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Introduced Version Senate Bill 372 History

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Key: Green = existing Code. Red = new code to be enacted
Senate Bill No. 372

(By Senators Tomblin (Mr. President) and Caruth,

By Request of the Executive)

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[Introduced February 25, 2009; referred to the Committee on Energy, Industry and Mining; and then to the Committee on Finance.]

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A BILL to amend and reenact §11-13A-3a, §11-13A-10 and §11-13A-17 of the Code of West Virginia, 1931, as amended; and to amend said code by adding thereto a new section, designated §11-13V-4b, all relating generally to severance taxes on natural gas and oil; specifying that the tax shall be collected and remitted by the first purchaser of natural gas or oil after it has been severed or severed and processed; requiring the filing of a refund to receive certain tax exemptions; providing for a phased reduction of the rate of tax; providing for a phased elimination of certain credits against tax; providing for assessments against severors who owe but have not paid the tax; specifying due dates and payment requirements; specifying persons subject to applicable bonding requirements; providing for certain exceptions to the first purchaser requirement; authorizing the Tax Commissioner to promulgate emergency rules; and requiring certain reports to the Tax Commissioner.

Be it enacted by the Legislature of West Virginia:
That §11-13A-3a, §11-13A-10 and §11-13A-17 of the Code of West Virginia, 1931, as amended, be amended and reenacted; and that said code be amended by adding thereto a new section, designated §11-13V-4b, all to read as follows:
ARTICLE 13A. SEVERANCE AND BUSINESS PRIVILEGE TAX ACT.
§11-13A-3a. Imposition of tax on privilege of severing natural gas or oil.

(a) Imposition of tax. -- For the privilege of engaging or continuing within this state in the business of severing natural gas or oil for sale, profit or commercial use, there is hereby levied and shall be collected from every person exercising such privilege an annual privilege tax: Provided, That effective for all taxable periods beginning on or after January 1, 2000, there is an exemption from the imposition of the tax provided in this article on the following:
(1) Free natural gas provided to any surface owner;

