1. How much do U.S. state governments really tax oil and gas extraction? Jeremy G. Weber*, Yongsheng Wang**, and Maxwell Chomas** *University of Pittsburgh, Graduate School of Public and International Affairs and Department of Economics **Washington and Jefferson College

2. Oil and Gas Taxation – Who Cares? U.S. has emerged as the global leader in hydrocarbon production Unlike other countries, taxation of oil and gas occurs at the state level, not the Federal level Billions of dollars in revenue at stake: Taxable volumes of roughly $250 billion

3. State Comparisons With growth in production (and now declines in prices), new discussions of taxes on extraction. How does a state compare with its neighbors? With the U.S. average?

4. In the News “Pa. severance tax would be highest among natural gas states, report says” “State could raise severance taxes and remain competitive, study from Ohio Business Roundtable finds”

5. Stated Rates vs. Effective Rates Stated rate: = What is written in the law Effective rate: = Revenues Collected /Value of Production Different because – Various stated rates (e.g. a tiered rate system) – Exceptions and caveats (e.g. certain wells exempt for the first 10 years)

6. Our Estimate of Effective Tax Rates Numerator: – Revenue collected 1) at the state level and 2) based on production or wells Denominator: – oil and gas production within the state (or state waters). Excludes Federal offshore production. – Valued at regional prices

7. Data 2004-2013 24 states = all states with non-neglible production (except Alaska) Production data from Energy Information Administration Price data from EIA and Platts Revenue data from state agencies

8. Methods What is the “typical” rate? – Average State Rate Average effectives rates across states and years – Aggregate Rate (Total revenue across all years and states) / (Total value of production) – Weighted Median Rate the state-year effective rate such that half of production occurred at a lower rate and half occurred at a higher rate

9. Note: Rates based on tax revenue and production data from 24 states from 2004 to 2013.

10. Effective Rates Across States (based on averaging the effective rate across time for each state)

11. A Note On Property Taxes We ignore them - they are not state-level taxes But, state and local policy may be made jointly States where local governments tax oil and gas wells as property have lower tax rates – With property taxes: 2.8% – Without property taxes: 4.7%

12. Are Oil and Gas Taxed At Different Rates? State agencies typically report oil and gas revenues together We econometrically recover separate rates by estimating:

13. Oil and Gas-Specific Tax Rates (1)(2)(3)(4) Cents per Dollar of Production Oil and gas production4.3*** (0.2) Oil production4.1*** 4.0*** (0.8) (0.9) Natural gas production4.4*** 4.5*** (0.7) (0.8) Observations223 16676 Adjusted R-Squared0.914 0.917 Note: Regression (1) combines oil and gas production; (2-4) separates oil and gas production but does so for the full sample (2) and samples based on excluding low-producing states. Robust standard errors are in parenthesis.

14. Take Away Points The typical state had a 3.6% tax rate while the typical dollar of production was taxed at 4.4%. – Much variation across states. State tax policy is neutral towards oil versus gas. The average state rate increased by about 20% from the 2004-2008 period to the 2009-2013. The full paper is available on the USAEE Working Paper website (or email me: jgw99@pitt.edu)

15. Have Average State Rates Changed Over Time? Cents per Dollar of Production Year 20050.1 (0.1) Year 20060.0 (0.2) Year 20070.1 (0.2) Year 20080.2 (0.3) Year 20091.1*** (0.4) Year 20100.7** (0.3) Year 20111.5** (0.6) Year 20121.2*** (0.4) Year 20130.7* (0.4) Years 2009-20131.0***0.7** (0.3)(0.2) Intercept3.1*** 3.5*** (0.5) (0.6) Observations223 200 Adjusted R2-0.0040.0260.009