Although their state capitals are separated by hundreds of miles, Pennsylvania, Ohio, and West Virginia are home to Marcellus Shale gas fields that in some cases are separated by only a few miles.
From that vantage point, advocates from the three states said it would make sense for Pennsylvania, Ohio, and West Virginia to take a common approach to taxing shale gas and oil drilling.
West Virginia has a severance tax whose rate is in the middle range of gas-producing states, but Ohio and Pennsylvania have lagged far behind. Ohio has a very low production-based severance tax, while Pennsylvania had no extraction tax until 2012 when it adopted a small statewide drilling impact fee. Legislation has been introduced in both Ohio and Pennsylvania to put more adequate severance taxes in place.
The leaders of the Pennsylvania Budget and Policy Center, Policy Matters Ohio, and the West Virginia Center on Budget & Policy sent a letter to the governors of their three states today, urging them to enact a severance tax with a rate no lower than that of West Virginia.
A comparable tax rate will allow the three states to invest in a stronger economic future, ensure that their communities are benefiting, and allow them to address the impacts of drilling. As our three groups wrote in the letter, it would also “provide important long-term predictability for the industry,” and “take taxes out of the competitive equation."
The three organizations recommend that West Virginia’s severance tax rate be considered a floor, not a ceiling, for the three states. Doing so will bring the region more in line with gas-producing states in the West and the South, which mostly have higher severance tax rates than West Virginia.
All three states have experienced a rapid increase in shale drilling over the past five years – bringing some new jobs and economic opportunities but also growing costs to address environmental risks, increased demand for emergency services and public safety, a rapid jump in housing costs, and greater road maintenance needs.
Leaders from the three states said there is an opportunity now to take a more coherent approach to tax policy that will benefit the entire region and its residents.