(2) Natural gas produced from any well which produced an average of less than five thousand cubic feet of natural gas per day during the calendar year immediately preceding a given taxable period: Provided, That beginning on or after January 1, 2011, natural gas producers claiming this exemption must first pay the severance tax on natural gas produced in accordance with this article. At the end of the tax year the natural gas producer may apply for a refund of the severance tax paid for all wells producing an average of less than five thousand cubic feet of natural gas per day during the taxable period: Provided, however, That the Tax Commissioner may provide for monthly or quarterly refunds in accordance with such procedures as the Tax Commissioner may establish;
(3) Oil produced from any oil well which produced an average of less than one-half barrel of oil per day during the calendar year immediately preceding a given taxable period: Provided, That beginning on or after January 1, 2011, oil producers claiming this exemption must first pay the severance tax on oil produced in accordance with this article. At the end of the tax year the oil producer may apply for a refund of the severance tax paid for all wells producing an average of less than one-half barrel of oil per day during the taxable period: Provided, however, That the Tax Commissioner may provide for monthly or quarterly refunds in accordance with such procedures as the Tax Commissioner may establish; and
(4) For a maximum period of ten years, all natural gas or oil produced from any well which has not produced marketable quantities of natural gas or oil for five consecutive years immediately preceding the year in which a well is placed back into production and thereafter produces marketable quantities of natural gas or oil: Provided, That beginning on or after January 1, 2011, natural gas producers or oil producers claiming this exemption must first pay the severance tax on natural gas and oil produced in accordance with this article. At the end of the tax year the natural gas producer or oil producer may apply for a refund of the severance tax paid for all wells which have not produced marketable quantities of natural gas or oil for five consecutive years immediately preceding the year in which a well is placed back into production and thereafter produces marketable quantities of natural gas or oil: Provided, however, That the Tax Commissioner may provide for monthly or quarterly refunds in accordance with such procedures as the Tax Commissioner may establish.
(b) Rate and measure of tax. -- The tax imposed in subsection (a) of this section shall be five percent of the gross value of the natural gas or oil produced, as shown by the gross proceeds derived from the sale thereof by the producer, except as otherwise provided in this article: Provided, That for tax years beginning on and after January 1, 2010, the rate of tax imposed in subsection (a) of this section shall be four and seventy-five hundredths percent of the gross value of the natural gas or oil produced: Provided, however, That for tax years beginning on and after January 1, 2011, the rate of tax imposed in subsection (a) of this section shall be four and five tenths percent of the gross value of the natural gas or oil produced.
(c) Tax in addition to other taxes. -- The tax imposed by this section shall apply to all persons severing natural gas or oil in this state, and shall be in addition to all other taxes imposed by law.
(d)(1) The Legislature finds that in addition to the production reports and financial records which must be filed by oil and gas producers with the State Tax Commissioner in order to comply with this section, oil and gas producers are required to file other production reports with other agencies, including, but not limited to, the office of oil and gas, the Public Service Commission and county assessors. The reports required to be filed are largely duplicative, the compiling of the information in different formats is unnecessarily time consuming and costly, and the filing of one report or the sharing of information by agencies of government would reduce the cost of compliance for oil and gas producers.
(2) On or before the first day of July, two thousand three, the Tax Commissioner shall design a common form that may be used for each of the reports regarding production that are required to be filed by oil and gas producers, which form shall readily permit a filing without financial information when such information is unnecessary. The commissioner shall also design such forms so as to permit filings in different formats, including, but not limited to, electronic formats.
(3) Effective the first day of July, two thousand six, this subsection shall have no force or effect.
(d) Purchaser of natural gas or oil to withhold tax; remittance of withheld tax by purchaser. -- On or after January 1, 2011, the first person to purchase the natural gas or oil after it has been severed, or in the event that the natural gas or oil has been severed and processed before the first sale, the first person to purchase natural gas or oil after it has been severed and processed, shall be liable for the collection of the taxes imposed by this article from the severor (or severor and processor) of the natural gas or oil, and shall remit the taxes to the Tax Commissioner. Taxes so collected by the purchaser are held in trust for the state, and the purchaser is liable for any failure to collect or remit the tax in accordance with the provisions of articles nine and ten of this chapter.
(1) No profit shall accrue to any person as a result of the collection of the tax levied by this article notwithstanding that the total amount of the taxes collected may be in excess of the amount for which the severor (or severor and processor) would be liable by the application of the rate of tax levied by this article. The total amount of all taxes collected by the purchaser shall be returned and remitted to the Tax Commissioner as provided in this article.
(2) If any severor (or severor and processor) refuses to pay or otherwise does not pay to the purchaser the tax imposed by this article, or a severor (or severor and processor) refuses to present to the purchaser a valid direct severance payment authorization number indicating that the purchaser is not required to collect and remit the taxes imposed by this article, or a severor (or severor and processor) presents to the purchaser a false direct severance payment authorization number or a false document, the severor (or severor and processor) shall be personally liable for the amount of tax applicable, and the purchaser shall not be liable for such tax.
