FISCAL NOTE

Date Requested: January 21, 2019
Time Requested: 01:42 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1589 Introduced HB2565
CBD Subject: Roads and Transportation


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund

Legislation creates:

Creates New 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 collect a user fee from oil and gas producers who use secondary roads in the state. The bill provides for the distribution to the counties a proportional share of the collected taxes. Based upon our interpretation, the passage of the bill will result in a minimum $500,000 annual user fee for the privilege of engaging or continuing with this state in the business of severing natural gas or oil for sale, profit or commercial use. If the business operates in multiple counties, the fee would be multiplied by the number of counties in which business is conducted using secondary roads. The bill does not make a distinction between the major oil producers who account for 90% of the state’s total production and small operators who mostly operate low volume producing wells. The user fee is deemed uncollectable from the oil and natural gas producers and any reporting of revenue (losses or gains) along with associated administrative costs would not accurately reflect the possible outcomes. For the majority of businesses engaged in oil and natural gas severance activities within the State, the proposed fee would exceed expected business revenues. In addition, there are constitutional issues with fees not tied directly to cost of services received.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2019
Increase/Decrease
(use"-")
2020
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 0 0


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


Based upon our interpretation, the passage of the bill will result in a minimum $500,000 annual user fee for the privilege of engaging or continuing with this state in the business of severing natural gas or oil for sale, profit or commercial use. If the business operates in multiple counties, the fee would be multiplied by the number of counties in which business is conducted using secondary roads. The bill does not make a distinction between the major oil producers who account for 90% of the state’s total production and small operators who mostly operate low volume producing wells. The user fee is deemed uncollectable from the oil and natural gas producers and any reporting of revenue (losses or gains) along with associated administrative costs would not accurately reflect the possible outcomes. For the majority of businesses engaged in oil and natural gas severance activities within the State, the proposed fee would exceed expected business revenues. In addition, there are constitutional issues with fees not tied directly to cost of services received.  



Memorandum


The stated purpose of this bill is to collect a user fee from oil and gas producers who use secondary roads in the state. The bill provides for the distribution to the counties a proportional share of the collected taxes. The bill raises some federal Constitutional questions. The U.S. Supreme Court has ruled that fees, as opposed to taxes, are subjected to a three-prong analysis in order to determine whether they comport with the Commerce Clause of the U.S. States Constitution: they cannot be discriminatory; the amount of the fee must be approximate the value of the benefit received by the party that is charged with paying the fee; and the fee should not collect more than the cost of the service provided. In United States v. Sperry Corp, it was held that a flat vehicle fee bearing no relationship to the usage of roads violated the commerce clause. 493 U.S. 52 (1989). The proposed bill, by signaling out a particular industry, may be deemed discriminatory. The Court also held, in American Trucking Ass’n v. Scheiner, that fees may not be excessive in comparison with the benefits received. 483 U.S. 266 (1987). The amount of the fee proposed by the bill may be deemed excessive insofar as even the minimal use of a secondary road will trigger the fee, and the bill makes no attempt to establish a correlation between the amount of the fee and the value of the benefit received by anyone charged with paying the fee. The same analysis applies to the third prong: the bill does not attempt to correlate the amount of the fee to its ostensible purpose, i.e. “maintaining and upkeeping the secondary roads of the state.”



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