Katie Koziara Individual Background Paper 10/24/13 Severance Taxes on Natural Gas In this day and age we are

"witnessing a second industrial revolution," according to North Carolina Governor Tom Corbett. The shale-gas sector developments we are

experiencing will improve our country's autonomy by reducing our dependence on foreignproduced energy products (Furey). The government even provides a tax incentive for citizens who use compressed or liquefied natural gas to fuel their motor vehicles ("Alternative Fuel Excise Tax Credit."). But the United States needs to consider ways to not only provide a reward for citizens using this technology, but also to capitalize on this booming industry while also making sure that the natural gas companies are not causing harm to the population or the environment. A proposed - and hotly contested - option towards this end is to charge a severance tax on natural gas. A severance tax is a tax imposed on the extraction of natural resources when they are taken from an area within the boundaries of a state ("Louisiana Severance Tax"). At the federal level, Sens. Bennet (D-CO) and Burr (R-NC) introduced legislation that would change the liquid natural-gas tax from volume to energy-based rates. Natural-gas industry proponents support this legislation as currently this product is taxed at a 70% higher rate than diesel and this bill will change that statistic (Ryan). At the state level, the severance tax standards are a lot less unified. Almost every state with natural gas in the United States collects money from gas companies. Severance taxes provide states with funding for education, colleges, transportation, and other programs that can help boost the state economy (Wood). Other states use the money toward a permanent fund that will help balance the budget. Furthermore, states such as

2 Katie Koziara Individual Background Paper 10/24/13 North Carolina charge an excise tax that decreases in cost with an increase in their monthly therm volume of piped natural gas. ("Piped Natural Gas Excise Tax.") Not all states use excise taxes. A few states, including Pennsylvania, only impose an "impact fee" that doesn't generate nearly as much as a excise tax would (Wood). Other states, such as Maryland, don't have any taxes related to natural gas extraction (Pless).

Figure 1. Map of Oil and Gas Severance Tax Laws from National Conference of Legislative States (Pless).

About 36 states, however, do impose a severance tax that generates about more than $11 billion per year. Introducing a severance tax in these states allows states to insure that resource extraction doesn't cost the state more than it brings in. Road construction and maintenance, environmental issues, and other related issues are negative externalities

3 Katie Koziara Individual Background Paper 10/24/13 that arise from a booming natural gas industry can offset the enticing prospect of bringing the industry to the state (Pless). No proposed state severance tax is more publicly discussed than the Pennsylvania tax. U.S. Rep. Allyson Schwartz, who is running for governor, has proposed a 5 percent severance tax on Marcellus Shale production. This tax would allegedly generate $612 million during the first year and would nearly triple in the next decade (Pless). Opponents of the tax claim that gas companies will leave Pennsylvania for other states where the severance tax is lower, taking equipment and funding with them. They want the industry to get rooted in Pennsylvania before any other taxes are imposed (Krawczeniuk). Clearly the severance tax debate within states and in Congress is just picking up, and it will only get more boisterous as our dependence on natural gas and technologies in natural gas extraction continue to improve.

Katie Koziara Individual Background Paper 10/24/13 Works Cited

"Alternative Fuel Excise Tax Credit." Alternative Fuels Data Center. U.S. Department of Energy, n.d. Web. 24 Oct. 2013. <http://www.afdc.energy.gov/laws/law/US/319>. Furey, Denise. "Marcellus Shale: Is The Battle Over?" The Philadelphia Public Record 3 Oct. 2013. Web. 24 Oct. 2013. <http://www.phillyrecord.com/2013/10/marcellusshale-is-the-battle-over/>. Gray, Ryan. "U.S. Senate Introduces Excise Tax Bill for Liquefied Natural Gas." School Transportation News 7 June 2013. Web. 24 Oct. 2013. <http://www.stnonline.com/home/latest-news/5355-us-senate-introduces-excisetax-bill-for-liquefied-natural-gas->. Krawczeniuk, Borys. "Corbett: Natural gas tax could hurt Pa." Citizens Voice 18 Mar. 2011. Web. 24 Oct. 2013. <http://citizensvoice.com/news/corbett-natural-gas-tax-couldhurt-pa-1.1120478>. "Louisiana Severance Tax." Louisiana Department of Natural Resources. Ed. Rizwan Ahmed. Louisiana Department of Natural Resources, 2013. Web. 24 Oct. 2013. <http://dnr.louisiana.gov/assets/TAD/data/severance/la_severance_tax_rates.pdf>. "Piped Natural Gas Excise Tax." Corporate, Excise, and Insurance Tax Technical Bulletins. North Carolina Department of Revenue, 2008. Web. 24 Oct. 2013. <http://www.dornc.com/practitioner/corporate/bulletins/2007-2008/V-C.pdf>. Pless, Jacquelyn. "OIL AND GAS SEVERANCE TAXES: STATES WORK TO ALLEVIATE FISCAL PRESSURES AMID THE NATURAL GAS BOOM ." National Conference of State Legislatures. National Conference of State Legislatures, Feb. 2012. Web. 2012. <http://www.ncsl.org/research/energy/oil-and-gas-severance-taxes.aspx>. Wood, Michael. "A Look at Other States Shows Marcellus Impact Fee Shortchanges Pennsylvanians." . Pennsylvania Budget and Policy Center, 8 Aug. 2013. Web. 24 Oct. 2013. <http://pennbpc.org/look-other-states-shows-marcellus-impact-feeshortchanges-pennsylvanians>.