Governor Needs a 'Vision' Check on Marcellus Shale

Governor Corbett claimed in a recent Patriot-News story that Marcellus Shale gas drillers have paid $71 million in sales taxes over the last two years as proof that the industry is paying an adequate share of taxes. It's a big number, but isn't likely accurate for a number of reasons.

The state tracks how much sales tax each industry collects from customers, but that is different than how much the industry itself pays in sales tax. In 2008-09 and 2009-10, the mining industry (which includes natural gas, gravel, coal, and any other mining activity) collected and turned over to the state $70 million in sales tax. Much of this is likely due to the sale of stone and gravel, as the sale of natural gas and coal for fuel is exempt from sales tax. Claiming that this tax is "paid" by the industry is like saying car dealers — and not customers — "paid" $448 million in sales tax during that same period.

The Governor may be referring to the $71.4 million sales tax estimate included in the 2009 industry-financed Emerging Giant report (which Penn State has since backed away from). But that figure is an estimate of all the sales tax generated directly or indirectly by natural gas production - including the wide-ranging but hard-to-document ripple effects of increased drilling. Again, that is not the same as sales tax paid by the gas drillers. It's a broader estimate, including sales tax on anything from the lunch tab at the corner diner in Williamsport to office supplies purchased by a Bradford County car dealer whose business is growing thanks to landowners with royalty checks.

Other than hamburgers and office equipment, there isn't a lot that a gas driller would pay sales tax on in this state. All equipment and supplies used in the drilling process are exempt from sales tax under the state's generous "manufacturing" sales tax exemption. To pay $71 million in sales tax, you would have to purchase $1.2 billion in taxable goods in Pennsylvania.  That seems like an awful lot of hamburgers.

Finally, eight of Pennsylvania's top 10 drilling companies (in terms of production) are based out-of-state, with long-time connections to out-of-state suppliers. It seems that they would buy many of their taxable goods from these existing business partners.

Governor Corbett tells the Patriot that he wants to “nurture the industry” in Pennsylvania: “Everybody says, oh, I do it because the industry contributed funds to my campaign, which they did. Absolutely. You have to ask them why, (but) I think it's because I have a vision of where we're going to take this industry."

Given his strong opposition to a drilling tax, the Governor seems intent on giving the industry a free ride, while we pay the freight — a deal that the industry gets nowhere else in the world. Maybe the Governor needs to have his vision checked.

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