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Pennsylvania Budget Offers Ethane Cracker Tax Breaks

Pennsylvania Gov. Tom Corbett last week signed the state's $27.7 billion budget for 2012-13 into law, which includes modifications to the tax code that could potentially offer billions in tax breaks to companies investing in an ethane cracker and associated manufacturing facilities.

Details over the budget and tax code changes relevant to ethane were hammered out among legislators in the General Assembly at the end of June (see NGI, July 2). SB 1563, a bill sponsored by state Sen. Elder Vogel Jr. (R-Rochester), calls for extending what essentially amounts to an unlimited tax break for qualifying industry for the next 25 years beginning in 2017.

In March Shell Chemical LP, a subsidiary of Royal Dutch Shell plc, said it had signed an option to purchase land in Beaver County, PA, for a petrochemical complex that presumably would include a "world-scale" ethane cracker to serve the Marcellus Shale region (see NGI, March 19). Shell has said such a facility would be capable of processing 60,000-80,000 b/d of ethane.

Under SB 1563, companies (not just Royal Dutch Shell plc) that purchase ethane in Pennsylvania to make ethylene would be eligible for a 5 cent/gallon tax credit on their purchase that could then be applied toward up to 20% "of any qualified tax liabilities for the taxable year." The specified tax credit has been deemed to be proportional to the industry's activity and the resulting collections of new taxes on sales and income.

"Our goal is to transform Pennsylvania so we're not only a supplier of natural gas, but also a processor and manufacturer," Corbett said. "Simply put, we will usher in a new industrial revolution in Pennsylvania." Corbett had originally proposed an incentive package of up to $1.67 billion, but with an annual cap of $66 million (see NGI, June 11).

"It was an excellent effort on the governor's part," Pennsylvania Independent Oil and Gas Association President Lou D'Amico told NGI. "I'm real happy that he made that effort to attract business to Pennsylvania. It will pay huge long-term benefits in terms of jobs for the state, and for the oil and gas industry."

Under the tax break plan, companies would need invest at least $1 billion in new facilities and create at least 2,500 full-time construction jobs to qualify. Legislators would also receive an annual report from the state Department of Revenue to see what companies were taking advantage of the tax break, and how much they were receiving.

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