BY LAURA LEGERE

Times-Shamrock Writer

A state proposal to have gas drillers automatically withhold state taxes from lease and royalty payments is drawing criticism from landowners who say they already struggle to ensure they are receiving proper payment for their gas rights.

The state chapter of the National Association of Royalty Owners, which represents oil and gas leaseholders, said it was surprised by the provision included in an omnibus tax bill, Senate Bill 1541, introduced May 31 and likely to pass with the budget sometime this week.

The Department of Revenue expects the measure to make collecting the 3.07 per­cent income tax on lease and roy­alty pay­ments faster and more efficient, especially among out-of-state mineral rights owners. The tax rate will not change, but the state estimates automatic withholding will boost tax revenue from royalty payments by $5.3 million next year and by about $2 million in subsequent years.

The state collected $46.2 million in taxes from gas leases and royalties in 2010, the most recent year for which data are available.

The royalty owners’ group argues that royalty check records provided by drilling companies already often lack itemized details that would allow leaseholders to verify how much they are owed from each well and how much has been deducted for costs. The group has been pushing the state to require standardized documentation and protections.

“There are few checks and balances to make sure royalty owners are being paid accurately, timely or properly,” Trevor Walczak, the vice president of NARO Pennsylvania, said. Given the current lack of transparent documentation, the withholding proposal is unpopular with the organization’s members, he said.

“We’re willing to pay our share, but we would like to know that we’re paying just our share,” state NARO President Jackie Root said.

Rev­enue Department spokes­woman Eliz­a­beth Bras­sell said the state’s plan is meant to simplify tax collection for both landowners and the state.

“The department’s interest is ensuring that all the taxes owed the commonwealth are reported and paid,” she said.