West Virginia has more taxes and fees on natural gas production than most of the 18 other gas-producing states included in an analysis prepared for a West Virginia Legislature subcommittee by the Marshall University Center for Business and Economic Research. However, it isn't clear if taxes are hampering development of the state's Marcellus Shale, the analysts said.

The study compared West Virginia's real property, personal property, severance or production, corporation income, sales and use, and permit, bond and other environmental taxes and fees to five surrounding states (Kentucky, Maryland, Ohio, Pennsylvania and Virginia), the top 10 natural gas producing states (Alabama, Alaska, Arkansas, Colorado, Louisiana, New Mexico, Oklahoma, Texas, Utah and Wyoming), two states not included in those categories but, like West Virginia, dealing with the burgeoning growth of the Marcellus Shale (New York and Tennessee) and another Appalachian state, Mississippi.

"From the information now available, it is not possible to determine if the burdens of these taxes are creating a barrier to the development of Marcellus Shale in the state," said the report. "But West Virginia is in competition with nearby states which hold Marcellus Shale for exploration, drilling and manufacturing. There are many factors which determine location, but holding other things equal, state and local taxes will be an influential factor."

Still, "experience shows that taxes and other fees do play a part in where drilling, extracting and manufacturing of gas transpires. The natural gas field does not respect state boundaries. By placing wells near state borders, gas from one state can be easily transported to another. Gas processing and manufacturing businesses usually gather near drilling sites, and for that reason close parity, particularly with surrounding states, is desirable."

Compared to surrounding states, West Virginia's real and personal property taxes "appear to be high," especially compared to states that do not have personal property taxes, the analysts said. And because West Virginia's severance tax is not tiered, it is larger than similar taxes imposed in Ohio, Kentucky and Virginia.

A Marcellus regulatory reform bill being debated by West Virginia lawmakers includes a proposal to increase permitting fees to $10,000 for the first horizontal well drilled and $5,000 for each additional well, increases that industry officials described as "dramatic" (see Shale Daily, Oct. 17; Sept. 16).

In Pennsylvania, state lawmakers have introduced more than 15 tax or fee proposals, including one that would impose a $40,000 fee per well during the first year of production (see Shale Daily, June 13; April 29). Pennsylvania Gov. Tom Corbett recently proposed a similar size impact fee to be implemented at the county level (see Shale Daily, Oct. 4).

Maryland is considering its own state-level severance tax on Marcellus Shale operations (see Shale Daily, July 22).

West Virginia collected less than $55 million in severance taxes from gas operations in 2010, but it could see that number jump to nearly $120 million by 2016, thanks in large part to the state's growing Marcellus Shale industry, Deputy Revenue Secretary Mark Muchow said in July (see Shale Daily, July 21). Revenue from the state's natural gas severance tax peaked at about $81 million in 2008, but it declined in 2009 and 2010 as gas prices fell.