On July 11, 2024, Pennsylvania Governor Josh Shapiro approved PA Senate Bill 654 as part of the 2024-2025 state budget. The bill, among other changes, allows producers, mineral owners and royalty owners a deduction for percentage depletion for mines, oil and gas wells and other natural deposits. The bill also increases the Coal Refuse Energy and Reclamation Tax Credit available to taxpayers.
Prior to the bill’s passing, Pennsylvania did not conform to the federal percentage depletion rules. However, as of the effective date of the bill, the state now conforms to “the provisions of sections 611, 612, 613, 613A, 614, 616, and 617 of the Internal Revenue Code of 1986.” This will allow taxpayers in the oil and gas industry to “claim a deduction for percentage depletion of a mine, oil and gas well and other natural deposit.” The percentage depletion rates vary based on the type of natural resource being extracted. The relevant rates are as follows:
| Resource | Percentage Depl. Rate |
| Oil and Natural Gas | 15% |
| Coal | 10% |
| Limestone | 14% |
| Gravel | 5% |
Prior to this bill’s passage, Pennsylvania permitted taxpayers to only claim a deduction for cost depletion. This posed a challenge to mineral and royalty owners because it required an analysis of the rate at which their resource was being exhausted and application of that rate to their remaining basis in the property. The calculation for percentage depletion is based on revenue and will be easier for taxpayers to determine.
In addition to the decision to conform to federal regulations for percentage depletion, Senate Bill 654 also contains legislation to double the rate of the Coal Refuse and Energy Reclamation Tax Credit. The credit is now calculated as “$8 multiplied by the tons of qualified coal refuse used to generate electricity at an eligible facility.” The increase in this tax credit will incentivize taxpayers to utilize alternative sources in electric power generation.
These two changes to Pennsylvania’s tax code will have a positive impact on Pennsylvania miners, natural gas producers, royalty owners and power generators. Visit this page to read Senate Bill 654 in its entirety. Schneider Downs will continue to monitor for additional information from the state about these changes. For further information on this bill, please contact a member of our Energy & Natural Resources team.
About Schneider Downs Energy & Resources Services
The Schneider Downs Energy & Resources industry group provides specialized financial advice and services to our clients in the oil and gas, mining and aggregates, forest products and alternative fuel and energy industries throughout the Columbus and Pittsburgh regions. Our extensive knowledge of industry issues enables us to provide proactive audit, tax and management consulting services.
To learn more, visit our Energy and Resources Industry Group page.
