Most states have enacted tax incentives, credits and exemptions to encourage or discourage the production of certain types of wells. Value taxes can be difficult to implement because states must closely monitor oil and gas sales to determine the current market value. In addition, since prices are prone to fluctuation, value taxes can make it difficult to predict government revenues. Governor Tom Wolf's proposal would maintain the current impact rate and raise the state's effective tax rate to 4 percent, on a par with other natural gas-producing states.
States distribute revenues in a variety of ways, but generally, most of the taxes collected are deposited in the general fund. While legislators hope to encourage new drilling, a study commissioned by the Wyoming State Legislature in 2000 suggests that increased production would not compensate for the loss of revenue resulting from lower taxes. Coal producers in the United States are subject to the special tax that applies to the first sale or use of coal. Several states tax the volume of oil or gas produced, most often per barrel of oil or per 1,000 cubic feet of natural gas.
These approaches aim to increase state revenue from severance taxes when oil and gas industries thrive and reduce state pressure when the industry is lagging behind. As a primary focus, states have imposed taxes and fees on the extraction, production and sale of natural gas and oil. Thirty-four states have enacted taxes or fees on the extraction, production and sale of oil and natural gas. For example, Arkansas applies a value tax to gas and oil through its severance tax, in addition to a relatively modest fee per volume of oil and gas produced as an evaluation of oil and gas.
Many states impose oil and gas conservation fees, levies, or levies in addition to or instead of a traditional production tax or severance pay. States often design volume taxes to be easily adjusted, thus adapting to changes in the market value of gas and oil. States also use the revenues to finance conservation or environmental clean-up projects and to distribute portions of the collected taxes to local governments.
