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Owners get tax boost on oil, gas royalties

By Rick Shrum 3 min read
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Pennsylvania landowners receiving oil and gas royalties are eligible to make a depletion allowance on their state tax returns.

Tax time is ahead, and Pennsylvania landowners with oil and gas rights can look forward to a new deduction.

State Senate Bill 654, enacted last July, makes a depletion allowance available to more than 250,000 of these landowners when they report income from their 2024 oil and gas royalties on their Pennsylvania returns.

It is a 15% deduction on royalties accumulated over the year, a tax cut that did not exist previously on Pennsylvania returns. That figure matches the percentage that royalties owners are able to deduct on federal filings as well.

This new legislation aligned state and federal law, permitting Pennsylvania taxpayers to use percentage depletion.

“The 15% has existed on the federal return for as long as I can remember,” said Jackie Root, membership director of the Pennsylvania Oil and Gas Landowner Alliance, an organization she described as “the only voice for landowners in the state.”

If, for example, a landowner receives $10,000 in oil and gas royalties over a calendar year, he or she now can deduct $1,500 from their federal AND Pennsylvania tax returns.

This deduction applies to oil and gas wells and other natural deposits and mines, including ores and minerals.

Some eligible landowners, however, may not be aware, or are minimally aware, of this legislation. It was passed nearly seven months ago, apparently somewhat under the radar. When contacted by the Observer-Reporter, a Washington County landowner who has collected oil and gas royalties for many years said he knew nothing about the new law.

The bill, introduced last year by state Sen. Camera Bartolotta, R-Carroll, is labeled a depletion allowance because a landowner is depleting a product from his or her capital holdings, lessening the value of the holdings. The law passed as part of the state’s Fiscal Code.

The Internal Revenue Service and some states, including West Virginia and Ohio, allow a percentage depletion allowance that anyone paying tax on 85% of royalties can access.

Bartolotta had lofty praise for a Washington County couple who alerted her to this issue, which led to a bill that should boost landowners and families statewide.

They are Bill Black, a retired farmer and teacher in the Avella Area School District, and his wife, Sheila, a retired nurse in the West Greene School District. Both are 89.

The Blacks could not be immediately reached for comment.

The senator said in a statement that the Blacks “brought this important issue to my attention and deserve the credit for the financial benefits families will soon enjoy that investors already claim.

“Special thanks to him for taking the time to advocate for this change. I hope others are inspired to share their state-related concerns too.”

Root, whose POGLA organization is based in the northeastern Pennsylvania town of Lawrenceville, also complimented the Blacks for their diligence.

April 15 is the deadline for federal and Pennsylvania returns. For oil and gas landowners, a number of returns could be bountiful.

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