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Pa. revenue department overestimated tax collections from shale gas income

| Tuesday, Nov. 22, 2011

When it comes to money from shale drilling, state tax officials made a $50 million mistake this year.

The Pennsylvania Department of Revenue publicly overestimated by more than double what landowners around the state needed to pay in personal income taxes from drilling profits. Lease and royalty income taxes totaled $46.2 million for 2010 -- not the $102.7 million state tax officials reported this summer.

"We have no interest in goosing the numbers one way or another," department spokeswoman Elizabeth Brassell said. "The governor has asked us for a factual, frank analysis of the industry."

Overall, tax collections from drilling have doubled since 2009, according to the department, which is tracking the impact of drilling at the request of Gov. Tom Corbett and the media. The state has reaped $1.56 billion in taxes from the drilling boom since it started in 2006, according to department figures.

Most of those payments come from business taxes, which are easy to track as direct remittances from oil and gas extraction companies and their contractors, Brassell said. Overall tax collections were about $200 million until this year, when they jumped to more than $373 million. Corporate income taxes from drilling companies more than doubled, to $254.2 million, from the prior year.

Personal income tax payments from leases and royalties represent a much smaller portion of the pie, but still tripled from the $15.2 million collected in 2006. This summer, the department said those collections grew beyond $100 million for the first time, but that turned out to be overestimated payments from landowners, Brassell said. The department had to pay more than half of that money back in tax refunds, she said.

Landowners have to estimate their personal income tax payments in advance, Brassell said. She wasn't sure how often actual bills exceed estimated payments by that much. It could take several months for the department to figure out why, she added.

The revision brings into question the reported spike in corporate income taxes, too, said Michael Wood, research director at the Pennsylvania Budget and Policy Center. Those payments are made based on quarterly estimates, and companies often overpay in advance to be cautious, he said. It usually takes four years to get an accurate calculation of such payments, he said.

"I don't think it's malicious or anything like that. They're just trying to get the numbers out quickly," Wood added. "And they don't put out reports like this for any other industry. They're really trying to feel their way around about how to best report this, and it's clear they're not there yet."

Because payments can come late and refunds are common, it can take two years before the state's tax return figures are solid enough to analyze, said Frank Gamrat, a researcher at the Allegheny Institute for Public Policy. Reporting immediate figures is similar to forecasting the weather, he said.

"You have an industry in its infancy in the state, and there are a lot of people with fingers crossed that it's going to be huge," he said.

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