Gov. Ed Rendell and the Pennsylvania Legislature agreed that the state needs a severance tax on drilling in the Marcellus Shale, but few details have been ironed out. Although the 2010-11 budget does not include it, the plan is to enact such a tax by Oct. 1, so it will go into effect Jan. 1. But how large the tax on natural gas production will end up being and what the industry will get in return remains to be seen. The Marcellus Shale Coalition is cautiously optimistic that the tax, which only two weeks ago president Kathryn Klaber said was â¿¿enormousâ¿ and â¿¿would only drive away jobs,â¿ will win industry favor when the legislature debates how it should be structured. Drillers in the Marcellus seem resigned to some kind of severance tax. Other states, including neighboring West Virginia, have had such taxes in place for some time; West Virginiaâ¿¿s was enacted in 2006. What has been proposed thus far in Pennsylvania is a 5 percent tax on the price of gas at the wellhead and an additional 4.7 cents for every thousand cubic feet produced. Thatâ¿¿s modeled after West Virginiaâ¿¿s severance tax structure, but the industry would like to see something more akin to Louisiana or Arkansas. In Louisiana, where the Haynesville Shale competes with the Marcellus for investment, the tax is suspended for the first two years or until the operator has broken even on the cost of completing the well. In Alabama, the grace period is three years at a diminished tax rate of 1.5 percent. â¿¿It allows you to capture the high up front capital that these wells require so you can recover those costs,â¿ said Matt Pitzarella, a spokesman for Range Resources, one of the most active drillers in the Marcellus.