A recent article by the Pittsburgh Post-Gazette titled, “Drilling Costs Get Speedier Write-Off,” discusses a tax bill that won the support of Pennsylvania legislators last Monday, July 1. The bill was a small victory to oil and gas investors who report their oil and gas proceeds as personal income.

For half a dozen years, individual investors and company owners have been battling with the state Department of Revenue to get Pennsylvania to allow the same tax deduction on drilling costs as they get from the federal government – a 100 percent deduction of intangible drilling costs in the same year the money is spent.

Shareholder at Buchanan Ingersoll & Rooney, Charles L. Potter, told the Post-Gazette, “Ever since the federal tax code was invented in 1913, they always put [in] incentives because they want to encourage people to explore for oil and gas.”

Pennsylvania allows expenses for intangible drilling, which includes everything that goes into putting a well into production, except the cost of the equipment, to be amortized only over the life of the well, while the federal government offers the option of immediate deduction or capitalization over five years.

“Until three or four years ago, they paid almost no attention to it. We didn’t have anybody assessed until 2006,” Potter stated in regards to when the state began inspecting investors and independent producers’ tax returns.

The bill approved by the House and Senate allows a 33 percent immediate deduction with the rest amortized over 10 years. 

Read the full article – “Drilling Costs Get Speedier Write-Off” (Pittsburgh Post-Gazette, July 4, 2013)