Maryland Delegates Propose 15% Severance Tax

They must be smoking something good in Maryland—at least in the Maryland House of Delegates where Del. Maggie McIntosh (D-Baltimore) and Del. Sheila Hixson (D-Montgomery) introduced a bill last Friday that would require the state collect 15 percent of the wholesale value of any natural gas produced from Maryland’s portion of the Marcellus Shale.

There’s only two counties in Maryland where there’s Marcellus Shale available to drill—Allegany and Garrett—and Garrett already has a 5.5 percent local severance tax. That means drillers in Garrett County would pay 20.5 percent (!) in severance taxes for all produced gas—forever.

Let’s see, I’m a driller and I can either drill in PA with no severance tax (but a relatively low impact fee), or in WV with a 5.79 percent severance tax, or Ohio with a 0.42 percent severance tax, or Maryland with a 20.5 percent severance tax. Hmmm. Tough choice there.

Don’t forget Maryland is in the midst of four year study on hydraulic fracturing and shale gas drilling that’s not due to be completed until 2014, which makes talk of taxing something that hasn’t even started a moot point.

State Sen. George Edwards, who represents both Allegany and Garrett counties, has introduced legislation in the Maryland Senate that calls for a 2.5 percent severance tax. In responding to the bill introduced by McIntosh and Hixson, Sen. Edwards basically said they’re nuts.

That’s six times the rate proposed by Sen. George C. Edwards (R-Allegany and Garrett), who earlier introduced a bill to set the “severance tax” rate on natural gas at 2.5 percent.

“We’ll be sitting down and negotiating, so you’ll probably see something halfway,” Hixson said, adding she had not read Edwards’s bill.

But Edwards, reading the House bill for the first time on Monday, called a 15 percent severance tax “ridiculous.”

“I don’t know of any other state that’s anywhere near that,” Edwards said.

The House proposal would make energy companies pay a total of 20.5 percent of the value of extracted gas because Garret County, where most of the drilling would take place, already imposes a 5.5 percent local severance tax, Edwards said.

Edwards said that would reduce lease payments and gas royalties for landowners and dissuade potential energy developers from doing business in Maryland.

“The local people who own this product are going to get a lot less offered to them, or a lot of these companies are going to say the heck with Maryland,” Edwards said.*

*The Washington Post (Feb 13, 2012) – Md. lawmakers wrangle over natural gas tax