FISCAL NOTE
Date Requested: February 22, 2016
Time Requested: 03:54 PM |
| Agency: |
Tax Department, State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2867 |
Introduced |
SB675 |
|
|---|
| 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 provide a safe harbor valuation for the measure of tax on limestone and sandstone quarried or mined for purposes of the West Virginia Severance and Business Privilege Tax.
Based on our interpretation, the proposed bill would change the severance tax valuation requirements on limestone and sandstone from one based on gross value to a safe harbor valuation based on the sale price of crushed stone less both 90 percent of sales value and transportation costs. A lack of necessary data provides substantial limitations in constructing an accurate estimate of revenue consequences under the proposed structure. Further, there is concern that such a change to accounting measures may effectively provide affected Taxpayers with a tax reduction rather than just an alternative safe harbor to account for added costs beyond the point of severance. Current net severance collections from these natural resources average roughly $1.0 million per year after application of available investment tax credits.
No additional administrative costs are expected to be incurred by the State Tax Department.
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 |
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):
Based on our interpretation, the proposed bill would change the severance tax valuation requirements on limestone and sandstone from one based on gross value to a safe harbor valuation based on the sale price of crushed stone less both 90 percent of sales value and transportation costs. A lack of necessary data provides substantial limitations in constructing an accurate estimate of revenue consequences under the proposed structure. Further, there is concern that such a change to accounting measures may effectively provide affected Taxpayers with a tax reduction rather than just an alternative safe harbor to account for added costs beyond the point of severance. Current net severance collections from these natural resources average roughly $1.0 million per year after application of available investment tax credits.
No additional administrative costs are expected to be incurred by the State Tax Department.
Memorandum
The stated purpose of this bill is to provide a safe harbor valuation for the measure of tax on limestone and sandstone quarried or mined for purposes of the West Virginia Severance and Business Privilege Tax.
The proposed bill refers to the incorrect Code section. The current severance tax is imposed on limestone and sandstone under West Virginia Code §11-13A-3. However, this bill provides a safe harbor provision “for the purpose of the tax imposed in section three-c of this article.” Section three-c deals with other natural resources not otherwise taxed in this article and does not include limestone and sandstone.
This bill proposes a safe harbor valuation of 10 percent of the sale price of the crushed stone, not including transportation costs, and assumes that the gross value of unprocessed limestone and sandstone is 10 percent of the market value of the processed product. This appears a fairly arbitrary percentage and makes no relation to the gross value of the natural resource. Gross value as defined in §11-13A-2(c)(6)(H) is used to determine the amount of severance tax on limestone and sandstone per §11-13A-3. Further, CSR §110-13A-4.5.1 states that any activity, after that producer has possession of the limestone, short of actually processing or crushing the limestone, should not be included in the value.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov