Category Archives: Severance Taxes

Wonder of Wonders! A Tax Cut!

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Dollar SignWho knew that the West Virginia legislature had it in them?  They’ve gone and cut taxes!  Specifically, a severance tax on coal, oil, and gas that was intended to replenish the State’s Worker’s Compensation Fund’s old debts.  It’s not done yet, but the prognosis is good.

The legislature passed this particular severance tax back in 2005.  It was in addition to the usual severance tax, and imposed a 4.7 cents per MCF tax on all gas production.  At the time, they expected this tax to be in place until about 2025, but Marcellus shale development brought higher than expected revenue.  The old debts got paid off quicker than expected.

When the tax was imposed, Governor Earl Ray Tomblin was a State Senator, and he promised that the tax would be repealed once the debts were paid off.  I have to give him props.  It’s not often, after all, that you hear of a politician keeping promises.  That’s especially true when the promise is to repeal a tax.

We’re excited, because even though it’s only 4.7 cents per MCF, it’s something.  In today’s rough natural gas climate, any good news is very welcome.  This is good for producers, which in turn is good for royalty and mineral owners.  Here’s to a bump up, however slight, in your royalty checks!

 

West Virginia Oil and Gas Severance Tax Distribution

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Tax MoneyThe Intelligencer out of Wheeling, WV published an article that tells us how much severance tax the oil and gas companies paid to the State of West Virginia in 2014 and how that tax is allocated to the different counties.  There’s some pretty good detail in the article.  It also points out that Wetzel County has gone from being listed as a depressed county to, well, no longer being listed as such.  We suspect that no longer being a “depressed county” really only means that the county government is able to provide all of or most of the services that a county government is expected to provide.  It probably doesn’t mean that every citizen of the county is now rolling in the dough, so to speak.  Still, going from depressed to not depressed is always good.

West Virginia Oil and Gas Severance Taxes

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Dollar SignThere’s good news and bad news on this front.  The good news is that severance taxes doubled from 2013 to 2014.  The bad news is that not much of it is going back to the local governments.  In Pennsylvania, 60% of the severance tax goes to the county of origin, and 40% goes to the State government.  In West Virginia, 90% goes to the State, and 10% goes back to the counties, with 3/4 allocated to the county of origin, and 1/4 allocated to all other counties.

I haven’t spent the time figuring out what the State uses the money for, but I doubt much of it is earmarked for repairing roads, plugging old wells, mitigating nuisances like dust and noise, or cleaning up after those oil and gas companies that don’t clean up after themselves.  It seems to me a larger portion of that money should be going back to the county of origin.