All the major Democratic candidates for governor are claiming a severance tax on the Marcellus drilling companies will generate hundreds of millions of dollars in tax revenues. But they either do not understand what they are advocating or they are willfully misleading people. Voters need to understand that a severance tax will not impact the hugely profitable companies at all.
Because of a 2010 Pennsylvania Supreme Court ruling (Kilmer v. Elexco), such a tax will be considered a post-production cost of the companies and will be automatically deducted from landowner/lessor’s royalties. The proposed Allegheny County lease with Range Resources to drill under Deer Lakes Park verifies that “any tax levied upon the value of production” will be a legitimate deduction from the county’s royalties. Landowners, mostly farmers who signed 12.5 percent royalty leases (the state’s minimum under the 1979 Guaranteed Minimum Royalty Act) prior to 2010, will be the people most affected. Since the court ruling, they have already seen their minimum royalties gutted by other post-production deductions up to an outrageous 80 percent in Bradford County.
On the other hand, Gov. Tom Corbett’s much-maligned “impact fee” is a direct cost of producing the well by the companies and cannot be attributed to post-production costs. An additional 5 percent or 10 percent severance tax passed on to Pennsylvania landowner/lessors is unconscionable.
GERALD S. SCHILLER