 50% net value

Reduction for all drilling in Cook Inlet basin and when gas in used in state; Limited tax credits for exploration

9.4%

7% / 49

12

Kansas

8% on gross value severed from earth

3.67% tax credit for ad valorem taxes paid, effectively reducing the severance tax to 4.33%

7%

9.4% / 26

13

California

<0.01 per MCF

 

8.84%

11.4% / 4

*Pennsylvania levies an impact fee (akin to a tax) based chiefly on the number of natural gas horizontal wells.
Sources: Energy Information Administration, Independent Fiscal Office, Tax Foundation