Posted in:
Tim Puko at the Pittsburgh Tribune-Review uncovered a $56 million mistake in the Pennsylvania Department of Revenue's reporting of personal income tax (PIT) collections attributed to Marcellus Shale drilling for last year.
Back in May, the Department estimated that taxable Marcellus Shale royalties generated $102.7 million in PIT collections in 2010. Now the Department says that figure is a tad lower — $46.2 million, a decrease of $56.5 million or over 55% from what was reported six months ago. To quote Britney Spears, "Oops!"
How does this happen? By rushing too fast and using incomplete data to make a policy point, as I noted in the Tribune-Review story. This type of cheerleading report for a single industry is highly unusual for the Department of Revenue. There isn't a report of taxes paid by snack food manufacturers, steel producers, or even dairy farms.
The updated Marcellus tax data included another interesting tidbit — how little is paid in PIT from income flowing through to oil and gas company owners. In 2009, the Department reports $9.9 million in PIT from these taxpayers.
Our review of oil and gas drillers in Pennsylvania found that more than 70% of the companies were structured as limited liability companies (LLCs) or some other type of flow-through entity. The owners of these companies are likely a combination of corporate and individual owners, but getting less than $10 million from the individual owners of a booming industry is pretty eye opening to how little drillers are taxed in Pennsylvania.
The gas industry has been very effective in arguing that it is contributing a "game-changing" number of new jobs and tax revenue, and uses these claims to beat back efforts to enact a meaningful drilling tax. We have made the case for some time that these claims are well overstated. The Department of Revenue data, particularly the paltry PIT numbers for 2010, seem to back up our case.
The Department of Revenue's $56 million oops also should call into question some of the other industry estimates it made for 2011. In particular, the Department is forecasting that corporate net income taxes will jump from $82.3 million in 2009 and $96.7 million in 2010 to $254.2 million in 2011. We shall see. This figure is based on estimated tax payments the drilling companies, pipelines, and other tangentially-related companies have made — and are subject to change. Often, companies will overpay their estimated taxes and get a big refund when the returns are settled. So it is not unreasonable to think this figure will come down when all the returns are settled.
The Department of Revenue is usually very conservative about reporting data. The latest PIT statistics are from tax year 2009; the latest corporate tax stats are from tax year 2004. Why? Because it takes time to make sure all of the returns are properly filed, tax liabilities settled, and that glitches in the data are fixed.
Comments
In reality, the externalities
In reality, the externalities of this industry are ill considered by economists. Inherently, the gas drilling occupies rural land that is traditionally an asset for agriculture, tourism, and real estate industries. Agriculture and tourism occupy the largest revenue streams into the state and are being displaced as PA turns into an industrial wasteland pock marked with 10 to 15 acre heavy industrial sites, trucks, processing facilities, and scarred pipeline right of ways. The Marcellus industry will devastate Pennsylvania's economy in the long run, especially when it picks up and leaves like so many industries before it. To believe that taxing the gas is the solution for Pennsylvania, is a compromised, pro-drilling stance unless it is partnered with a strategy to stop the drilling altogether.
Many liberal environmental group, especially elder members among them, have compromised themselves on natural gas because they have, for years, pitched natural has as "a bridge fuel for a clean energy future" and a "cleaner solution to coal and oil." For Thanksgiving, here's a quote from a bunch of turkeys, the Sierra Club national position on fracking: "As we move to a clean energy future, the Sierra Club is generally not opposed to continued production from existing gas fields"
I will die fighting the Marcellus industry. I'm 24 years old and I will force them out of our state if it takes my last breath to do so. How's that for a progressive position?
Keep up the good fight, Alex
Keep up the good fight, Alex (and Michael). I am perhaps one of those compromised enviros to whom you refer: I know this is a rip-off to my fellow PA, and to the environment and economy of generations unborn. But I am also a realist: solar and wind ain't there yet, We The People have shown approximately zero propensity to reduce energy use, and we need a relatively-clean(er), locally-abundant energy source until one of those above are. Yes, I am on your side, and I thank you for your service. No, I don't see a realistic path for PA forward with absolutely no fracking.
-Steven W Todd, PE
Post new comment
Thank you for joining the conversation. Comments are limited to 1,500 characters and are subject to approval and moderation. We reserve the right to remove comments that:
If you have questions, please contact Lilienthal@pennbpc.org.