Tax paid by drillers disputed

http://www.timesleader.com/news/Tax_paid__by_drillers__disputed_04-27-2011.html

Report stating group pays little in fees uses faulty data, say those in industry, Pa. official

Posted: April 27, 2011
STEVE MOCARSKY smocarsky@timesleader.com

Making a case for a severance tax on natural gas in Pennsylvania, a research and policy center on Monday released a report showing that natural gas drillers in the state pay very little in state and local taxes, despite industry claims to the contrary.

Many drillers – including nine of the top 10 permit holders in the Marcellus Shale – structure their businesses as limited liability companies (LLCs) or limited partnerships (LPs).

This allows them to avoid the corporate net income tax altogether and pay the much lower personal income tax on company profits, according to a report by the Pennsylvania Budget and Policy Center.

Only 15 percent of the 783 companies to file state corporate net income tax returns owed any tax, netting the state $17.8 million. About half of the companies that had to file tax returns for capital stock and franchise tax had to pay any tax, which totaled $8 million. The state collected another $13 million in personal income taxes from drillers, bringing the grand total to $38.8 million that year, the report states.

In 2009, oil and gas drillers in Louisiana, Texas and West Virginia – states that have severance taxes – paid considerably more in state and local taxes than they did in Pennsylvania. Drillers paid $44 million in  Pennsylvania sales and business taxes, while, in Texas, they paid $8.8 billion in drilling, property, sales and corporate taxes, according to the report.

“Texas has about 34 times as much oil and gas drilling as Pennsylvania, but took in 200 times as much in taxes from the industry,” said Sharon Ward, center director. “Clearly, drillers are getting big tax breaks in Pennsylvania that they don’t enjoy anywhere else.”

The report seems to debunk a statement by former Gov. Tom Ridge, now a board member of the natural gas industry’s Marcellus Shale Coalition, who said the industry “helped the state generate more than $1 billion in revenue to state and local governments.”

But Elizabeth Brassell, spokeswoman for the state Department of Revenue, said the report is “a narrow look at old tax data” and used “less than ideal research methodology.”

Brassell said the report was based on data the department provided a year ago, and the department has since identified better research methodologies.

Brassell said some of the information in the report is either “blatantly wrong or misrepresented.” For example, the assertion that only $13 million was paid by the industry in personal income taxes must be based on “faulty information,” she said, “because we can’t get that figure anywhere.”

In response to the claim that many companies structure as LLCs to avoid paying corporate taxes, Brassell said the department is finding “a number of cases” in which LLCs are owned by corporations rather than individuals and, in those cases, the corporations are paying “substantial” income taxes.

“In looking at it, state taxes paid by the industry so far in 2011 are already nearly exceeding what the industry has paid in all of 2010 and we’re totaling collections in the hundreds of millions annually rather than the tens of millions,” Brassell said.

Travis Windle, spokesman for the Marcellus Shale Coalition, said that according to independent Penn State University experts, Marcellus production generated nearly $785 million in tax revenues through 2010 in Pennsylvania while helping to create more than 88,000 new jobs.

“Further, a more recent Penn State analysis clearly demonstrates that state sales tax revenues, realty transfer tax collections, as well as overall tax income continue to soar in Marcellus producing counties,”  Windle said, adding that tax income increased 325.3 percent in counties with 10 or more wells.

Steve Miskin, press secretary for House Majority Leader Mike Turzai, R-Allegheny, said the industry is creating “good-paying” jobs, the companies and employees are paying taxes and the companies are fixing roads and making other improvements.

State Sen. John Yudichak, D-Plymouth Township, on the other hand, supports a severance tax. In March, he introduced Senate Bill 905, which would evenly distribute severance tax revenue between the Commonwealth Financing Authority for water supply, wastewater treatment, stormwater and flood control projects; the Environmental Stewardship Fund; and local governments directly affected by natural gas drilling.