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Governor Wolf Proposes 6.5% Severance Tax

On February 7, 2017, Pennsylvania Governor Tom Wolf released his proposed 2017-18 budget for the Commonwealth, which includes a proposed 6.5% severance tax on natural gas. Under Governor Wolf’s plan, operators would be allowed to credit the amount paid in unconventional gas well impact fees against severance tax liability. Governor Wolf estimates that his tax proposal will result in over $290 million in revenue in 2017-18, and over $700 million in revenue per year by 2021-22. Governor Wolf has proposed a severance tax in each of his budget addresses thus far, but the Pennsylvania Legislature has yet to enact the tax.

In January 2017, the Independent Fiscal Office estimated that 2017 impact fee collections will total $174.6 million, which equates to an effective tax rate of 5%. The IFO’s estimated effective tax rate of 5% is significantly smaller than the 2015 effective tax rate, which was 6.9%. The IFO believes that the 2017 effective tax rate will decrease because there are not sufficient new wells to offset declines in older producing wells and because some older wells will fall below the 90 mcf threshold for tax liability.