Tax or fee: What's the impact of the two three-letter words?

Here is a question that has bedeviled Pennsylvania politicians for five years, inspiring strange contortions and dramatic reversals: Is the impact fee levied on the state’s shale gas wells a tax or a fee?

Politicians’ and lobbyists’ preference for one three-letter word over the other won’t change how much money a shale gas operator owes for drilling a well. But in a case being considered by the Commonwealth Court, the outcome — and half a million dollars — may depend on the judges’ answer.

First, a vocabulary review.

Sometime in early 2015 everybody who hates the idea of a natural gas severance tax took to calling Pennsylvania’s alternative — the impact fee — an impact “tax.”

“Pennsylvania is the only state that imposes a special impact tax,” the North Fayette industry trade group Marcellus Shale Coalition said in February.

“We call it a fee because we had a governor that refused to call it a tax,” Senate President Pro Tempore Joe Scarnati, R-Jefferson, said in March. “It’s a tax, OK? Let’s get that on the record for everybody. It is a tax and they are paying a tax.”

“We do have a tax,” House Speaker Mike Turzai, R-Marshall, said in June. “It’s an impact fee.”

“We should have named the impact fee an impact tax,” Sen. Gene Yaw, R-Lycoming, said in July.

The new enthusiasm for calling the levy a tax is a remarkable semantic about-face.

In 2012, Republican leaders, especially then-Gov. Tom Corbett, went to great lengths to define the levy as a fee when they passed a law to start collecting it.

During the debate over what to call it in 2011, Mr. Scarnati wrote to anti-tax guru Grover Norquist to defend his early impact fee proposal — known as Senate Bill 1100 — and give cover to colleagues who wanted to support the legislation but had signed Mr. Norquist's no-tax pledge.

“There are several specific reasons,” Mr. Scarnati wrote, “why Senate Bill 1100 is not a tax.” At one point in the same letter, Mr. Scarnati referred to the levy as a “severance fee.”

Usually, politicians embrace the terms fee or tax depending on whether they want to sell an idea or knock it down.

“If you like it, it’s a fee. If you don’t like it, you can call it a tax,” said G. Terry Madonna, a state pollster and political analyst at Franklin & Marshall College.

But this is a little different: people who like the impact fee and want to maintain it are quickest to call it a tax.

“One of the reasons you can refer to it that way is that you want to remind people that you are already paying something,” he said. “That’s the angle here. ‘Oh, wait a minute — you’re taxing us twice.’”

In the Commonwealth Court case, known as Snyder Brothers, Inc. v. Pennsylvania Public Utility Commission, the stakes are higher than campaign promises and spin.

Impact fees are not levied on so-called “stripper wells,” which the law defines as unconventional gas wells “incapable of producing more than 90,000 cubic feet of gas per day during any calendar month.”

The PUC ordered Snyder Brothers to pay nearly $500,000 in impact fees on two dozen wells that the Kittanning-based oil and gas operator had not reported to the state.

Snyder Brothers contends that it does not owe the fees on the wells because they produced less than 90,000 cubic feet of gas per day during at least one month of the year. The PUC argues the company owes the fees because the wells did not produce less than 90,000 cf/d every month of the year.

The judges could find that the law is unambiguous, or they could find it ambiguous but find other evidence in the law or the legislature’s intent to draw a definitive conclusion about whether Snyder Brothers owes the fees. Either way, they could entirely avoid having to decide whether the impact fee is a tax or a fee.

But if they decide the law is ambiguous and the intent is unclear, their definition of the levy — tax or fee — will matter.

“Taxing statutes are to be construed most strictly against the tax collector,” Thomas Reed, Snyder Brothers’ attorney for the case, explained. “Any questions or ambiguities have to be resolved in favor of the taxpayer.”

The impact fee “is clearly a tax,” he said during oral arguments for the case in November. “And if it’s a tax, we win because you are supposed to draw those ambiguities in our favor.”

The PUC has concluded the impact fee is not a tax for several reasons, including that the Legislature called it an impact fee.

Mr. Reed said the name is irrelevant. More importantly, the impact fee fails the duck test, he said in court. “‘If it walks like a duck, talks —’ we all know that.”

“We’re not talking a little small change,” he said. “It certainly walks like a tax.”

Laura Legere:

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