More taxes? Associations send lawmakers a letter to voice concern.

How big of an impact will or do state taxes have on the gas and oil industry? According to an article by the Associated Press, it will have a big impact in Pennsylvania.

The state’s three biggest oil and gas associations — Associated Petroleum Industries of Pennsylvania, Marcellus Shale Coalition and Pennsylvania Independent Oil & Gas Association — signed a letter warning lawmakers that raising taxes would hurt the industry. 

The letter was sent to 11 top lawmakers in the Republican-controlled legislature. 

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The severance tax could make Pennsylvania less competitive and drive companies to shift crews and rigs to other states, but many other gas- and oil-producing states also have a severance tax. 

Lawmakers are proposing the severance tax to ease a huge budget shortfall. According to the article, estimates of a 4 or 5 percent tax run into the hundreds of millions of dollars, making it one of the biggest ways to raise the budget-fixing funds. 

Other states with severance taxes

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According to the National Conference of State Legislatures, Pennsylvania remains the largest natural gas-producing state without a severance tax. At least 36 states now impose a severance tax, and 31 of those specifically levy taxes on the extraction of oil and gas. 

The 5 percent severance tax in West Virginia is imposed on the natural gas industry as well as oil, coal, limestone/sandstone, sand, gravel and other natural resources. 

Like the proposed Pennsylvania tax, West Virginia’s tax is an extraction tax, meaning the gas is taxed when it is extracted and before it is profitable. In Texas, however, a higher severance tax rate of 7.5 percent is placed on all gas extracted from a well once the well has become profitable. 

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The Ohio House of Representatives recently voted in favor of a proposed increase to its severance tax on oil and gas, jumping from less than 1 percent to 2.5 percent. 

Where do these tax dollars go?

A portion of Ohio’s tax dollars goes to the Department of Natural Resources and 17.5 percent is allocated to benefit local governments. The largest portion of the revenue, however, goes back to the state to help fund income tax relief. 

In West Virginia, the revenue from the severance tax is placed in a fund established by the State Treasurer’s Office. That fund is then distributed with 75 percent to oil and gas producing counties and the other 25 percent spread throughout all the counties based on population.

How do you think these severance taxes affect the oil and gas industry? How should the money collected be used? Post a comment or email

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