FISCAL NOTE
Date Requested: March 08, 2021
Time Requested: 11:52 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2444 |
Introduced |
HB2979 |
|
|---|
| 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 provide a tax credit to West Virginia power generators and manufacturers in the amount of the 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 of this bill, an eligible power generator and/or manufacturer who has purchased natural resources from a seller would be eligible for a tax credit equivalent to the amount of Severance Tax attributable to the amount of coal, oil or gas that were sold to and used by the eligible taxpayer in tax years on or after January 1, 2022. The proposed Severance Tax credit would be applied to Business Occupation Tax and Corporation Net Income Tax liabilities for tax years on or after January 1, 2022. This bill also refers to the Business Franchise Tax which was terminated on January 1, 2015. Data from the U.S Energy Information Administration shows that 18.6 million tons of coal, 23.6 trillion cubic feet of natural gas, and 250,000 barrels of oil were used by West Virginia power plants in 2019. The current price of coal in State power plants is roughly $53 per ton. The weighted average cost of natural gas in the U.S. electric power industry in 2019 was $3.00 per MCF and the corresponding 2019 price of oil was $51 per barrel. Passage of this bill would result in a loss to the General Revenue Fund of roughly $30.0 million to $35.0 million in FY2023 and thereafter.
Additional costs incurred by the State Tax Department would be $25,000 in FY2023 and $10,000 in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2021
Increase/Decrease
(use"-") |
2022
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
25,000 |
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 |
15,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation of this bill, an eligible power generator and/or manufacturer who has purchased natural resources from a seller would be eligible for a tax credit equivalent to the amount of Severance Tax attributable to the amount of coal, oil or gas that were sold to and used by the eligible taxpayer in tax years on or after January 1, 2022. The proposed Severance Tax credit would be applied to Business Occupation Tax and Corporation Net Income Tax liabilities for tax years on or after January 1, 2022. This bill also refers to the Business Franchise Tax which was terminated on January 1, 2015. Data from the U.S Energy Information Administration shows that 18.6 million tons of coal, 23.6 trillion cubic feet of natural gas, and 250,000 barrels of oil were used by West Virginia power plants in 2019. The current price of coal in State power plants is roughly $53 per ton. The weighted average cost of natural gas in the U.S. electric power industry in 2019 was $3.00 per MCF and the corresponding 2019 price of oil was $51 per barrel. Passage
of this bill would result in a loss to the General Revenue Fund of roughly $30.0 million to $35.0 million in FY2023 and thereafter.
Additional costs incurred by the State Tax Department would be $25,000 in FY2023 and $10,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to provide a tax credit to West Virginia power generators and manufacturers in the amount of the 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 title is defective. The bill offsets Business and Occupation Tax and Corporation Net Income Tax, not Severance Tax. The bill erroneously refers to the Business Franchise Tax, which terminated on January 1, 2015.
This bill would be difficult to administer as the Severance Tax is imposed on the gross value of the natural resource and not on the purchase price. The manufacturer will not have enough information in most cases, to determine how much Severance Tax was paid by just looking at a purchase price. It would also be difficult to track which natural resources are subject to the Severance Tax and how much was paid because a manufacturer may purchase from multiple natural resource producers.
The Tax Commissioner could also not use the actual amount of the Severance Tax paid by the natural resource producers. That would require the Tax Department to disclose a natural gas producer’s confidential taxpayer information to the purchaser. In addition, the information is subject to change. It is not uncommon for natural resource producers to file amended returns for the same tax year. Further, the period may be subject to an audit which could change the amount of the tax liability.
A schedule listing what the manufacturer paid for the natural resource would overstate the amount of Severance Tax paid. The bill does not have provide information in how the Tax Commissioner would determine the amount of State Severance Tax paid on the natural resources purchased.
The bill raises Constitutional concerns in favoring natural resources severed in West Virginia. The Commerce Clause prohibits states from passing legislation that improperly burdens or discriminates against interstate commerce.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov