Marcellus Shale tax payments in spotlight
http://standardspeaker.com/news/marcellus-shale-tax-payments-in-spotlight-1.1140777
BY ROBERT SWIFT (HARRISBURG BUREAU CHIEF)
Published: May 3, 2011
HARRISBURG – The natural gas drilling industry has paid more than $1 billion in state taxes since the exploration of the Marcellus Shale formation got under way in 2006, according to an analysis released Monday by the state Revenue Department.
However, a Democratic senator found Marcellus Shale drillers have registered some 500 subsidiary corporations in Delaware during the past five years to take advantage of a Pennsylvania tax loophole.
Sen. Christine Tartaglione, D-2, Philadelphia, said on Monday that the subsidiaries have been created using the so-called Delaware loophole that legally allows Pennsylvania businesses headquartered in other states to avoid paying the state corporate income tax on their operations here. The senator based her estimate on her own research of public records in Delaware.
Tartaglione called on Revenue Secretary-designate Dan Meuser to audit the tax return filings of Marcellus Shale firms as they relate to expenses and deductions claimed for Delaware companies. She was joined by several colleagues, including Sen. John Blake, D-22, Archbald, who said they want the Republican-controlled General Assembly to consider closing the Delaware loophole as part of the next state budget.
Tartaglione has introduced legislation to end that practice with “combined reporting,” a mechanism that would require businesses to add together the profits of parent firms and subsidiaries that are integrated economically when filing tax returns. Businesses would pay taxes on an apportioned share of the combined income of the entire corporate group.
“When 70 percent aren’t paying the tax, that’s a violation of every other taxpayer that’s paying the burden,” said Blake.
He said that ending the loophole would enable the state to lower the CNI tax rate, currently at 9.99 percent, by 25 percent.
Business groups have said that combined reporting will make Pennsylvania less competitive because international firms will be reluctant to subject their entire operations on a worldwide scale to state taxes.
Meuser said he has been given clear authority by the governor to enforce state tax laws to discourage tax evasion. He also emphasized the importance of reducing the high state corporate net income tax rate of 9.99 percent.
In his department’s analysis of state taxes paid by the natural gas industry since 2006, the $1 billion is in line with the general reports about economic activity in the drilling boom areas in Northeast Pennsylvania and other sections of the state, said Meuser.
Industry tax payments are growing at a quick rate, said Mr. Meuser. He said that 857 oil and gas companies and their affiliates paid a total of $238 million in state taxes (corporate income, sales, capital stock and franchise and employer withholding) through April. The total state taxes paid by these companies in 2010 was $218 million.
The analysis is based on taxes paid by drilling firms and their subsidiaries, direct suppliers, pipeline companies and distributors, he added.
The analysis attributes $214 million in state personal income taxes paid since 2006 to lease payments going to landowners, royalty income and sales of assets.
Gov. Tom Corbett ordered the analysis shortly after taking office. It appears as debate intensifies at the statehouse over whether the gas industry should be subject to a special state tax or local impact fee.
rswift@timesshamrock.com