FISCAL NOTE
Date Requested: January 30, 2018
Time Requested: 02:13 PM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1238 |
Introduced |
HB4363 |
|
|---|
| CBD Subject: |
|
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FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to provide a tax credit to West Virginia power generators and manufacturers in the amount of severance tax imposed on coal, oil and gas produced in West Virginia and sold to and used by the West Virginia power generators and manufacturers in West Virginia.
According to our interpretation, this bill would create a tax credit for manufacturers or power generators in the State that purchase and use coal oil or gas from an entity that has paid the Severance Tax on the coal, oil, or gas. As written, the proposed bill would allow the tax credit to offset Business and Occupation Tax, Business Franchise Tax, and Corporation Net Income Tax liabilities. We note the Business Franchise Tax terminated on January 1, 2015.
We cannot estimate the revenue impact of this bill because the severance tax is imposed on the seller of natural resources, not the purchaser. It is unlikely information connecting the exemption to the exact resource sold would be available. For context, however, the proposed tax credit could result in General Revenue losses between $35 million and $40 million per year, based solely on coal produced and sold in West Virginia for use in electric power production in the State in 2016. This estimate reflects both state and local severance taxes paid on this coal and does not include an estimate for revenue losses associated with natural gas or oil produced and purchased in this State for qualifying use. The magnitude of losses year-to-year would be influenced by prices for these natural resources, which can fluctuate greatly based on economic and market conditions.
Additional administrative costs incurred by the State Tax Department would be $61,000 in FY2020 and $35,000 in FY2021 and thereafter.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2018
Increase/Decrease
(use"-") |
2019
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
0 |
35,000 |
| Personal Services |
0 |
0 |
35,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation, this bill would create a tax credit for manufacturers or power generators in the State that purchase and use coal oil or gas from an entity that has paid the Severance Tax on the coal, oil, or gas. As written, the proposed bill would allow the tax credit to offset Business and Occupation Tax, Business Franchise Tax, and Corporation Net Income Tax liabilities. We note the Business Franchise Tax terminated on January 1, 2015.
We cannot estimate the revenue impact of this bill because the severance tax is imposed on the seller of natural resources, not the purchaser. It is unlikely information connecting the exemption to the exact resource sold would be available. For context, however, the proposed tax credit could result in General Revenue losses between $35 million and $40 million per year, based solely on coal produced and sold in West Virginia for use in electric power production in the State in 2016. This estimate reflects both state and local severance taxes paid on this coal and does not include an estimate for revenue losses associated with natural gas or oil produced and purchased in this State for qualifying use. The magnitude of losses year-to-year would be influenced by prices for these natural resources, which can fluctuate greatly based on economic and market conditions.
Additional administrative costs incurred by the State Tax Department would be $61,000 in FY2020 and $35,000 in FY2021 and thereafter.
Memorandum
The stated purpose of this bill is to provide a tax credit to West Virginia power generators and manufacturers in the amount of severance tax imposed on coal, oil and gas produced in West Virginia and sold to and used by the West Virginia power generators and manufacturers in West Virginia.
The bill would be difficult for the Tax Department to administer as written. There is also a title defect in the bill as it is not specific enough to convey its true impact. This bill does not address the statute of limitations for amended returns. If this bill were passed, there would likely be constitutional challenges based upon interstate commerce.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov