Study: Pa. energy firms paid less in taxes than they said they did

HARRISBURG - Amid ongoing debate over whether to tax natural gas extracted from the Marcellus Shale, a study by a liberal-leaning think tank says big energy companies, including drillers, paid less in state and local taxes than the industry has claimed.

The study issued Tuesday by the Pennsylvania Budget and Policy Center said 2008 data from the state Department of Revenue show the industry paid $38.8 million in state business taxes that year. That figure includes $17.8 million in corporate net-income taxes.

That is below the industry's claims that Marcellus Shale drillers yielded about $1 billion in state and local tax revenue, said Sharon Ward, director of the Harrisburg-based center.

"There are tax benefits from these companies being in Pennsylvania," said Ward, "but they are nowhere near the exaggerated claims being made."

The center's study is based on data from 2008, when Marcellus Shale drilling was still in its infancy. Of the 4,192 wells drilled in Pennsylvania that year, only 195 were in the shale. Compare that with the end of last year: of the 2,755 wells drilled, slightly more than half, or 1,386, were Shale wells.

Given those facts, the ink was barely dry on the study when the industry offered its side of the story, complete with dueling studies highlighting the economic benefits of drilling for Pennsylvania.

Travis Windle, spokesman for the Marcellus Shale Coalition, said a recent Pennsylvania State University study showed Marcellus Shale drillers generated actually $785 million for the state last year. That figure includes corporate taxes, as well as income and sales taxes paid by employees. The study was funded by the coalition, an industry group.

Windle also noted that the Pennsylvania Budget and Policy Center's parent organization has a board heavy with big labor representatives.

"To suggest that our industry is not paying taxes, or enough taxes, is simply a canard," he said in an e-mail.

The center's study - and the industry's swift rejoinders - came as Pennsylvania legislators continue to wrestle with a fundamental question: to tax or not to tax the extraction of natural gas from the Marcellus Shale. Pennsylvania is the largest gas-producing state without such a tax.

Gov. Corbett campaigned on a promise not to raise or impose any new taxes, including ones on natural gas extraction. He has said he would consider a so-called "local impact fee," as long as any money raised went directly to the communities where drilling is taking place.

The legislature is deeply divided on the tax-vs.-fee question. Democrats, mostly, are advocating for a levy that would kick a portion of the money raised into the state's general fund. That, they say, could help offset some of the steep cuts to basic and higher education that Corbett has proposed to help solve the state's $4 billion deficit.

Republicans, primarily in the state Senate, have in the past supported a modest extraction tax, but say they have to be realists and work with the Corbett administration.

Their position could become clearer this week. Senate President Pro Tempore Joe Scarnati (R., Jefferson) said Tuesday he would unveil details of his plan for a local impact fee in a conference call with reporters Thursday morning.

The center's study found that a combination of federal tax incentives, tax loopholes, and other tax breaks have made Pennsylvania a state very friendly to drillers.

Of 783 companies that filed corporate net-income tax returns in 2008, the study said, 85 percent paid nothing in taxes. That is because drillers operating as corporations can shift income to tax-haven states, such as Delaware, leaving little or no income on the books in Pennsylvania.

Other drillers, including nine of the top 10 permit holders in the Marcellus Shale, structure their businesses as limited liability companies or limited partnerships. In doing so, they avoid corporate income taxes altogether and instead pay the much lower personal income-tax rate on profits. At least 80 percent of all permit-holding drilling companies are now operated by these L.L.C.s or L.P.s, the study found.

The study recommended that Pennsylvania policymakers enact a drilling tax. It also recommended closing a court-imposed tax loophole that prevents local governments from assessing property taxes on oil and gas reserves.