FISCAL NOTE

Date Requested: February 18, 2016
Time Requested: 11:07 AM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
2216 Introduced HB4567
CBD Subject: Natural Resources, Taxation


FUND(S):

West Virginia Future Fund

Sources of Revenue:

Special Fund

Legislation creates:

Neither Program nor Fund



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


The stated purpose of this bill is establishing industrial water extraction fees. The bill places a penny fee on a gallon of water extracted for industrial use. The bill places an additional penny fee on every gallon of water extracted for industrial use that is transported over state roads. The bill requires measuring of water withdrawals by a specified method. The bill defines terms. The bill provides rule-making authority. The proposed bill applies a 1 cent per gallon tax on water extracted for industrial use and an additional 1 cent per gallon tax on such water that is transported over any state road. Based on our interpretation, the first tax on water extracted for industrial use would generate up to $581.0 million per year for the first full year of implementation based on data gathered from the West Virginia Department of Environmental Protection (DEP). This figure represents a maximum revenue estimate as “industrial use” is not clearly defined in the bill. Restrictions on what constitutes “industrial use” could reduce this estimate. These funds benefit the West Virginia Future Fund. The second tax on water withdrawn and transferred over state roads is estimated to generate at least $15.2 million per year for the first full year of implementation. This figure represents a conservative revenue estimate and will be transferred to the counties. Total collections from these taxes, including the local benefit, are estimated to be $596.2 million per year. Additional administrative costs incurred by the State Tax Department are expected to be $37,200 for the remainder of FY2016, $47,000 in FY2017 and $41,500 for each year thereafter.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2016
Increase/Decrease
(use"-")
2017
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 37,200 47,000 41,500
Personal Services 0 41,500 41,500
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 5,500 0
Other 37,200 0 0
2. Estimated Total Revenues 0 596,200,000 596,200,000


Explanation of above estimates (including long-range effect):


The proposed bill applies a 1 cent per gallon tax on water extracted for industrial use and an The proposed bill applies a 1 cent per gallon tax on water extracted for industrial use and an additional 1 cent per gallon tax on such water that is transported over any state road. Based on our interpretation, the first tax on water extracted for industrial use would generate up to $581.0 million per year for the first full year of implementation based on data gathered from the West Virginia Department of Environmental Protection (DEP). This figure represents a maximum revenue estimate as “industrial use” is not clearly defined in the bill. Restrictions on what constitutes “industrial use” could reduce this estimate. These funds benefit the West Virginia Future Fund. The second tax on water withdrawn and transferred over state roads is estimated to generate at least $15.2 million per year for the first full year of implementation. This figure represents a conservative revenue estimate and will be transferred to the counties. Total collections from these taxes, including the local benefit, are estimated to be $596.2 million per year. Additional administrative costs incurred by the State Tax Department are expected to be $37,200 for the remainder of FY2016, $47,000 in FY2017 and $41,500 for each year thereafter.



Memorandum


The stated purpose of this bill is establishing industrial water extraction fees. The bill places a penny fee on a gallon of water extracted for industrial use. The bill places an additional penny fee on every gallon of water extracted for industrial use that is transported over state roads. The bill requires measuring of water withdrawals by a specified method. The bill defines terms. The bill provides rule-making authority. The proposed bill fails to define “industrial use” and “waters of the state.” The former could allow imposition of the fee on a broad number of business activities. Further, the bill does not define what is intended by the “cradle-to-grave monitoring system” to determine gallons withdrawn for industrial use. There does not appear to be any provision in the bill for enforcement of the proposed statute. The bill also fails to provide penalties for failure to collect the proposed fees. Using the term “fee” as opposed to “tax” could be considered a title defect and may lead to a Constitutional concern. The West Virginia Supreme Court of Appeals ruled in Cooper v. City of Charleston, 624 S.E.2d 716, 218 W. Va. 279 (WV 2005) that “[t]he primary purpose of a tax is to obtain revenue for the government, while the primary purpose of a fee is to cover the expense of providing a service or of regulation and supervision of certain activities.” The bill does not designate a particular service of activity for which the “water extraction fee” is to be spent. “[O]ne cent” should be noted as “1¢” in the bill.



    Person submitting Fiscal Note: Mark Muchow
    Email Address: kerri.r.petry@wv.gov