FISCAL NOTE

Date Requested: February 13, 2020
Time Requested: 10:44 AM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2126 Comm. Sub. HB4421
CBD Subject: Taxation


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 encourage development, transportation, and use of natural gas liquids in the state by providing certain tax credits related to the transportation and storage of natural gas liquids.
    
    The provisions of the original bill would give eligible businesses a State tax credit equal to the amount of West Virginia property taxes paid on equipment and inventory from their business activities. According to our interpretation, the committee substitute to this bill limits the eligible taxpayer to any natural gas liquid storer or transporter that is subject to the Personal Income Tax or Corporation Net Income Tax, including those members of an affiliated group of taxpayers engaged in a unitary business. Application of the tax credit is limited to the single entity, from among the affiliated group of taxpayers that earned the tax credit. Application of the credit against Personal Income Tax or Corporation Net Income Tax is limited to that single entity’s proportionate share of taxable income. This bill does not allow a tax credit earned by one member of the affiliated group to be used by any other member of the affiliated group against the total income of the combined group. This group of eligible taxpayers would be eligible for a State tax credit equal to the amount of West Virginia property taxes paid on equipment and inventory from their business activities. The committee substitute would only include members who use natural gas liquids in their business activities as eligible taxpayers. Eligible taxpayer is generally defined to be any natural gas liquids producer, natural gas liquids storer, natural gas liquids user or natural gas liquids transporter who owns or operates pipeline facilities used for the transportation and delivery of natural gas liquids for storage, used in manufacturing or consumption. The committee substitute to this bill removed the credit application against the Severance Tax. Passage of this committee substitute could initially result in a loss of up to $0.5 million to the General Revenue Fund in FY2022 based on limited storage and transportation activities in West Virginia. As these sectors grow in response to increased future activity, local property taxes on associated machinery and inventory will likely increase significantly with revenue gains to local governments along with the potential loss in State General revenue associated with the tax credits for local taxes paid.
    
    Additional administrative costs incurred by the State Tax Department would be $10,000 in FY2021, $25,000 in FY2022, and $10,000 in subsequent fiscal years. Administrative costs incurred by the State Property Tax Division would be minimal, as the division would only be involved in providing the inventory and equipment values for the calculation of the proposed tax credit.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2020
Increase/Decrease
(use"-")
2021
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 10,000 10,000
Personal Services 0 10,000 10,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 -500,000 -500,000


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


    The provisions of the original bill would give eligible businesses a State tax credit equal to the amount of West Virginia property taxes paid on equipment and inventory from their business activities. According to our interpretation, the committee substitute to this bill limits the eligible taxpayer to any natural gas liquid storer or transporter that is subject to the Personal Income Tax or Corporation Net Income Tax, including those members of an affiliated group of taxpayers engaged in a unitary business. Application of the tax credit is limited to the single entity, from among the affiliated group of taxpayers that earned the tax credit. Application of the credit against Personal Income Tax or Corporation Net Income Tax is limited to that single entity’s proportionate share of taxable income. This bill does not allow a tax credit earned by one member of the affiliated group to be used by any other member of the affiliated group against the total income of the combined group. This group of eligible taxpayers would be eligible for a State tax credit equal to the amount of West Virginia property taxes paid on equipment and inventory from their business activities. The committee substitute would only include members who use natural gas liquids in their business activities as eligible taxpayers. Eligible taxpayer is generally defined to be any natural gas liquids producer, natural gas liquids storer, natural gas liquids user or natural gas liquids transporter who owns or operates pipeline facilities used for the transportation and delivery of natural gas liquids for storage, used in manufacturing or consumption. The committee substitute to this bill removed the credit application against the Severance Tax. Passage of this committee substitute could initially result in a loss of up to $0.5 million to the General Revenue Fund in FY2022 based on limited storage and transportation activities in West Virginia. As these sectors grow in response to increased future activity, local property taxes on associated machinery and inventory will likely increase significantly with revenue gains to local governments along with the potential loss in State General revenue associated with the tax credits for local taxes paid.
    
    Additional administrative costs incurred by the State Tax Department would be $10,000 in FY2021, $25,000 in FY2022, and $10,000 in subsequent fiscal years. Administrative costs incurred by the State Property Tax Division would be minimal, as the division would only be involved in providing the inventory and equipment values for the calculation of the proposed tax credit.
    



Memorandum


    The stated purpose of this bill is to encourage development, transportation, and use of natural gas liquids in the state by providing certain tax credits related to the transportation and storage of natural gas liquids.
    
    The Committee Substitute for this bill does not number each definition as a subdivision of proposed section 11-13FF-2(b). It seems to provide a program very similar to the Manufacturing Property Tax Credit Adjustment Credit that would provide a tax credit to natural gas producers and processors for the property tax paid in equipment and inventory. The Committee Substitute seems to have removed the credit available against the Severance Tax, and inserted some language attempting to limit credit to only the entity that paid the Property Tax.
    
    The Committee Substitute becomes effective for “corporate income tax years and personal income tax years beginning on or after July 1, 2020”. This is an unusual provision as it does not use a calendar year. Nearly every individual uses a calendar year, while corporations vary.
    
    
    
    



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