FISCAL NOTE
Date Requested: January 12, 2022
Time Requested: 01:29 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1871 |
Introduced |
HB4025 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to encourage economic development regarding rare earth elements and critical minerals, as defined, by providing temporary taxation relief.
According to our interpretation of this bill, this bill exempts rare earth elements and critical minerals from Severance Tax for a period of five years beginning January 1, 2022. The bill defines rare earth elements and other critical minerals such as scandium, yttrium, lanthanum, etc. that are essential to the economy whose supply may be disrupted, including, without limitation, metals such as lithium, cobalt, manganese, indium, tellurium, gallium, and platinum group elements. China currently controls most of the rare earth minerals market, a broad group of 17 elements that are used to produce items such as smartphones and fighter jets. According to Bloomberg News, in 2021, a power shortage and an increase in rare earth commodity prices have caused demand to exceed supply. West Virginia currently receives no Severance Tax proceeds from rare earth minerals as described within the bill. However, the State is collecting roughly $70 million in Severance Tax from other natural resources this fiscal year (mostly from natural gas liquids products). Under the assumption that the proposed exemption would only apply to rare earth minerals and not to “other” currently taxable natural resources “that are essential to the economy”, passage of this bill would not have a negative impact on General Revenue Fund collections.
Additional administrative costs incurred by the State Tax Department would be minimal in FY2022.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2022
Increase/Decrease
(use"-") |
2023
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):
According to our interpretation of this bill, this bill exempts rare earth elements and critical minerals from Severance Tax for a period of five years beginning January 1, 2022. The bill defines rare earth elements and other critical minerals such as scandium, yttrium, lanthanum, etc. that are essential to the economy whose supply may be disrupted, including, without limitation, metals such as lithium, cobalt, manganese, indium, tellurium, gallium, and platinum group elements. China currently controls most of the rare earth minerals market, a broad group of 17 elements that are used to produce items such as smartphones and fighter jets. According to Bloomberg News, in 2021, a power shortage and an increase in rare earth commodity prices have caused demand to exceed supply. West Virginia currently receives no Severance Tax proceeds from rare earth minerals as described within the bill. However, the State is collecting roughly $70 million in Severance Tax from other natural resources this fiscal year (mostly from natural gas liquids products). Under the assumption that the proposed exemption would only apply to rare earth minerals and not to “other” currently taxable natural resources “that are essential to the economy”, passage of this bill would not have a negative impact on General Revenue Fund collections.
Additional administrative costs incurred by the State Tax Department would be minimal in FY2022.
Memorandum
The stated purpose of this bill is to encourage economic development regarding rare earth elements and critical minerals, as defined, by providing temporary taxation relief.
It is not clear why the term “maximum” is used instead of simply granting the exemption for a period of five years. This language could be interpreted as meaning an exemption for all taxpayers between the period 1/1/2022 through 12/31/2026, or it could mean an exemption for any five-year period beginning after 1/1/2022 for an individual taxpayer; for example, one who began mining scandium on 1/1/2030 could enjoy the exemption until 12/31/34. If the latter is an accurate reading, language limiting the exemption to one taxpayer would help prevent abuse.
The language, “and other resources that are essential to the economy, whose supply may be disrupted (Emphasis added), including, without limitation, …,” is more than a little vague, and potentially subject to exploitation. A more concise definition of rare earth minerals subject to the exemption might be helpful.
Most of the other category in Severance Tax collections consists of tax revenue obtained from natural gas liquids.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov