You signed a lease and you are anxiously awaiting royalty payments.  What you might not be expecting is a bill from the tax office asking for several years’ worth of back property taxes.

An important amendment to a law took effect that could hit you in the pocketbook if you lease land for Marcellus exploration that is preferentially assessed under the Clean & Green Act.

For those unfamiliar with the Clean & Green Act, it is a law that provides tax relief to landowners who use their land for certain agricultural purposes.  Property taxes are assessed on that value which such land has for its particular land use category, not the fair market value.  This generally results in a substantial tax savings.

The downside is that if a landowner converts their land (or a portion of it) to a non-agricultural use the landowner is subject to upwards of seven (7) years’ worth of roll-back taxes and interest, perhaps on the entire acreage.  Imagine receiving that tax bill in today’s mail!

Oil and gas exploration and production was and still is an impermissible use under the Clean & Green Act as amended in 2010 –whether the landowner does the drilling or leases their land for that purpose.  The 2010 amendments to the Clean & Green Act did not change that but were intended to lessen the tax burden on landowners who lease their land to Marcellus operators or pipeline companies, but it is not a free ride. 

Roll-back taxes will be imposed on the well site and land which is incapable of being immediately used for the agricultural use (for example, above ground pipelines, pig stations, roads, storage facilities, etc.).  Acreage devoted to subsurface transmission or gathering lines is not subject to roll-back taxes.  The roll-back taxes will be calculated using the fair market value of the land (instead of the use value) and adjusted retroactively back to the date the well permit application was approved. 

So before you open your mail to find a property tax notice or before you sign that lease it is important to understand your rights and responsibilities.

Steven A. Walton