FISCAL NOTE
Date Requested: January 11, 2023
Time Requested: 10:27 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1684 |
Introduced |
SB15 |
|
|---|
| CBD Subject: |
Crime |
|---|
|
FUND(S):
General Revenue Fund, DEP Oil and Gas Operating Permit and Processing Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses, Creates New Fund: DEP Oil and Gas Operating Permit and Processing Fund
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to establish a reliable annual source of funding for the DEP’s Office of Oil and Gas. Nearly all of the agency’s other divisions are funded largely through grants from the United States government, but oil and gas has no federal regulatory counterpart, and is , instead, entirely reliant on the State of West Virginia for continued funding to ensure the safety of oil and gas wells in the State.
Natural gas and oil severance tax revenues are highly volatile over time with yield heavily dependent on pricing. If such a proposed revenue dedication would have been imposed over the past five fiscal years, the total annual funding for the Oil and Gas Operating Permit and Processing Fund (Special Fund) would have varied from a low of roughly $1.5 million in FY 2020 to a high of $6.7 million in FY 2022 with an overall five-year average of closer to $3.0 million per year. The proposed bill provides for the proposed allocation to the Special Fund to begin in the current FY 2023 with a retroactive beginning date of July 1, 2022. Due to unusually high energy prices, the yield to the Special Fund relating to activity in FY 2023 could approach or exceed $10 million. Based on the current outlook for FY 2024, the revenue yield for the Special Fund would fall back to roughly $5.5 million for the activity occurring in FY 2024. The proposed method of funding the special fund is less predictable and less efficient than either a direct general revenue fund appropriation or a set amount of severance tax allocation spelled out in statute necessary to fund the mission of the Special Fund (e.g., $4.0 million per year). Due to the fact that the proposed allocation relates to actual severance tax revenues received as opposed to a hard budgetary number, there will be a delay in transfer of funds to the Special Fund until the numbers are fully reconciled for a completed year after the conclusion of the year in question to determine the proper amount to be transferred. Allocations to this Special Fund would begin in FY2024, as the first distribution would occur in October 2023. The October 2023 (FY2024) distribution to the Special Fund would be based on 50 percent of Tax Year 2022 natural gas and oil severance tax collections since this bill has an effective date of July 1, 2022. In fiscal years 2025 and thereafter, the Special Fund distributions would be based on natural gas and oil severance tax collections for a full tax year.
Additional administrative costs incurred by the State Tax Department would be $5,000 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 |
5,000 |
0 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
5,000 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
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 are 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, 2023.
Based on our interpretation, the passage of the proposed legislation could increase General Revenue Fund collections by up to $950,000 in FY2024 and by up to $5.7 million in subsequent fiscal years based on energy prices as forecast by the Energy Information Administration.
Additional administrative costs incurred by the Tax Department would be $15,000 in FY2024
Memorandum
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov