We provide here a written summary of answers provided by the Department of Revenue to the committee at periodic question and answer sessions. These documents are classified as Revenue information issued for informational purposes only for the convenience of PICPA members. Pursuant to 61 Pa. Code Section 3.4, these documents should not be relied upon for any purpose or used in tax appeals. Taxpayers requiring a binding opinion on a specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.
Q&A with the Pennsylvania Department of Revenue
A taxpayer recently received a check from a drilling company for the right to drill for Marcellus Shale on his farm land. Can we report this income on Schedule F?
A taxpayer has a Schedule “F” farm. The taxpayer recently received a check from a drilling company for the right to drill for Marcellus Shale on his farm land. Can we report this income on Schedule F (or does it have to be reported as royalty income on Schedule E)?
The income should be reported as royalty income on PA Schedule E. Farming income is related to surface activity. The payment received is related to an activity that takes place below the surface and mineral rights of the property. It is not related to the farm operations and therefore should be reported separately. Please see the Taxable Royalties and Taxable Rental Income sections of the Natural Resources chapter of the PA PIT Guide (Chapter 23) for additional information.