FISCAL NOTE

Date Requested: February 26, 2019
Time Requested: 04:43 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
3364 Introduced HB3142
CBD Subject: Taxation


FUND(S):

General Revenue Fund, local governments

Sources of Revenue:

General Fund local governments

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 reduce the severance tax on thermal or steam coal to three percent and eliminate restrictions on counties and municipalities expending and reporting the expenditure of the county and municipality portion of the severance tax.
    
    According to our interpretation, the passage of the bill would result in a 40 percent reduction in the Severance Tax rate on the gross value of steam or thermal coal from 5.0 percent to 3.0 percent effective July 1, 2019. This proposed three percent Severance Tax rate would also include the 0.35 percent additional severance tax on coal for the benefit of counties and municipalities. Passage of the bill would result in a $58.6 million loss to the General Revenue Fund in FY2020 and a $64.1 million loss per year beginning in FY2021. It should be noted that the funding to coal producing counties from the 5% sharing provision will generally be held harmless with minimum guaranteed funding equal to the amount allocated in FY2019.
    
    Additional administrative costs incurred by the State Tax Department would be $15,000 in FY2019, $65,000 in FY2020 and $35,000 each fiscal year thereafter.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2019
Increase/Decrease
(use"-")
2020
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 15,000 65,000 35,000
Personal Services 0 20,000 20,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 15,000 45,000 15,000
2. Estimated Total Revenues 0 -58,600,000 -64,150,000


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


    According to our interpretation, the passage of the bill would result in a 40 percent reduction in the Severance Tax rate on the gross value of steam or thermal coal from 5.0 percent to 3.0 percent effective July 1, 2019. This proposed three percent Severance Tax rate would also include the 0.35 percent additional severance tax on coal for the benefit of counties and municipalities. Passage of the bill would result in a $58.6 million loss to the General Revenue Fund in FY2020 and a $64.1 million loss per year beginning in FY2021. It should be noted that the funding to coal producing counties from the 5% sharing provision will generally be held harmless with minimum guaranteed funding equal to the amount allocated in FY2019.
    
    Additional administrative costs incurred by the State Tax Department would be $15,000 in FY2019, $65,000 in FY2020 and $35,000 each fiscal year thereafter.
    



Memorandum


    The stated purpose of this bill is to reduce the severance tax on thermal or steam coal to three percent and eliminate restrictions on counties and municipalities expending and reporting the expenditure of the county and municipality portion of the severance tax.
    
    The bill states that this bill will be effective April 1, 2019, which contradicts the body of the bill. This would be title defect.
    
    It is possible that a taxpayer may raise an equal protection argument under Section 10 of Article III of the West Virginia Constitution., because the bill lowers the severance tax rate on coal used to generate electricity, but does not lower the rate on coal for other uses. The state legislature “may make reasonable classifications in enacting statues provided the classifications are based upon on real and substantial relation to the objects sought to be accomplished by the legislation, and any person who assails any such classification has the burden of showing that it is essentially arbitrary and unreasonable.” Syl. Pt.5, United Fuel Gas Co. v. Battle, 153 W. Va. 222, 167 S.E.2d 890 (1969). Therefore, there must be some basis for placing the lower tax rate on thermal or steam coal.
    
    
    



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