FISCAL NOTE
Date Requested: January 15, 2026
Time Requested: 05:03 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2178 |
Introduced |
SB405 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Increases Revenue From Existing Sources, 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 for withholdings of estimated tax liabilities from natural resources royalty payments for nonresidents by lessees; provide exceptions to the tax withholding requirements under certain circumstances; provide that withheld amounts be paid by lessees to the Tax Commissioner on behalf of the nonresidents; providing for refunds to nonresidents for overpayment; require annual withholding statements, reconciliation, and filing requirements; require electronic filing under specified circumstances; provide criminal and civil penalties in certain circumstances for non-compliance; and provide for rule-making.
The bill provides that every lessee of West Virginia real estate who makes a natural resources royalty payment to a lessor who does not reside in West Virginia must withhold West Virginia personal income tax on the natural resources royalty payments to that lessor and remit the withheld amount to the Tax Commissioner. The withholding of the tax is optional with respect to payments to a lessor who receives less than $1,000 annually in natural resource royalty payments from the lessee and is at the discretion of the lessee. Royalty income from West Virginia properties is subject to West Virginia Personal Income Tax regardless of individual residency. The provisions of this bill may improve compliance. The provisions of the bill would be effective for all taxable years beginning after December 31, 2026.
Based on our interpretation, the passage of the proposed legislation could increase General Revenue Fund collections by approximately $2.5 million per year when fully implemented with significant year-to-year fluctuation depending on energy prices.
Additional administrative costs incurred by the Tax Division would be $5,500 in FY2027.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2026
Increase/Decrease
(use"-") |
2027
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
5,500 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
5,500 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
2,500,000 |
Explanation of above estimates (including long-range effect):
The bill provides that every lessee of West Virginia real estate who makes a natural resources royalty payment to a lessor who does not reside in West Virginia must withhold West Virginia personal income tax on the natural resources royalty payments to that lessor and remit the withheld amount to the Tax Commissioner. The withholding of the tax is optional with respect to payments to a lessor who receives less than $1,000 annually in natural resource royalty payments from the lessee and is at the discretion of the lessee. Royalty income from West Virginia properties is subject to West Virginia Personal Income Tax regardless of individual residency. The provisions of this bill may improve compliance. The provisions of the bill would be effective for all taxable years beginning after December 31, 2026.
Based on our interpretation, the passage of the proposed legislation could increase General Revenue Fund collections by approximately $2.5 million per year when fully implemented with significant year-to-year fluctuation depending on energy prices.
Additional administrative costs incurred by the Tax Division would be $5,500 in FY2027
Memorandum
The stated purpose of this bill is to provide for withholdings of estimated tax liabilities from natural resources royalty payments for nonresidents by lessees; provide exceptions to the tax withholding requirements under certain circumstances; provide that withheld amounts be paid by lessees to the Tax Commissioner on behalf of the nonresidents; providing for refunds to nonresidents for overpayment; require annual withholding statements, reconciliation, and filing requirements; require electronic filing under specified circumstances; provide criminal and civil penalties in certain circumstances for non-compliance; and provide for rule-making.
There is a potential conflict with the provisions of W. Va. Code §11-21-71a, which governs withholding tax on West Virginia source income of non-resident partners, nonresident S corporation shareholders, and non-resident beneficiaries of estates and trusts. This section applies under the following circumstances:
(a) General rule. — For the privilege of doing business in this state or deriving rents or royalties from real or tangible personal property located in this state, including, but not limited to, natural resources in place and standing timber, a partnership, S corporation, estate or trust, which is treated as a pass-through entity for federal income tax purposes and which has taxable income for the taxable year derived from or connected with West Virginia sources any portion of which is allocable to a nonresident partner, nonresident shareholder, or nonresident beneficiary, as the case may be, shall pay a withholding tax under this section, except as provided in subsections (c) and (k) of this section.
In short, W. Va. Code §11-21-71a applies to nonresident partners, S corporation shareholders, and beneficiaries of estates and trusts who receive natural resource royalties. Specifically, subdivision (c)(5) provides that publicly traded partnerships are exempt from the withholding requirements of §11-21-71a if certain conditions have been met. Publicly traded partnerships (aka master limited partnerships) are often in the oil and natural gas extraction industries.
The new section, W. Va. Code §11-21-71c, applies to “every lessee of West Virginia real estate who makes a natural resources royalty payment in the course of a trade or business to a lessor who does not reside in the State of West Virginia.” This means that the provisions of §11-21-71a and the new section are potentially in conflict if the landowner entitled to the royalty payment happened to also be a non-resident partner, C corporation shareholder, or beneficiary of an estate or trust.
Person submitting Fiscal Note: Mark Muchow
Email Address: RADfiscal@wv.gov