(3) Nothing in this section relieves any severor (or severor and processor) who owes the tax and who has not paid the tax imposed by this article from liability for payment of the tax. In those cases the Tax Commissioner has authority to make an assessment against the severor (or severor and processor), based upon any information within his or her possession or that may come into his or her possession. This assessment and notice thereof shall be made and given in accordance with article ten of this chapter. The severor (or severor and processor) shall not be liable for tax withheld by the purchaser, but not remitted to this state by the purchaser.
(4) The due dates and payment requirements of this article apply to the payment and remittance of tax by purchasers of natural gas or oil under this section.
(5)
Exceptions. -- The requirement that the purchaser shall withhold and remit the tax imposed by this article on production of natural gas or oil shall not apply:
(A) Where the severor (or severor and processor) of the natural gas or oil sells the natural gas or oil to the ultimate consumer, the severor (or severor and processor) of the natural gas or oil shall be liable for the taxes imposed by this article; or
(B) Where the Tax Commissioner determines that the collection of the taxes due under this article or article thirteen-v of this chapter, or both, from the severor (or severor and processor) would be accomplished in a more efficient and effective manner through the severor (or severor and processor) remitting the taxes, the Tax Commissioner shall set out his or her determination in writing, stating his or her reasons for so finding, and shall advise the severor (or severor and processor) at least fifteen days in advance of the first reporting period for which the commissioner's determination is effective.
(6) Notwithstanding the provisions of this section, the severor (or severor and processor) of the natural gas or oil is the taxpayer for purposes of this article and is liable for the tax imposed by this article. The first purchaser that is responsible for withholding and remittance of the tax is subject to the bonding requirements as applicable under section sixteen of this article, and severors (or severors and processors) from whom the tax is withheld shall not be subject to the bond specified in section sixteen of this article. However, a severor (or severor and processor) who has been issued a direct severance payment authorization number or who is otherwise subject to a requirement to pay the natural gas or oil severance tax directly to the state rather than through withholding by the first purchaser is subject to the bonding requirements as applicable under section sixteen of this article. This article shall not be interpreted to relieve any person of a bonding requirement other than the bonding requirement set forth in section sixteen of this article and shall not be interpreted as addressing any bonding requirement other than the bonding requirement set forth in section sixteen of this article.
(7) Severors (or severors and processors) that pay the tax directly on production of oil or natural gas pursuant to the provisions of this section shall deliver to the purchaser a direct severance payment authorization number issued by the Tax Commissioner. The purchaser shall not withhold and remit the tax imposed by this article on production of natural gas or oil sold to a severor (or severor and processor) who delivers to the purchaser a direct severance payment authorization number.
(8) The Tax Commissioner may promulgate emergency rules addressing collection and remittance of the severance tax by the first purchaser or the severor (or severor and processor) or both, taxation of oil and natural gas and coal bed methane and such administrative matters as may relate to the filing, reporting and payment of the tax imposed by this article and by article thirteen-v of this chapter, and such interpretive and legislative rules as the Tax Commissioner may find appropriate relating thereto.
(9) Notwithstanding other provisions of this code to the contrary, if the Tax Commissioner determines that a transaction between a first purchaser and a severor (or severor and processor) is not an arm's length transaction or is otherwise a transaction for which price manipulation appears to have affected the amount of tax collected or remitted under this article, the Tax Commissioner may determine the applicable tax base on which such tax should have been imposed and issue an assessment of tax accordingly.
(e)
Elimination of annual tax credit. -- For the tax year beginning on and after January 1, 2010, only one annual credit allowed under section ten of this article is allowed in the amount of $250 for tax imposed by this section. For tax years beginning on and after January 1, 2011, the tax credit set forth in section ten of this article shall not apply against the tax imposed by this section.
§11-13A-10. Paying tax; annual tax credit.
Every taxpayer subject to any tax imposed under this article shall be allowed one annual credit of $500 against the taxes due under this article, to be applied at the rate of $41.67 per month for each month the taxpayer was engaged in business in this state during the taxable year exercising a privilege taxable under this article. Persons providing health care items or services who become subject to the tax imposed by section three of this article beginning June 1, 1993, shall be allowed a proportional credit under this section based on the number of months in their tax year that begin on or after June 1, 1993: Provided, That for the tax year beginning on and after January 1, 2010, any credit claimed for tax paid under section three-a of this article shall be limited to one annual credit which shall not exceed $250, to be applied at the rate of $20.83 per month for each month the taxpayer was engaged in business in this state during the taxable year exercising a privilege taxable under this article: Provided, however, That for tax years beginning on and after January 1, 2011, no credit shall be claimed for tax paid under section three-a of this article.
§11-13A-17. Collection of tax; agreement for processor to pay tax due from severor (or severor and processor); reporting by first purchaser of oil and gas.

