One reason why the burden in West Virginia is heavier is that the state not only levies a property tax on producing properties, but also on natural gas reserves, noted Calvin Kent, director of the Center for Business and Economic Development at Marshall University in Huntington.
Kent pointed out that neighboring Pennsylvania "doesn't have any property tax on (natural gas) reserves nor does it have a severance tax," he noted. "Kentucky comes the closest to us in terms of tax burden. It is difficult to say anything about Ohio because mineral taxation is left at the county level and the tax rates vary widely."
The CBED recently presented a report on how the state's taxes compare with other natural gas producing states to the West Virginia Joint Legislative Finance Committee. Since its release, Kent said officials in other states have asked for copies.
Kent's report, "Taxation of Natural Gas: A Comparative Analysis," said other states use fractional or partial assessments on production to determine property tax rates. They range from 20% in Alaska to 87.5% in Colorado, the report noted. By comparison, West Virginia assesses property at 60% of value. Most of the states leave the determination of market value to local assessors, either with or without state guidance as to how it is determined.
The report pointed out that Maryland, New York and Pennsylvania do not levy severance taxes. Many states that impose a severance tax base it on the gross value of the gas--amount produced times average price paid--and frequently states allow deductions for certain expenses related to drilling. West Virginia is one of the few which does not make those allowances, the report noted.
West Virginia also levies a corporate income tax and charges drilling and environmental fees. But the report noted, "Corporate income taxes are not as big a consideration, as most gas operating companies are organized as exempt entities."
So far, West Virginia's taxes haven't discouraged development of the play, he noted, but "if gas prices get lower, the drilling is going to go where there is the least cost of extraction."
"If the Marcellus Play turns out to be as good as everyone says it is going to be, it will change West Virginia's economy over the next 20 years," he said. "The coal seams in the southern part of the state are giving out and coal production has pretty well leveled off statewide. Natural gas will have to become the extractive industry that carries the state for probably quite a while."
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