Taxation

Landowners in Pennsylvania have gotten property tax relief in recent years from a PA law known as “Clean and Green.” If landowners keep their property use as agricultural, open space or forest-land, they are taxed at a lower rate (for those uses) rather than the higher fair market value the land might bring for other uses. But there’s a catch—if a landowner starts using the land for another non-agricultural use, they not only start paying higher taxes on it now, they also have to pay the difference in the tax rate between Clean and Green and fair market value going back up to seven years—as a penalty.

The intent of the program, which is administered through county government, is to encourage property owners to retain their land in agricultural, open-space or forest-land use by providing real estate tax relief.

Property owners benefit through lower taxes as long as their land isn’t used for housing developments or other uses inconsistent with agricultural production, open-space or forest-land use.

If a property owner decided to use the land for a purpose inconsistent with the program, the landowner would have to pay “rollback taxes” – the difference between fair market value and use value of the land – for as many years as the property had been designated Clean and Green, up to a maximum of seven years.*

So the million dollar question: If landowners allow drilling on their land, is that land disqualified from the Clean and Green lower tax rate? Right now, as things stand, each county will interpret the law the way they see fit. There is a bill that has passed the PA Senate and is now before for the House for consideration that would allow gas drilling on Clean and Green land without penalty.

Landowners who have signed leases where drilling will soon begin (or has already begun) need to monitor this situation. Landowners in PA who have not yet signed a lease would do well to be sure there is a clause requiring the driller to pay the difference in taxes should the bill not get signed into law.

*Wilkes-Barre Times Leader (May 11) – Drilling’s effect on ‘Clean and Green’ land uncertain

The severance tax, like a bad penny, keeps turning up. Pennsylvanians (and eventually New Yorkers) will have to stay vigilant against greedy politicians who can’t help themselves when there’s something nearby that can be taxed. Tax revenues equal money flowing through politicians’ hands, and that equals power. The latest example:

State Sen. Andy Dinniman, D-19th, of West Whiteland, has introduced legislation that would impose a tax on Marcellus Shale natural gas extraction and use the revenues from that tax to give Pennsylvania homeowners property tax rebates.

Dinniman said a 5 percent tax on the natural gas from the state’s Marcellus Shale reserves would, by 2014, provide the average homeowner $148 each year in property tax relief.

“Every election, all the politicians stand up and say, ‘We understand your pain. We understand what’s going on. We will bring property tax reform. We will lower your property taxes,’” Dinniman said. “Well, the answer is beneath our feet. It’s a mile down, but it’s beneath our feet.”

The tax, referred to as a severance tax, would be assessed per cubic foot of gas that is extracted, Dinniman said.*

It is a bald-faced lie that the money will go for property tax relief. Hopefully the good citizens of PA know that by now. After having been lied to for a generation (lottery money goes to schools, Social Security money stays in its own trust fund, etc.), I am hopeful that people are starting to wise up. A severance tax, if instituted, will go to Harrisburg where it will disappear into politicians’ hands to be used for other “urgent” needs. And everyone knows it.

Landowners are encouraged to continue to oppose the severance tax, which ultimately comes out of their own royalty checks.

*The Delaware County Daily Times (Mar 3) – Chesco pol proposes tax on Marcellus Shale gas reserves

WTAE Pittsburgh (Feb 25)
Rendell Talks Expanded Sales Tax Plan In Pittsburgh

Pennsylvania Gov. Ed Rendell (Democrat), has proposed a severance tax on natural gas in the Marcellus Shale. But the Governor himself is not optimistic that the Pennsylvania Legislature will pass his proposals. From the WTAE news report:

In addition, Rendell is reviving proposals he has offered before, including extending the tobacco tax to cigars and smokeless tobacco and adding a severance tax on natural gas extraction to capitalize on the industry’s hot pursuit of Marcellus Shale.

However, Rendell said he’s not optimistic the state Legislature will vote for his changes.

Philadelphia Inquirer (Oct 9):
Pa. budget pieces start to fall into place

With a state budget still not adopted, and now over 100 days late, Pennsylvania is finally about there. The good news for drillers…no severance tax this year:

Also not in the package is a tax that some lawmakers had wanted to impose on natural-gas drilling in the vast formation known as the Marcellus Shale.

Republicans in the Senate – and later Rendell – opposed starting such a tax this year, arguing that it would stunt drillers in an industry still in its infancy in the state.

Kudos to the Republican Senate for protecting landowners’ money.

Pittsburgh Post-Gazette (Oct 3):
House budget unlikely to advance

Pennsylvania still has not adopted a budget for the new fiscal year. Part of the wrangling is how to raise taxes to meet the ever growing demand of government to transfer wealth from the producers of society to the non-producers. In PA, the Democrats want to tax natural gas drilling, which of course will take money out of the landowner’s pocket…make no mistake, any tax on drilling will be passed on as an “expense” by the energy companies, reducing royalties to landowners. The Republicans in the PA statehouse are trying to stop it. Make your voice heard if you’re in PA!

The Centre Daily Times (State College, PA) recently ran an editorial with typical scare-tactic, kindergarten logic, while at the same time supporting the obscene taxation of drilling in the Marcellus in Pennsylvania.

The editorial recounts how a number of so-called conservation groups have their greedy hands out and want a piece of the pie (my words, not theirs). So in the tortured logic of these groups, they want to tax tax tax the Marcellus. On one hand conservation groups and the Centre Daily Times decry drilling and paint a nightmarish picture of water and noise pollution, road damage, and general malaise. In the next breath they say, “Oh well, if it’s gonna happen, let’s at least grab a piece of the action for ourselves.” It’s thuggish thinking and thuggish behavior. A protection racket–pay to play. And newspapers like the Centre Daily Times fall right in line, along with their Democrat co-conspirators in Pennsylvania state government.

Perhaps this is a teachable moment? The taxarati (the taxing class), will tell you energy companies will have to pay the tax, and that there’s more than enough money going around that “a little tax won’t hurt anyone,” with the justification that “39 other states do it too.” Wrong. Natural gas prices have come down dramatically in the past 12 months and new exploration is at best a break-even affair at this point.

Point #1: Drilling will slow or stop. Making drilling more expensive by adding more tax may tip the scales and make it an unprofitable venture, and the drilling will stop. There are already indications that new drilling has slowed throughout the Marcellus.

Point #2: Landowners will not escape the tax. Do you think energy companies alone will bear the tax? Wrong! Landowners will also be part of this tax. The energy companies will not bear the burden alone. More tax means less in landowners’ pockets.

Point #3: Consumers will ultimately pay. Do you think corporations simply “live” with making smaller margins of profit? They do not. They pass along increases in higher prices. There truly is no such thing as a tax increase on business that is paid by anyone other than the consumer. It is always the case. You may think you’re “soaking the rich” by increasing taxes on businesses, but those taxes are treated as a cost of business and factored into the price consumers will pay. By taxing business, you have just taxed yourself. Doh!

Wake up PA, and reject the notion of a severance tax on Marcellus drilling.

Read the Centre Daily Times editorial: Tax the source of the mess