(a) General. -- In the case of natural resources, other than natural gas and oil, where the Tax Commissioner finds that it would facilitate and expedite the collection of the taxes imposed under this article, the Tax Commissioner may authorize the taxpayer processing the natural resource to report and pay the tax which would be due from the taxpayer severing the natural resources. The agreement shall be in such form as the Tax Commissioner may prescribe. The agreement must be signed: by the owners, if the taxpayers are natural persons; in the case of a partnership or association, by a partner or member; in the case of a corporation, by an executive officer or some person specifically authorized by the corporation to sign the application. The agreement may be terminated by any party to the agreement upon giving thirty days written notice to the other parties to the agreement: Provided, That the Tax Commissioner may terminate the agreement immediately upon written notice to the other parties when either the taxpayer processing the natural resource or the taxpayer severing the natural resource fails to comply with the terms of the agreement.
(b) Natural gas and oil. --
(1) In the case of natural gas, except for those cases
(A) Where the person severing (or both severing and processing) the natural gas will sell the gas to the ultimate consumer, or
(B) Where the Tax Commissioner determines that the collection of taxes due under this article would be accomplished in a more efficient and effective manner through the severor, or severor and processor, remitting the taxes; the first person to purchase the natural gas after it has been severed, or in the event that the natural gas has been severed and processed before the first sale, the first person to purchase the natural gas after it has been severed and processed, shall be liable for the collection of the taxes imposed by this article. He shall collect the taxes imposed from the person severing (or severing and processing) the natural gas, and he shall remit the taxes to the Tax Commissioner. In those cases where the person severing (or severing and processing) the natural gas sells the gas to the ultimate consumer, the person so severing (or severing and processing) the natural gas shall be liable for the taxes imposed by this article. In those cases where the Tax Commissioner determines that the collection of the taxes due under this article from the severance (or severance and processing) of natural gas would be accomplished in a more efficient and effective manner through the severor (or severor and processor) remitting the taxes, the Tax Commissioner shall set out his determination in writing, stating his reasons for so finding, and so advise the severor (or severor and processor) at least fifteen days in advance of the first reporting period for which such action would be effective.
(2) (1) On or before the last day of the month following each taxable calendar month, each person first purchasing natural gas or oil as described in this article or in this subdivision (1) above, shall report the purchases of natural gas and the purchases of oil during the taxable month, showing the quantities of gas purchased, the quantities of oil purchased, the price paid, the date of purchase, and any other information deemed necessary by the Tax Commissioner for the administration of the tax imposed by this article, and shall pay the amount of tax due, on forms prescribed by the Tax Commissioner.
(3) (2) On or before the last day of the month following each taxable calendar month, each person severing (or severing and processing) natural gas or oil, shall report the sales of the natural gas or oil, showing the name and address of the person to whom sold, the quantity of gas or oil sold, the date of sale, and the sales price on forms prescribed by the Tax Commissioner.
ARTICLE 13V. WORKERS' COMPENSATION DEBT REDUCTION ACT.
§11-13V-4b. Purchaser of natural gas to withhold tax.
(a) Remittance of withheld tax by purchaser. -- On or after January 1, 2011, the first person to purchase the natural gas after it has been severed, or in the event that the natural gas has been severed and processed before the first sale, the first person to purchase natural gas after it has been severed and processed, shall be liable for the collection of the taxes imposed by this article from the severor (or severor and processor) of the natural gas and shall remit the taxes to the Tax Commissioner. Taxes so collected by the purchaser are held in trust for the state, and the purchaser is liable for any failure to collect or remit the tax in accordance with the provisions of articles nine and ten of this chapter. The severor (or severor and processor) shall not be liable for tax withheld by the purchaser but not remitted to this state by the purchaser.
(1) No profit shall accrue to any person as a result of the collection of the tax levied by this article notwithstanding that the total amount of the taxes collected may be in excess of the amount for which the severor (or severor and processor) would be liable by the application of the rate of tax levied by this article. The total amount of all taxes collected by the purchaser shall be returned and remitted to the Tax Commissioner as provided in this article.
