May 14, 2008 3 min read

Property owners should revolt over this fact: Under Pennsylvania law, oil and natural gas remain exempt from tax assessment, depriving taxing bodies of a substantial source of revenue. This is the result of a loophole in the law, one that permits the taxation of coal once the underground mineral rights are severed from the surface property, but doesn’t specifically address oil and natural gas. The state Supreme Court, in a case brought against Fayette County by the Independent Oil and Gas Association, has upheld the exemption for oil and natural gas. Fixing the problem is as simple as adding a few words to existing tax assessment law. That’s exactly what a May 2007 bill – introduced by House Majority Leader Bill DeWeese, and cosponsored by state Reps. Timothy S. Mahoney and Deberah Kula – would do.

House Bill 1373 clarifies that counties, municipalities and school districts could tax, “All coal and other valuable minerals, natural gas, coal bed methane gas and oil.” That’s it. If passed, the law would take effect in 60 days.

Yet this straightforward DeWeese proposal has remained bottled up in the House Finance Committee headed by state Rep. David Levdansky, D-Allegheny, for a year. Homeowners who have long paid their fair share, and then some, should be asking Levdansky and other committee members why this legislation is proceeding at a snail’s pace.

That’s precisely what Mahoney plans to do. He’s drafting a letter to the chairman and promising to make a priority of pushing this legislation out of committee and onto the floor for a full House vote. Kula and DeWeese, who heads the Democratic caucus, should do the same. Every day that passes means that owners of underground oil and natural gas rights continue getting a free ride.

With hundreds if not thousands of natural gas wells in Fayette County, the lost revenue is no small matter. And if the loophole isn’t closed, it’s likely to become an even more lucrative exemption: In a letter to Mahoney, Fayette County’s chief assessor James T. Hercik says the discovery of the Marcellus Shale formation is a “big strike” for oil and gas companies, who are leasing those rights for $2,100 per acre in Wyoming County.

Millions of tax dollars have already been lost across the state, just because “oil” and “natural gas” are not specifically listed among those minerals that can be taxed. Hercik, the vice president of Assessors’ Association of Pennsylvania, proposes that the law additionally be written so that 90 percent of any new revenue be used to reduce local property taxes. That eliminates any potential windfall and, because if offers relief to beleaguered property owners, is a grand idea.

It would be difficult for any state legislator, Democrat or Republican, or Gov. Ed Rendell, to justify why oil and natural gas should remain exempt from taxation. If House Bill 1373 doesn’t become law, and soon, it’s because they’re protecting a special interest at the expense of everyone else.