FISCAL NOTE

Date Requested: February 10, 2021
Time Requested: 04:56 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1041 Introduced SB32
CBD Subject:


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 clarify, for purposes of this article, the types of operating expenses that must be used for purposes of valuing producing oil and natural gas wells, the methodology that shall be used by the Tax Commissioner in calculating operating expenses, the confidentiality of information submitted by natural resource producers to the Tax Commissioner, reports that must be submitted by the Tax Commissioner to the Joint Committee on Government and Finance, and to provide for alternate appeal of proposed valuation of natural resources property for ad valorem property tax purposes. This bill would change the methodology for valuing producing oil and natural gas wells. The impact of allowing additional expenses would lower the appraised values of oil and gas wells and tax collections. The initial revenue loss during the first full year of effect is estimated to be roughly $58.6 million with most of the loss being to county school boards and county commissions. Some of the loss to county school boards would be offset by a requirement of additional State General Revenue appropriations through the State School Aid Formula. Actual revenue loss may vary dependent heavily upon the price of gas or expenses in any future fiscal year. Many local jurisdictions have some ability to adjust their tax rates on property to offset at least some of the revenue loss. The result would be some shift of tax liability to other types of property. The Tax Department would incur one-time costs of $25,000 for programming changes. Additional administrative costs to counties would be minimal.



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 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):


This bill would change the methodology for valuing producing oil and natural gas wells. The impact of allowing additional expenses would lower the appraised values of oil and gas wells and tax collections. The initial revenue loss during the first full year of effect is estimated to be roughly $58.6 million with most of the loss being to county school boards and county commissions. Some of the loss to county school boards would be offset by a requirement of additional State General Revenue appropriations through the State School Aid Formula. Actual revenue loss may vary dependent heavily upon the price of gas or expenses in any future fiscal year. Many local jurisdictions have some ability to adjust their tax rates on property to offset at least some of the revenue loss. The result would be some shift of tax liability to other types of property. The Tax Department would incur one-time costs of $25,000 for programming changes. Additional administrative costs to counties would be minimal.



Memorandum


The stated purpose of this bill is to clarify, for purposes of this article, the types of operating expenses that must be used for purposes of valuing producing oil and natural gas wells, the methodology that shall be used by the Tax Commissioner in calculating operating expenses, the confidentiality of information submitted by natural resource producers to the Tax Commissioner, reports that must be submitted by the Tax Commissioner to the Joint Committee on Government and Finance, and to provide for alternate appeal of proposed valuation of natural resources property for ad valorem property tax purposes. The bill would allow appeals of natural resources valuation to be heard by the West Virginia Office of Tax Appeals at the taxpayer’s election. However, unlike appeals to the Board of Equalization and Review, the amended statute would set no time constraints on such appeals, either for filing appeals, or for issuing a ruling. This lack of administrative structure for the appeal process to the Office of Tax Appeals would create issues and confusion. Furthermore, unlike appeals to the Boards of Assessment Appeals, appeals under this proposed statute would not require the taxpayer to prepay the amount of tax in controversy. This, too, could create problems. Rulings by the Office of Tax Appeals could be appealed to the Circuit Court, in the same manner as appeals from rulings by a Board of Equalization and Review or a Board of Assessment Appeals.



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