(2) If any severor (or severor and processor) refuses to pay or otherwise does not pay to the purchaser the tax imposed by this article, or a severor (or severor and processor) refuses to present to the purchaser a valid direct severance payment authorization number indicating that the purchaser is not required to collect and remit the taxes imposed by this article, or a severor (or severor and processor) presents to the purchaser a false direct severance payment authorization number or a false document, the severor (or severor and processor) shall be personally liable for the amount of tax applicable, and the purchaser shall not be liable for such tax.
(3) Nothing in this section relieves any severor (or severor and processor) who owes the tax and who has not paid the tax imposed by this article from liability for payment of the tax. In those cases the Tax Commissioner has authority to make an assessment against the severor (or severor and processor), based upon any information within his or her possession or that may come into his or her possession. This assessment and notice thereof shall be made and given in accordance with article ten of this chapter. The severor (or severor and processor) shall not be liable for tax withheld by the purchaser, but not remitted to this state by the purchaser.
(4) The due dates and payment requirements of this article apply to the payment and remittance of tax by purchasers of natural gas under this section.
(5) Exceptions. -- The requirement that the purchaser shall withhold and remit the tax imposed by this article on production of natural gas shall not apply:
(A) Where the severor (or severor and processor) of natural gas sells the gas to the ultimate consumer, the severor (or severor and processor) of the natural gas shall be liable for the taxes imposed by this article; or
(B) Where the Tax Commissioner determines that the collection of the taxes due under this article or article thirteen-a of this chapter, or both, from the severor (or severor and processor) of the natural gas would be accomplished in a more efficient and effective manner through the severor (or severor and processor) remitting the taxes, the Tax Commissioner shall set out his or her determination in writing, stating his or her reasons for so finding, and so advise the severor (or severor and processor) at least fifteen days in advance of the first reporting period for which the commissioner's determination is effective.
(6) Notwithstanding the provisions of this section, the severor (or severor and processor) of the natural gas is the taxpayer for purposes of this article and is liable for the tax imposed by this article. The taxpayer is subject to the bonding requirements as applicable under section thirteen of this article. The first purchaser that is responsible for withholding and remittance of the tax is subject to the bonding requirements as applicable under section thirteen of this article, and severors (or severors and processors) from whom the tax is withheld shall not be subject to the bond specified in section thirteen of this article. However, a severor (or severor and processor) who has been issued a direct severance payment authorization number or who is otherwise subject to a requirement to pay the tax imposed by this article directly to the state rather than through withholding by the first purchaser is subject to the bonding requirements as applicable under section thirteen of this article. This article shall not be interpreted to relieve any person of a bonding requirement other than the bonding requirement set forth in section thirteen of this article, and shall not be interpreted as addressing any bonding requirement other than the bonding requirement set forth in section thirteen of this article.
(7) On or before the last day of the month following each taxable calendar month, each person first purchasing natural gas as described in this section shall report the purchases of natural gas during the taxable month, showing the quantities of gas purchased, the price paid, the date of purchase and any other information deemed necessary by the Tax Commissioner for the administration of the tax imposed by this article, and shall pay the amount of tax due on forms prescribed by the Tax Commissioner.


NOTE: The purpose of this bill is to clarify the taxation of natural gas and oil; to set the rate of tax; to require the first purchaser of natural gas or oil to collect and remit the severance tax; to phase out an annual tax credit; to set forth bonding requirements; and to specify that the severor (or severor and processor) of natural gas or oil is liable for the severance tax.

Strike-throughs indicate language that would be stricken from the present law, and underscoring indicates new language that would be added.

§11-13V-4b is new, therefore, strike-throughs and underscoring have been omitted.
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