Advocates from OH, PA, WV urge common approach to shale taxation

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Comparable tax rate will allow states to address impacts and invest in future

Ohio, Pennsylvania, and West Virginia should take a common approach to taxing gas and oil drilling in the Marcellus and Utica Shale, leaders of research and policy organizations from each state said today.

Leaders of Policy Matters Ohio, the Pennsylvania Budget and Policy Center, and the West Virginia Center on Budget & Policy sent a letter to the governors of their three states, urging them to enact a severance tax with a rate no lower than that of West Virginia. Such an approach would “provide important long-term predictability for the industry,” and “take taxes out of the competitive equation,” they wrote.

“A comparable tax rate will allow our states to invest in a stronger economic future,” said Sharon Ward, Director of the Pennsylvania Budget and Policy Center. “It will create consistency for the industry, ensure that our communities are benefiting, and allow our states to address the impacts of drilling.”

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.

West Virginia’s fracking tax rate is in the middle range of gas-producing states and has not deterred shale drillers, 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. 

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.

“Ohio’s severance tax is woefully outdated and greatly undervalues our precious natural resources,” said Ohio Rep. Robert F. Hagan (D-58). “By working with our neighboring states, we can both ensure proper remuneration and help protect our communities from the impacts of hydraulic fracturing.”

“Communities have been hit hard with costs related to oil and gas drilling and waste disposal. These costs must be covered by the industry,” said Wendy Patton, Senior Project Director at Policy Matters Ohio. “Interstate competition for the lowest tax rate is a race to the bottom. When our states work together, we can maximize benefits while protecting residents and communities throughout the region.”

“Although our state capitals are separated by hundreds of miles, the gas fields in our states are in some cases separated by only a few miles,” said Ted Boettner, Executive Director of the West Virginia Center on Budget & Policy. “From that vantage point, a common tax rate across the states seems not only simple but logical.”

The three organizations sent the letter to Ohio Gov. John Kasich, Pennsylvania Gov. Tom Corbett, and West Virginia Gov. Earl Ray Tomblin. View a copy of the letter.

The Pennsylvania Budget and Policy Center is a nonpartisan policy research project that provides independent, credible analysis on state tax, budget and related policy matters, with attention to the impact of current or proposed policies on working families. Learn more: http://pennbpc.org

Policy Matters Ohio is a nonprofit, nonpartisan policy research institute with offices in Cleveland and Columbus. Our mission is to create a more vibrant, equitable, sustainable and inclusive Ohio, through research, media work and policy advocacy. Learn more: www.policymattersohio.org

The West Virginia Center on Budget and Policy is a public policy research organization that is nonpartisan, nonprofit, and statewide. The Center focuses on how policy decisions affect all West Virginians, especially low- and moderate-income families. Learn more: www.wvpolicy.org

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