In mid-March, Virginia Governor Terry McAuliffe approved SB 1308, which extends the sunset date of the local gas severance tax by three years, from Dec. 31, 2015, to Jan. 1, 2018.
This tax revenue is allocated into two different areas:
First, three-quarters of the revenue is to be allocated to the local Coal and Gas Road Improvement Fund. Twenty-five percent of those funds may be used to fund the construction of natural gas service lines or the construction of new water or sewer systems and lines in areas with natural water supplies that are of insufficient quality or quantity.
Second, one quarter of the revenue is allocated to the Virginia Coalfield Economic Development Fund, whose mission is to help enhance and diversify the region's economy by encouraging new job creation.
In 2014, the Independent Fiscal Office for the state of Pennsylvania released a study comparing natural gas extraction between the states. Pennsylvania has a long history of natural gas production and in 2012 was ranked third, behind Texas and Louisiana, but it only began levying a fee (not a tax) in early 2012. Following that policy change, the state studied the various taxes and fees charged by states producing the most natural gas, and those in close proximity to Pennsylvania. Virginia ranked #16.
In 2013, the National Conference of State Legislators (NCSL) reported that county or city governing bodies in Virginia are authorized to impose a 1.5 percent gross severance tax on oil and a one percent gross severance tax on coal or gas. In addition, counties and cities can levy additional maximum one percent gross tax on gas, and also may adopt a maximum one percent gross tax on every person engaged in the business of severing coal or gas.
As of that year, 32 states produced natural gas, according to the NCSL. Maryland, New York, and Pennsylvania were the only natural gas producers without a severance tax. Thirty-four states have enacted fees or taxes on oil and gas production, and three of these states (North Carolina, Idaho, and Wisconsin) have taxes on oil and gas production despite lacking commercial gas and oil wells.
There are numerous methods to tax oil and gas production, and states differ in the imposition of the taxes. Most often, states tax the market value, though some tax the volume produced, and others tax a combination of both.
Naturally, there is controversy surrounding the taxation methods. Opponents argue that the imposition of a tax deters production. On the other hand, the fees generate substantial revenues that proponents of the tax claim are necessary to offset negative impacts on the environment and infrastructure.