FISCAL NOTE

Date Requested: February 20, 2016
Time Requested: 01:29 PM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
2781 Amendment SB654
CBD Subject: Taxation


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund

Legislation creates:

Neither Program nor Fund



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


    The stated purpose of this bill is to lower the severance tax imposed on the extraction of coal from 5 percent to 2 percent.
    
    Based on our interpretation, the proposed legislation would reduce the maximum severance tax rate on coal, limestone and sandstone from 5.0 percent to 2.0 percent effective July 1, 2016. From the perspective of coal, this rate reduction would only affect coal produced from surface mines and from underground mines with average seam thickness equal to or greater than 45 inches. Total severance tax collections would decrease by an estimated $112.6 million in FY2017 and by up to $128.6 million per year, thereafter. State General Revenues would decrease by $108.3 million in FY2017 and by up to $122.9 million per year, thereafter. Local county coal revenue sharing distributions would decrease by roughly $4.3 million in FY2017 and by up to $5.7 million per year, thereafter.
    
    Additional administrative costs incurred by the State Tax Department are expected to be $17,500 for the remainder of FY2016 and $10,000 for FY2017 and for each year thereafter.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2016
Increase/Decrease
(use"-")
2017
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 17,500 10,000 10,000
Personal Services 0 10,000 10,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 17,500 0 0
2. Estimated Total Revenues 0 -112,600,000 -128,600,000


Explanation of above estimates (including long-range effect):


    Based on our interpretation, the proposed legislation would reduce the maximum severance tax rate on coal, limestone and sandstone from 5.0 percent to 2.0 percent effective July 1, 2016. From the perspective of coal, this rate reduction would only affect coal produced from surface mines and from underground mines with average seam thickness equal to or greater than 45 inches. Total severance tax collections would decrease by an estimated $112.6 million in FY2017 and by up to $128.6 million per year, thereafter. State General Revenues would decrease by $108.3 million in FY2017 and by up to $122.9 million per year, thereafter. Local county coal revenue sharing distributions would decrease by roughly $4.3 million in FY2017 and by up to $5.7 million per year, thereafter.
    
    Additional administrative costs incurred by the State Tax Department are expected to be $17,500 for the remainder of FY2016 and $10,000 for FY2017 and for each year thereafter.
    



Memorandum


    The stated purpose of this bill is to lower the severance tax imposed on the extraction of coal from 5 percent to 2 percent.
    
    It may be prudent to reinstate the inclusion of the thirty-five one hundredths of one percent additional severance tax on coal in the proposed bill, as it is presumed but not explicitly stated for the reduced rate.
    



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