FISCAL NOTE
Date Requested: February 08, 2023
Time Requested: 04:21 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3496 |
Introduced |
HB3334 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund, local governments
Sources of Revenue:
General Fund local property tax revenue
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 provide that valuation of industrial property and natural resources property by Tax Commissioner interest may not exceed the average actual sale price of similarly situated and like royalty interests; and that this subdivision shall be effective for all assessments made on or after July 1, 2022.
The provisions of the proposed bill would change the valuation of royalty interests from the income approach to value to what is essentially the market approach to value. However, it is not feasible from a mass valuation approach to fully identify the type and nature of a particular royalty interest (there are over 1 million producing royalty interests currently). Those in shale areas are worth more than those in traditional plays. In addition, a market approach would only serve as an intermediary for an extremely similar privately developed income approach to value, the best indicator of long-term value. The proposed change would not have significantly altered the recent increase in royalty valuations associated with huge increases in energy prices and related huge increases in royalty income payments.
The provisions of this bill would also remove the prohibition against the Tax Commissioner relating to use of minimum valuations. In the current market, such proposed change would have no impact on valuations.
Finally, the provisions of this bill would also remove the current July 1, 2025, sunset date for current methodology used in valuation of property producing oil, natural gas and natural gas liquids. Clarification regarding appraisal methodology in place on or after July 1, 2025, would be beneficial to the taxpayer, the Tax Division and local governments.
Passage of this bill may alter assessments that will be certified by the assessors on March 3 and included in the land books thereafter.
Additional administrative costs cannot be determined.
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 |
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):
The provisions of the proposed bill would change the valuation of royalty interests from the income approach to value to what is essentially the market approach to value. However, it is not feasible from a mass valuation approach to fully identify the type and nature of a particular royalty interest (there are over 1 million producing royalty interests currently). Those in shale areas are worth more than those in traditional plays. In addition, a market approach would only serve as an intermediary for an extremely similar privately developed income approach to value, the best indicator of long-term value. The proposed change would not have significantly altered the recent increase in royalty valuations associated with huge increases in energy prices and related huge increases in royalty income payments.
The provisions of this bill would also remove the prohibition against the Tax Commissioner relating to use of minimum valuations. In the current market, such proposed change would have no impact on valuations.
Finally, the provisions of this bill would also remove the current July 1, 2025, sunset date for current methodology used in valuation of property producing oil, natural gas and natural gas liquids. Clarification regarding appraisal methodology in place on or after July 1, 2025, would be beneficial to the taxpayer, the Tax Division and local governments.
Passage of this bill may alter assessments that will be certified by the assessors on March 3 and included in the land books thereafter.
Additional administrative costs cannot be determined.
Memorandum
The stated purpose of this bill is to provide that valuation of industrial property and natural resources property by Tax Commissioner interest may not exceed the average actual sale price of similarly situated and like royalty interests; and that this subdivision shall be effective for all assessments made on or after July 1, 2022.
There may be problems with the implementation of the changes in this bill. Paragraph (d)(3)(F) removes the limitation that subdivision (d)(3) shall have no further force or effect for any assessments made on or after July 1, 2025 but leaves intact the language providing that “subdivision [§11-1C-10(d)(3)] shall be effective for all assessments made on or after July 1, 2022.” Retaining the effective date of July 1, 2022 for assessments would implicate the current tax year, which would be logistically problematic since this bill probably won't become law before unappealed assessments go final.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov