Will Landowners Pay Higher Property Taxes When Drilling Begins? Stay Tuned…
By Andrew S. Chumney
Pennsylvania Farmland and Forest Land Assessment Act of 1974, commonly referred to as “Clean and Green,” allows land devoted to agricultural or forest use or reserve to be assessed at its lower use value rather than the substantially higher fair market value.
Property owners who choose to have their property enrolled in this voluntary program benefit through lower taxes provided they do not use their land for commercial or residential development or other uses inconsistent with the provisions of the Act. If a landowner changes the use of the property contrary to those permitted uses under the Act, they not only start paying higher taxes from the date of the change in use, they must also pay the difference in the tax rate between the Clean and Green assessment and the fair market value for as many years as the property had been enrolled in the program, up to a maximum of seven years, plus interest. These are commonly referred to as “rollback taxes.”
The looming question for those property owners who have their land enrolled in the Clean and Green program and who may have a Marcellus Shale gas well drilled upon their property is whether the well will result in the disqualification of their property from the Clean and Green lower tax rate? Currently the answer to this question is being addressed on a county-by-county basis. Some counties disqualify the entire property from the program; others disqualify only that portion of the property being used in a manner unauthorized by the Act; and other counties have not taken any position at all.
The current state of uncertainty may be drawing to a close. A bill was recently passed by the Pennsylvania Senate and is now before the House which attempts to eliminate this inconsistent interpretation. Under this bill, the “roll-back tax” would only be levied on the portion of land affected by the drilling as identified on the well restoration report filed by the driller, and any land which, as a result of the drilling, is incapable of being immediately used for agricultural use, agricultural reserve or forest reserve. Any land devoted to subsurface transmission or gathering lines would be exempt from roll-back taxes. The entire property could still voluntarily be removed from preferential assessment upon payment of any due roll-back taxes if the owner so chooses.
We at Peacock Keller will continue to monitor this bill as it makes its way toward being signed into law. However, this question is only one of many that should be taken into consideration before entering into an oil and gas lease to permit drilling on your property. If you have been approached to sign an oil and gas lease, or have recently entered into a lease and are unsure of all the consequences that income may have as you plan for you and your family’s future, please contact us for help.
Peacock Keller & Ecker, LLP • 70 East Beau Street • Washington, PA 15301 • 724-222-4520