In a Capitolwire interview (subscription), gubernatorial candidate Dan Onorato advocated a low natural gas severance tax rate with exemptions. Onorato highlighted three states as good examples of a “reasonable” severance tax: Texas, Arkansas, and Louisiana.
Texas’ 7.5 percent tax rate is reduced to between 1% and 3%, for up to 10 years, for shale wells, based on production costs. Arkansas levies a 5% tax, reduced to 1.5% during the first 3 to 4 years, again based on production costs. Louisiana drillers pay 16 cents per thousand cubic feet (MCF), but are exempted for the first 2 years.
All three examples are substantially lower than Governor Rendell’s preferred model, West Virginia. In the mountain state, drillers are charged 5% on the value of extracted natural gas, plus $.047 per MCF thousand of extracted gas. In budget battles this year, House Democrats proposed an even higher tax rate at 8% plus 8 cents per MCF.
If Pennsylvania is to impose a severance tax, choosing a tax rate comparable to or lower than other drilling states – keeping in mind Pennsylvania has higher business taxes and higher costs of doing business – is essential to our economic competitiveness if politicians want the natural gas industry to continue to stimulate the economy.
Here’s a list of the severance tax rates among the top 15 gas producing states.