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North Carolina Lawmakers Look At How To Tax Fracking Companies

Photo: A rig and gas well operation on the Marcellus Shale in Scott Township, Pennsylvania.
WCN247 via Flickr

North Carolina lawmakers are beginning to look at how they would tax the shale gas drilling companies for extracting gas from the ground in the state.

Members of the legislative commission that handles laws on energy heard Tuesday afternoon about how states that allow fracking charge companies for removing gas from the ground.

Taxes on shale gas drilling vary widely across the country. Some states, such as Texas, charge companies a percentage of the market value of the gas extracted while others, including Colorado, charge a portion of gross income.  Those examples were shown in a presentation given to lawmakers Tuesday.

One reason taxing changes sharply between states is the irregular price of gas, said Heather Fennell, an attorney in the General Assembly’s research division. In the last 10 years, it peaked in June 2008 at $10.79 per 1,000 cubic feet and was at its lowest in April 2012 at $1.89.

“A lot of people like to say it’s comparing apples and oranges, but the way I talk about it is that it’s like comparing sports,” Fennell said. “If you talk about baseball and basketball, when you compare the rules of each sport, they’re very different.”

Another factor on taxing presented to lawmakers was that states have offered incentives for wells that may present a high cost because of their depth or that are new. In some cases, states have given exemptions from property taxes, said Mike Hannah, a tax consultant who has worked with drilling companies in other states.

For some lawmakers, it was the first time they’d heard of the possibility of giving incentives to drilling companies.

“There's a lot of questions about that,” said Rep. Rick Catlin (R-Wilmington).

The “severance” tax for removing oil from the state is only one of the many issues lawmakers are looking to resolve so shale gas drilling can be done in the state. The Mining and Energy Commission, which was appointed by the legislature to draft the rules that will likely become the state’s laws on shale gas drilling, has also looked at other state’s regulations for guidance.

Senator Bob Rucho (R-Mecklenburg) said the severance tax laws would be drafted when the General Assembly meets this year and in 2015.

“Nobody's going to come here unless they know what it costs them,” Rucho said. “It's a matter of finding a balance to get the industry started quickly and yet protect the assets and the wealth of the state of North Carolina.”

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