Oops

Not exactly a rounding error, Gov. Corbett!

Tim Puko at the Pittsburgh Tribune-Review uncovered a $56 million mistake in the Pennsylvania Department of Revenue’s reporting of personal income tax (PIT) collections attributed to Marcellus Shale drilling for last year.

Back in May, the Department estimated that taxable Marcellus Shale royalties generated $102.7 million in PIT collections in 2010. Now the Department says that figure is a tad lower — $46.2 million, a decrease of $56.5 million or over 55% from what was reported six months ago. To quote Britney Spears, “Oops!”

How does this happen? By rushing too fast and using incomplete data to make a policy point, as I noted in theTribune-Review story. This type of cheerleading report for a single industry is highly unusual for the Department of Revenue. There isn’t a report of taxes paid by snack food manufacturers, steel producers, or even dairy farms.

The updated Marcellus tax data included another interesting tidbit — how little is paid in PIT from income flowing through to oil and gas company owners. In 2009, the Department reports $9.9 million in PIT from these taxpayers.

Our review of oil and gas drillers in Pennsylvania found that more than 70% of the companies were structured as limited liability companies (LLCs) or some other type of flow-through entity. The owners of these companies are likely a combination of corporate and individual owners, but getting less than $10 million from the individual owners of a booming industry is pretty eye opening to how little drillers are taxed in Pennsylvania.