FISCAL NOTE

Date Requested: February 16, 2017
Time Requested: 01:38 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1065 Introduced SB331
CBD Subject: Taxation


FUND(S):

State Road Fund

Sources of Revenue:

Other Fund State Road Fund

Legislation creates:

Neither Program nor Fund



Fiscal Note Summary


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


    The purpose of this bill is to exempt heating oil used for residential purposes from the Motor Fuel Excise Tax.
    
    According to our interpretation, the provisions of this bill would remove home heating fuel used exclusively for heating a private dwelling from the definition of motor fuel and would attempt to create a per se exemption for such fuel from the variable 5 percent motor fuel sales tax. A per se exemption may work for sales of propane, but is unworkable for sales of kerosene and oil used for home heating purposes. Kerosene and other similar products are taxed at the rack of sale long before the determination of final use is established. Absent a complete overhaul of the entire motor fuel tax system that would remove the tax at the rack system in favor of a less efficient tax collection at the distributor level system, a limited private home heating fuel exemption could only be executed through a refund application process.
    
    If the proposed exemption would be limited to propane use only, then the loss to the State Road Fund would be roughly $1.0 million per year at the current effective rate. If the provisions of the bill are also intended to provide an exemption for kerosene and other heating fuels, then the total loss to the State Road Fund could be roughly $2.3 million. We note that if proposed changes to the variable motor fuel rate go into effect, cumulative losses to the State Road Fund would increase to approximately $2.6 million per year.
    
    Additional administrative costs to the State Tax Department would be minimal in FY2018.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2017
Increase/Decrease
(use"-")
2018
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 -2,300,000 -2,300,000


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


    According to our interpretation, the provisions of this bill would remove home heating fuel used exclusively for heating a private dwelling from the definition of motor fuel and would attempt to create a per se exemption for such fuel from the variable 5 percent motor fuel sales tax. A per se exemption may work for sales of propane, but is unworkable for sales of kerosene and oil used for home heating purposes. Kerosene and other similar products are taxed at the rack of sale long before the determination of final use is established. Absent a complete overhaul of the entire motor fuel tax system that would remove the tax at the rack system in favor of a less efficient tax collection at the distributor level system, a limited private home heating fuel exemption could only be executed through a refund application process.
    
    If the proposed exemption would be limited to propane use only, then the loss to the State Road Fund would be roughly $1.0 million per year beginning in FY2018 at the current effective rate. If the provisions of the bill are also intended to provide an exemption for kerosene and other heating fuels, then the total loss to the State Road Fund could be roughly $2.3 million. We note that if proposed changes to the variable motor fuel rate go into effect, cumulative losses to the State Road Fund would increase to approximately $2.6 million per year.
    
    Additional administrative costs to the State Tax Department would be minimal in FY2018.
    



Memorandum


    The stated purpose of this bill is to exempt heating oil used for residential purposes from the Motor Fuel Excise Tax.
    
    The proposed bill does not change the point of taxation, which is currently at the terminal “rack.” This bill could make administration of the tax and tracking actual use of the fuel difficult, as the bulk seller would not be able to distinguish which gallons or gallon equivalents would be used for home heating using and for use as a motor fuel.
    
    The proposed bill also creates a favored class of consumers. Other home heating sources are also subject to state and local consumption taxes. Exempting special heating fuels would create a tax preference for the use of these fuels in home heating rather than other energy sources (e.g., electricity or natural gas).
    



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