Taxation of Unproduced Natural Gas

I'm somewhat unsure of myself writing this.  In another thread, here:


Mike made mention of what he referred to as "taxation of gas rights".  We don't have this tax yet in PA, and I'm not 100% sure I understand what Mike meant by that nomenclature.  But I think he was talking about a form of property tax which would take into consideration the value of unproduced gas, still in the ground.  Surely any such reservoir of gas has, potentially at least, great worth.  So one could conceive of taxing that worth, just as PA today taxes land and buildings which have worth.

More difficult would be determining the value of natural gas still not brought to the surface and sold.  After all, even though Marcellus drilling has a high success rate, it's not a sure thing.  And it remains difficult even today to know in advance how much gas can be produced from a given location or well.  Also, the sale price with natural gas varies all over the place.

Regardless the above, facts must be faced.  America is bankrupt.  Pennsylvania is broke.  Politicians will leave no stone unturned when it comes to taxation of . . . whatever.  And we are their targets.

Now in the other thread I opined that gas rights taxation would most likely be assessed on a proportional basis, according to ownership.  It's an ad valorem tax so for myself, at least, that means I would be required to pay 20% of the tax.

But then my mind skipped to the unleased.  After all, some folks out there remain unleased.  Just sort of thinking out loud, can you imagine unleased landowners having to pay a "property" tax on 100% of the value of their unproduced gas!  Where would most of us, but especially the unleased, get the money to pay a tax like that!!

Now this is all very speculative.  I can't imagine even PA passing a tax like this.  But OTOH, it seems to me such a tax would be a powerful incentive to the unleased to get themselves leased pronto.

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Permalink Reply by Nancy Mosley on November 10, 2010 at 4:03am
WVa has county property taxes on royalty ownership. Nonproducing property is taxed based on a $ amt for oil, gas and a different $ for minerals (if you have all you pay all), X acres owned X the % of OGM (or combination thereof) owned. I'm not sure the formula for producing properties but it is related to the amount of royalty paid to the royalty owner reported to the state Tax Dept. yearly, then reported by them to the counties. So a non producing property would have a fairly small tax (or very small), not based on the estimated gas or oil etc under the property.
Permalink Reply by Frank Walker on November 10, 2010 at 9:38am
Thank you, Nancy. It is very interesting to know that WV has such a tax at the county level of government. I never even thought of that!

While it's somewhat easy to conceive how they would formulate a tax for producing properties, it is much tougher for me to understand how they can tax unproduced . . whatever. I mean, how can they even be certain a given landowner HAS (i.e., owns) the NG or minerals or anything else. Only was to know for certain is to drill or dig for it . . . . . or so it seems to me.

Still, if WV already has such a tax, can PA be far behind?!

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