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Call for change in natural gas royalty arrangements

4 min read
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John and Lois Miller are breathing a little easier after getting some relief from the state Department of Revenue, which originally questioned more than $17,000 in deductions they took in relation to natural gas royalties they earned over the past few years.

The Millers, of Hopewell Township, received a letter earlier this month from the state Department of Revenue that originally sought $17,440 in back taxes on what the department said the couple took for their share of production costs on their natural gas lease with Range Resources from 2011 through 2013.

John Miller said last week the department later allowed his deduction for production and transportation costs, removing $10,444 in tax liability. It still seeks $7,000 for a depletion deduction the couple took on the 143 acres they own, on which there are four natural gas wells.

The Millers’ land is part of a 640-acre contiguous plot in Hopewell Township being leased and drilled by Range Resources, where a half-dozen landowners receive royalties from the company. Miller said last week other landowners in the acreage received similar letters from the Revenue Department.

The Millers received the property as a gift from his wife’s mother, and had the land valued to help in calculating the depletion, but were denied all but a nominal $1 deduction.

John Miller, who recently became unemployed, said last week his accountant gathered all of the tax information, and he and his wife submitted an amended return in advance of a deadline at midnight Thursday.

He said he was assured by the revenue department, despite his amended filing, he still has the right appeal the remaining charge, which will be determined by the department.

“I don’t mind paying my fair share, but please don’t try to press something extra on it,” he said. He noted with natural gas prices remaining depressed, the couple receives about half in royalties compared with what they did a year ago.

The Millers had help from state Sen. Camera Bartolotta, R-Carroll, and her staff, who contacted the revenue department on their behalf.

Bartolotta said last week she continues to look into the matter of landowners with natural gas leases taking a depletion allowance, something Miller and other landowners are apparently doing since leasing and royalties began for them a few years ago.

Bartolotta said the federal government permits landowners to take a depletion allowance on the value of their mineral rights, but is trying to determine how Pennsylvania and other states treat the matter.

More protections for landowers are being suggested from the governor’s office to the Legislature.

Last week, when Gov. Tom Wolf announced his proposal for a 5 percent severance tax on the value of natural gas, as well as 4.7 cents per thousand cubic feet of gas extracted from the Marcellus Shale formation to help restore public school aid, he called for a replacement of the current Act 13 impact fee with some proceeds of the new tax to go to municipalities directly affected by drilling activities.

Wolf also plans provisions to protect property owners who lease land for natural gas exploration. One safeguard would bar drilling companies from passing the cost of the severance tax on to Pennsylvania landowners who lease their land for natural gas extraction.

While Wolf’s proposals will be debated by the Legislature later this year, his desire to protect landowners dovetails with two bills in the state Senate that call for more clarity in the way that production costs are presented to landowners.

Other area landowners receiving royalty payments noted they receive detailed statements from drillers on their monthly royalty payments, with the exception of production costs, which aren’t itemized. The lack of information makes it difficult for the landowner to determine how to deduct the amount from the royalties they receive.

Bartolotta, who serves on the Senate Environmental Resources and Energy Committee, is a co-sponsor of Senate Bills 147 and 148 – intended to provide more protections for people receiving royalties from oil and gas drilling.

S.B. 147 asks drillers disclose more information on royalty check stubs, while S.B. 148 would bar oil and gas companies from retaliating against landowners who raise questions about their royalty payments.

“Our goal is to ensure that leaseholders across Pennsylvania are treated fairly,” said state Sen. Gene Yaw, R-Bradford, the prime sponsor of both bills when they were announced last month.

Bartolotta echoed Yaw’s comments, stating that she wants to see landowners treated fairly by both companies and the state.

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