FISCAL NOTE
Date Requested: February 06, 2023
Time Requested: 10:57 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1879 |
Introduced |
HB3294 |
|
|---|
| CBD Subject: |
Natural Resources |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Creates New 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 balance the interests of current landowners and future landowners to ensure surface, minerals, and forest land may be developed for future economic gain by limiting use restrictions for forest carbon capture and sequestration to a maximum term of 20 years. The bill defines certain terms. The bill requires parties to current and new carbon offset agreements to register with the State Tax Department. The bill requires reports by Division of Forestry and the State Tax Department. The bill authorizes the disclosure of information between the Tax Commissioner and Division of Forestry. The bill imposes excise tax on receipts derived from carbon offset agreements. The bill sets forth reporting requirements. The bill provides an effective date. The bill defines “managed timberland” to exclude timberland that is subject to a carbon offset agreement. The bill specifies application of West Virginia Tax Procedure and Administration Act and West Virginia Tax Crimes and Penalties Act. The bill authorizes promulgation of rules. The bill provides legislative findings and declarations. The bill provides that any covenant, restriction, condition, easement, contract, lease, deed, agreement, option, or other governing document, which is executed or recorded after the effective date, which effectively prohibits or restricts the development of land, minerals, and the harvesting of timber for the purposes of forest carbon capture, carbon offset, and carbon sequestration is void and unenforceable, unless said covenant, restriction, condition, easement, contract, lease, deed, agreement, option, or other governing document is for a maximum term of 20 years. The bill provides that options to renew or continue such arrangements beyond the initial maximum term of 20 years shall be valid only if the consideration is required to be renegotiated to exercise the option.
The proposed bill would levy on every carbon offset agreement regarding, or relating to, real estate in West Virginia or other property in West Virginia an annual excise tax in the amount of 30 percent of the gross payment under the agreement. In cases where the agreement does not prevent economic development or does not substantially restrict the severance of minerals or timber from the land, the excise tax would be 15 percent instead. The tax would be paid by the party intending to sequester carbon dioxide who enters into the agreement with the landowner or property owner. This bill would require all parties to a carbon offset agreement to apply to the Tax Commissioner for a business registration certificate. The program of carbon offset agreements and excise taxation of such is an emerging concept.
According to the Property Tax Division, there are currently about 2.5 million acres of forest under managed forestland agreements and a total of 12.5 million acres of forestland total in the state. Carbon offset agreements are relatively new in West Virginia. There does not exist an estimate of the number of acres currently in carbon offset agreements. This bill establishes such a registry. Per data provided by the West Virginia Forestry Association, landowners who currently participate in carbon offset agreements trade mostly in California through the state’s Air Resources Board. Most of the current marketplace requires commitments of 40 - 100 years; however, newer forest carbon programs are appearing that require shorter time frames. This bill limits such agreements in West Virginia to 20 years with the possibility of renewal or renegotiation. Further, the average acre of applicable forest in West Virginia can sequester 3 - 5 tons of carbon per year. No excise tax is currently imposed on these agreements. As written, this bill establishes a tax at either 15 percent or 30 percent of the payments such agreements generate for landowners. However, the West Virginia Tax Department has no way to project the number of acres of West Virginia forestland that may be entered into such carbon offset agreements. In addition, the determination of appropriate rate is not thoroughly defined within this bill. As such, the total revenue impact of this bill is undeterminable. Implementing the registry component of the bill will require creating a new electronic database and may also require additional manpower at the State Tax Department and potentially other government agencies that provide support.
Additional administrative costs incurred by the State Tax Department would be $85,000 in FY2023 and $15,000 subsequent fiscal years.
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 |
85,000 |
15,000 |
15,000 |
| Personal Services |
15,000 |
15,000 |
15,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
70,000 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
The proposed bill would levy on every carbon offset agreement regarding, or relating to, real estate in West Virginia or other property in West Virginia an annual excise tax in the amount of 30 percent of the gross payment under the agreement. In cases where the agreement does not prevent economic development or does not substantially restrict the severance of minerals or timber from the land, the excise tax would be 15 percent instead. The tax would be paid by the party intending to sequester carbon dioxide who enters into the agreement with the landowner or property owner. This bill would require all parties to a carbon offset agreement to apply to the Tax Commissioner for a business registration certificate. The program of carbon offset agreements and excise taxation of such is an emerging concept.
According to the Property Tax Division, there are currently about 2.5 million acres of forest under managed forestland agreements and a total of 12.5 million acres of forestland total in the state. Carbon offset agreements are relatively new in West Virginia. There does not exist an estimate of the number of acres currently in carbon offset agreements. This bill establishes such a registry. Per data provided by the West Virginia Forestry Association, landowners who currently participate in carbon offset agreements trade mostly in California through the state’s Air Resources Board. Most of the current marketplace requires commitments of 40 - 100 years; however, newer forest carbon programs are appearing that require shorter time frames. This bill limits such agreements in West Virginia to 20 years with the possibility of renewal or renegotiation. Further, the average acre of applicable forest in West Virginia can sequester 3 - 5 tons of carbon per year. No excise tax is currently imposed on these agreements. As written, this bill establishes a tax at either 15 percent or 30 percent of the payments such agreements generate for landowners. However, the West Virginia Tax Department has no way to project the number of acres of West Virginia forestland that may be entered into such carbon offset agreements. In addition, the determination of appropriate rate is not thoroughly defined within this bill. As such, the total revenue impact of this bill is undeterminable. Implementing the registry component of the bill will require creating a new electronic database and may also require additional manpower at the State Tax Department and potentially other government agencies that provide support.
Additional administrative costs incurred by the State Tax Department would be $85,000 in FY2023 and $15,000 subsequent fiscal years.
Memorandum
The stated purpose of this bill is to balance the interests of current landowners and future landowners to ensure surface, minerals, and forest land may be developed for future economic gain by limiting use restrictions for forest carbon capture and sequestration to a maximum term of 20 years. The bill defines certain terms. The bill requires parties to current and new carbon offset agreements to register with the State Tax Department. The bill requires reports by Division of Forestry and the State Tax Department. The bill authorizes the disclosure of information between the Tax Commissioner and Division of Forestry. The bill imposes excise tax on receipts derived from carbon offset agreements. The bill sets forth reporting requirements. The bill provides an effective date. The bill defines “managed timberland” to exclude timberland that is subject to a carbon offset agreement. The bill specifies application of West Virginia Tax Procedure and Administration Act and West Virginia Tax Crimes and Penalties Act. The bill authorizes promulgation of rules. The bill provides legislative findings and declarations. The bill provides that any covenant, restriction, condition, easement, contract, lease, deed, agreement, option, or other governing document, which is executed or recorded after the effective date, which effectively prohibits or restricts the development of land, minerals, and the harvesting of timber for the purposes of forest carbon capture, carbon offset, and carbon sequestration is void and unenforceable, unless said covenant, restriction, condition, easement, contract, lease, deed, agreement, option, or other governing document is for a maximum term of 20 years. The bill provides that options to renew or continue such arrangements beyond the initial maximum term of 20 years shall be valid only if the consideration is required to be renegotiated to exercise the option.
This is a newly created tax. For tax years beginning on or after January 1, 2023, an excise tax on every carbon offset agreement in the amount of 30 percent of the gross payment when the agreement prevents economic development or substantially restricts mineral extraction or 15 percent when the agreement does not. The tax is imposed upon the party wishing to sequester the CO2, but the parties are jointly and severally liable. No standards are set to determine when the economic development has been prevented or mineral extraction has been substantially restricted.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov