It seems that Governor Patterson is going to try again to impose a tax on natural gas production in New York State. Last spring the Governor tried to include a production tax of 5 percent on the existing 14,000 wells in New York State but it was not included in the final budget.

This time the Governor has proposed a bill that would impose a 4 percent tax on the market value of gas extracted from wells in place before Jan. 2010. There would be a phased in approach for wells in place after Jan. 1 2010 where the percentage of tax would increase by 1 percent, ending with 4 percent by 2013.

The proposal has not yet been introduced but is currently being considered by the Legislature and could be part of future budget discussions. There is discussion that any revenue from such a tax should go toward funding the DEC since they do not currently have adequate staff to handle the inevitable increase in permit applications once the DEC issues the new regulations for horizontal drilling and hydraulic fracturing. The current proposal has the revenues going to the state’s general fund.

There already is a production tax on the existing 14,000 wells in the state in the form of real property tax. Adding an additional 4 percent tax on top of real property taxes will be another deterrent to development of the Marcellus Shale. The leadership in Albany, all down state democrats, need to look at development of the Marcellus Shale as not just a way to increase the state’s general fund. The potential for job creation is staggering and all these folks will pay income and sales taxes with higher salaries from their new skilled jobs. Additional taxes on natural gas production would discourage companies from doing business in New York and is a bad idea.