Third and State

More doubt is being cast on the Marcellus Shale Coalition's recent economic impact study. This time, by the energy investment banking firm Parks Paton Hoepfl Brown.

In a recent article published by the online oil and gas publication Rig Zone, G. Allen Brooks, the firm's managing director, points out a number of issues in the report that seem to exaggerate the economic promise of the Marcellus Shale.

Pennsylvania State Senator Joe Scarnati's legislation to enact a Marcellus Shale gas drilling fee was amended and voted out of the Senate Environmental Resources and Energy Committee by unanimous votes Tuesday.

Unfortunately, the amendment offered by committee chair, state Senator Mary Jo White (R-Venango), makes an already weak bill a lot weaker.

Interesting tidbit from a Tuesday Pittsburgh Post-Gazette interview with Revenue Secretary Dan Meuser.

The article highlighted an analysis from the Department of Revenue on the state taxes being paid by oil and gas drillers and related companies. Toward the end of the story, Post-Gazette reporter Laura Olson writes:

The department's figures show 275 companies paying corporate taxes in 2006, a number that dropped to 178 last year and to 97 so far this year. [Secretary Meuser] attributed the general decline to fluctuation as mergers occur, noting that this year's number is expected to rise slightly.

But the secretary also said some companies, in light of the state's 9.99 percent corporate tax rate, were probably morphing from corporations to become pass-through entities taxed at the lower 3.07 percent [personal income tax] rate. He said that was speculation and that the department didn't have definitive data on those transitions.

"Consolidation clearly is the primary reason" for fewer drilling companies paying corporate taxes, he said. "But the other is also occurring. That's exactly why the governor wants to lower the corporate rate."

This is a point we've been making all along. At last count, more than 80% of permitted wells in the Marcellus Shale are owned by companies that are operating as limited liability companies (LLCs) or limited partnerships (LPs). Individuals who own a share in these entities pay the personal income tax rate on profits, avoiding the corporate net income tax. This lowers the company's effective tax rate.

The Patriot-News reports that Governor Corbett, speaking to a meeting of township commissioners Monday, said: “Texas doesn’t have a personal income tax. Texas doesn’t have a property tax. So when we’re talking about taxes, don’t you think we ought to compare apples to apples and oranges to oranges?"

Let me set the record straight: Texas levies property taxes — $40 billion worth in 2009, according to the Texas Comptroller. It is their largest state or local tax — by a lot. The state's sales tax brings in only about half of the amount it takes in from local property taxes.

I hope the Governor merely misspoke, as he could have meant to say Texas levies no personal income tax (true) or corporate net income tax (also true — but the Lone Star State levies a margins tax on all businesses, and they do it on a combined reporting basis).

Unlike in Pennsylvania, Texas levies property taxes on all property unless officially exempted by law. This includes personal property, business inventories, non-business vehicles, and oil and gas property. Oil and gas assets (which include oil and gas reserves that haven't been pulled out of the earth) account for 5% of all taxable property in Texas. This equates with more than $2 billion in property tax payments in 2009.