Local collection of state taxes rises in Marcellus Shale counties

UNIVERSITY PARK, Pa. — Natural-gas development appears to be having a positive effect on the local collection of state taxes in Pennsylvania’s Marcellus Shale region, according to an analysis by researchers in Penn State’s College of Agricultural Sciences.

“Because it’s still early in the development of Marcellus Shale, there’s a lot we can’t know yet about its long-term economic impact,” said Timothy Kelsey, professor of agricultural economics. “However, state tax collection information gathered by the Pennsylvania Department of Revenue can provide insight into the short-run economic and tax implications of gas development.”

Kelsey is co-author of Marcellus Shale and Local Collection of State Taxes: What the 2011 Pennsylvania Tax Data Say, a white paper published by the Penn State Center for Economic and Community Development. The report — which updates a similar analysis done last year using 2010 data — looks at county-level state tax collections from 2007 to 2011 and analyzes that information in the context of local natural-gas activity.

“The data continue to show distinct differences between counties with Marcellus Shale gas drilling and those without,” Kelsey said.

Details of report

Using data from the Pennsylvania Department of Environmental Protection, the researchers categorized Pennsylvania counties based on the number of Marcellus Shale gas wells drilled during the study years. Changes in state tax collections within each county were calculated, and the average change within each category also was calculated.

The report suggests that significant effects are seen in state sales tax collections, which reflect the level of retail activity in a county. The data indicate sales tax collections in counties with significant Marcellus development continued to outperform collections in counties with less or no Marcellus activity.

“For example, sales tax collections in counties with 150 or more Marcellus wells drilled between 2007 and 2011 rose an average of nearly 24 percent during those years, compared to an average decrease of about 5 percent in counties with no Marcellus activity,” Kelsey said. “Sales tax collections dropped in only three of the 23 counties with more than 10 Marcellus wells, compared to decreases in 22 of the 32 counties with no Marcellus Shale drilling.”

Biggest increases

The increases were particularly dramatic in Bradford County (50.8 percent), Greene County (31.4 percent) and Susquehanna County (27.4 percent), three of the top six counties in the number of Marcellus gas wells.

“The data support anecdotes we hear about Marcellus development increasing local retail activity,” he said.

The report also addresses the state realty transfer tax, which is a 1 percent levy on the sale of real estate. Changes in this revenue can result from changes in the average value of properties sold, changes in the number of transactions, or a combination of both factors. Collection of this tax from 2007 to 2011 suffered across the state due to the national collapse of the housing bubble.

But the researchers found that Marcellus counties appeared to be somewhat buffered from the housing downturn, generally exceeding the statewide average. Counties with 150 or more Marcellus gas wells, on average, saw state realty transfer tax collections rise an average of 4.3 percent, compared to an average 33.4 percent decline in counties with no Marcellus drilling.

“The data suggest that collections in the counties without Marcellus Shale drilling on average continued to decline over these years, while the collections in high-activity Marcellus counties were trending in the opposite direction,” Kelsey said.

State tax

Finally, the researchers looked at state personal income tax collections covering 2007 to 2009, which was the last year for which data were available. The Department of Revenue reports the data by taxpayers’ county of residence, so the filings do not reflect workers commuting into a county or whose legal residence is out of state. Nevertheless, a similar trend emerged, according to the report.

Total taxable income in the counties with the most Marcellus activity — 90 or more wells — rose by an average of 6.3 percent during the period, compared to an average county-level decline of 5.5 percent statewide. The average rise in income in high-activity Marcellus counties was fueled by increases in salaries and wages (3.3 percent); rights, royalties and patents (441.5 percent), which reflects gas lease and royalty payments; and net profits (1.4 percent).

The flip side

However, counties with fewer than 90 Marcellus wells through 2009 saw decreases in both personal income and in the amount of state income tax collected. Despite the increased income in counties with significant natural-gas development, the impact of Marcellus activity on the total amount of state personal income tax collected by the commonwealth appears relatively small, the researchers report.

For instance, the counties with 90 or more wells accounted for only 2.8 percent of total personal income tax collection in 2009.

“The total combined increase in state income tax collections in these counties was about $533,000 in 2009, which is a good thing, especially during tight economic times,” Kelsey said. “But these county-level changes are relatively small compared to the $9.1 billion in personal income taxes collected statewide that same year.”

The report pointed out that economic activity in these counties is affected by a variety of factors besides natural-gas development and that drilling by itself cannot fully explain the changes and the differences between counties. The researchers also said that, in some cases, there was a wide variation between counties within the same levels of drilling activity, so what occurred in any given county may be different than the averages.

“It’s important to note that this analysis does not include impacts on other state revenues — such as permit fees and the liquid-fuels tax — nor does it address the costs of Marcellus development, such as the demands on state agencies, public services or the environment,” Kelsey said. “In addition, the report does not shed light on the impact of Marcellus development on local government and school district tax collections, since royalty and leasing income is exempt from the local earned income tax, and local municipalities can’t impose sales taxes.”

The full report is available online in PDF format at http://psu.ag/J7qIiA.