FISCAL NOTE
Date Requested: January 30, 2023
Time Requested: 12:59 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2908 |
Introduced |
HB3133 |
|
|---|
| 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 create a credit against the severance tax to encourage private companies to make infrastructure improvements to highways, roads, and bridges in the state. The bill limits the total amount of road and highway infrastructure improvement credits, which can be verified by the Secretary of Transportation. The bill seeks to encourage greater capital investment in coal production and processing facilities. The bill will increase economic opportunity to the state. The bill authorizes the claiming of the credits. Finally, the bill provides for an effective date.
The provisions of this bill would create two separate investment tax credit applications for the coal industry effective January 1, 2023. The bill creates a broad tax credit against coal severance taxes equal to 50 percent of qualified expenses necessary to operate a coal mine and related properties. The bill also creates a narrow 50 percent tax credit for qualified expenses of a surface mine associated with the development of a certified road or highway infrastructure improvement project up to a total limit of $50,000 based on a maximum certification of no more than $100,000 in eligible expenses. The resulting tax credits may be used to offset up to 20 percent of the Taxpayer’s coal severance tax liability with excess tax credits carried over for up to nine additional years. The broad tax credit equal to 50 percent of the qualified operating expenses of a mine should by itself be sufficient to fully offset 20 percent of coal severance tax liability without need for additional benefits from the narrower tax credit for highway improvement projects. The narrow tax credit for highway improvement projects would require pre-certification from the Secretary of Transportation with a limit of no more than $100,000 in total expenditures eligible for the tax credit. Beginning in FY2024, passage of this bill would result in an annual General Revenue Fund loss of roughly $70.0 million per year based on current coal prices and current collection trends. Given the January 2023 effective date of these proposed tax credits, a revenue loss of up to $25.0 million could be anticipated for the balance of FY2023 based on an expectation of claims against monthly tax payments.
Additional administrative costs incurred by the State Tax Department would be $15,000 in FY2023.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2023
Increase/Decrease
(use"-") |
2024
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
15,000 |
0 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
15,000 |
0 |
0 |
| 2. Estimated Total Revenues |
-25,000,000 |
-75,000,000 |
-75,000,000 |
Explanation of above estimates (including long-range effect):
The provisions of this bill would create two separate investment tax credit applications for the coal industry effective January 1, 2023. The bill creates a broad tax credit against coal severance taxes equal to 50 percent of qualified expenses necessary to operate a coal mine and related properties. The bill also creates a narrow 50 percent tax credit for qualified expenses of a surface mine associated with the development of a certified road or highway infrastructure improvement project up to a total limit of $50,000 based on a maximum certification of no more than $100,000 in eligible expenses. The resulting tax credits may be used to offset up to 20 percent of the Taxpayer’s coal severance tax liability with excess tax credits carried over for up to nine additional years. The broad tax credit equal to 50 percent of the qualified operating expenses of a mine should by itself be sufficient to fully offset 20 percent of coal severance tax liability without need for additional benefits from the narrower tax credit for highway improvement projects. The narrow tax credit for highway improvement projects would require pre-certification from the Secretary of Transportation with a limit of no more than $100,000 in total expenditures eligible for the tax credit. Beginning in FY2024, passage of this bill would result in an annual General Revenue Fund loss of roughly $70.0 million per year based on current coal prices and current collection trends. Given the January 2023 effective date of these proposed tax credits, a revenue loss of up to $25.0 million could be anticipated for the balance of FY2023 based on an expectation of claims against monthly tax payments.
Additional administrative costs incurred by the State Tax Department would be $15,000 in FY2023.
Memorandum
The stated purpose of this bill is to create a credit against the severance tax to encourage private companies to make infrastructure improvements to highways, roads, and bridges in the state. The bill limits the total amount of road and highway infrastructure improvement credits, which can be verified by the Secretary of Transportation. The bill seeks to encourage greater capital investment in coal production and processing facilities. The bill will increase economic opportunity to the state. The bill authorizes the claiming of the credits. Finally, the bill provides for an effective date.
The intent of this bill is to create a credit against the Severance Tax; however, the proposed tax credit is actually an aggregation of two separate credits with each credit determined using different criteria and applying different limitations. The reference to “chapter three, article thirteen-a of this chapter” should be a reference to Section three, article thirteen-a of chapter eleven of the West Virginia code.
This bill does not provide a definition for “qualified expenditure” but identifies expenditures that should be included in the phrases “expenditure for road or highway infrastructure improvement projects” and “expenditures for coal production and processing facilities. It is also unclear why the reference to section 267 and 707(b) of the IRC is limited by “in effect on the first day of January, 2004”, since section 267 has been amended since 2004.
Application of this proposed tax credit may be problematic as the bill provides multiple and perhaps conflicting ways of doing so. If expenditures involve a highway project, “the credit may be taken in the year the improvement is completed, as certified by the Transportation Secretary.” However, if expenditures involve a coal facility, “the credit may be taken in the year the property is first placed into service or use by the taxpayer.” Apparently, the two credits are to be aggregated on an annual basis; but then the aggregate annual credit allowance may be claimed by a taxpayer against their monthly Severance Tax liability at the rate of one-twelfth of the annual credit allowance per month. It is unclear how a credit that is calculated annually will be applied monthly.
It is also unclear how the proposed aggregate credit, which can be claimed monthly, would apply to months prior to the bill’s passage. This bill also does not explicitly provide rule-making authority for either the Tax Commissioner or the Secretary of Transportation.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov