FISCAL NOTE

Date Requested: February 10, 2017
Time Requested: 01:37 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1570 Introduced SB260
CBD Subject:


FUND(S):

State Road Fund

Sources of Revenue:

Other Fund State Road 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 specify how the assessed value of any share of natural resource property is to be determined.
    
    According to our interpretation, this bill would remove the role of variables that are based upon geological or other known factors from the formulas for evaluation of natural resource properties. Annualization of the assessment would no longer be permitted. Annualization occurs when a natural resource property’s value dramatically rises because the property goes into production during the tax year, then the producing value is projected for the entire year. If this bill is passed, reserve mineral properties would not be taxed as having value, and producing properties would not be taxed as having value if the production occurs for less than the duration of the tax year.
    
    The tax loss to local governments associated with this bill would be $120.0 million. The bill states that the value of natural resources shall be two times gross production less any expenses. With the current depressed prices for coal and oil and gas and no limitation on expenses, this would likely lead to little or no value left for oil and gas producers or coal producers. There would no longer be a value for oil and gas or coal reserves. There would no managed timberland values as there is no production for this resource. At current prices, the only remaining taxable valuations would be a minimal coal producing value and the value for oil and gas royalty owners.
    
    Additional administrative costs for the State Tax Department would be $50,000. Additional administrative costs for local governments cannot be determined.
    
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2017
Increase/Decrease
(use"-")
2018
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 70,000,000 70,000,000


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


    The tax loss to local governments associated with this bill would be $120.0 million. The bill states that the value of natural resources shall be two times gross production less any expenses. With the current depressed prices for coal and oil and gas and no limitation on expenses, this would likely lead to little or no value left for oil and gas producers or coal producers. There would no longer be a value for oil and gas or coal reserves. There would no managed timberland values as there is no production for this resource. At current prices, the only remaining taxable valuations would be a minimal coal producing value and the value for oil and gas royalty owners.
    
    Additional administrative costs for the State Tax Department would be $50,000. Additional administrative costs for local governments cannot be determined.
    
    
    



Memorandum


    The stated purpose of this bill is to specify how the assessed value of any share of natural resource property is to be determined.
    
    The proposed amendment raises concerns of equalization of property assessment throughout the State since the proposal would result in mineral properties being undervalued or not valued at all which may violate Article X, Section 1 of the West Virginia Constitution.
    
    The bill does not accomplish its purpose. This bill’s title is insufficient to relay its intent and impact. Further, this bill does not stand alone; numerous other code sections and rules would need to be amended because this bill contradicts the vetted methodology for appraisal of natural resource properties.
    
    This bill also contradicts itself. In subdivision (d)(2), the commissioner is charged with developing an inventory of property, and may use any resource, such as geological survey information; exploratory, drilling mining and other information supplied by property owners; and maps and other information filed with divisions of the state. The variables are based upon this information. In this same subsection of this bill, the Tax Commissioner would no longer be able to utilize this information to set variables to be used in the formulas for natural resource evaluation.
    
    
    



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