FISCAL NOTE

Date Requested: February 28, 2020
Time Requested: 08:49 AM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
3260 Comm. Sub. SB793
CBD Subject: Taxation


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund

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 : (1) Amend §11-13-2q of the business and occupation tax to clarify the definition for coal-fired merchant power plants; and (2) provide an election for recomputation of the taxable generating capacity of a coal-fired electric power generating units placed in service prior to January 1, 1995. Under current law the taxable generating capacity of those units is currently based on the unit’s net generation during calendar years 1991 through 1994. This bill would allow the owners or operators of those generating units to make an irrevocable election to reduce the taxable generating capacity of those units to 45 percent of the official capability of the generating unit, for taxable periods beginning on and after July 1, 2021, provided the owner agrees to keep the generating units in operation until at least January 1, 2025. A recapture tax would be imposed in the event the generating unit ceases to be operational during the required time period. The recapture tax would also be imposed when ownership of the generating unit is transferred on or after July 1, 2021, but before January 1, 2025. In the event federal law or regulation requires closure of the generating unit, the recapture tax would not applicable to periods after the closure date.
    
    According to our interpretation, passage of this bill would potentially result in a reduction in Business and Occupation Tax liability for coal-fired electric power generation units of up to $15.0 million in Fiscal Year 2022 and by as much as $16.3 million each year thereafter. The provisions of this bill would allow coal-fired electric generators to reduce their taxable generation capacity tax base to 45 percent beginning July 1, 2021 in exchange for an agreement to keep those facilities open until at least July 1, 2025. The taxpayer has the option to not choose the tax reduction option. This industry currently pays roughly $100 million in annual B&O tax per year. The provisions of this bill also clarify the definition of coal-fired merchant power plant for purposes of tax exemption.
    
    Between July 1, 2021 and July 1, 2025, should the coal-fired units impacted by the Business & Occupations Tax cease to operate, the owner or operator of these coal-fired plants would remit back to the State Tax Department all of the Business & Occupation Tax savings incurred during this time. This recapture tax would be due on the same date as the annual Business & Occupation Tax. If the plant is forced to close due to federal law or regulation, then no recapture tax would be due.
    
    Additional administrative costs incurred by the State Tax Department would be $5,000 in FY2021.
    
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2020
Increase/Decrease
(use"-")
2021
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 5,000 0
Personal Services 0 5,000 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 -16,300,000


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


    According to our interpretation, passage of this bill would potentially result in a reduction in Business and Occupation Tax liability for coal-fired electric power generation units of up to $15.0 million in Fiscal Year 2022 and by as much as $16.3 million each year thereafter. The provisions of this bill would allow coal-fired electric generators to reduce their taxable generation capacity tax base to 45 percent beginning July 1, 2021 in exchange for an agreement to keep those facilities open until at least July 1, 2025. The taxpayer has the option to not choose the tax reduction option. This industry currently pays roughly $100 million in annual B&O tax per year. The provisions of this bill also clarify the definition of coal-fired merchant power plant for purposes of tax exemption.
    
    Between July 1, 2021 and July 1, 2025, should the coal-fired units impacted by the Business & Occupations Tax cease to operate, the owner or operator of these coal-fired plants would remit back to the State Tax Department all of the Business & Occupation Tax savings incurred during this time. This recapture tax would be due on the same date as the annual Business & Occupation Tax. If the plant is forced to close due to federal law or regulation, then no recapture tax would be due.
    
    Additional administrative costs incurred by the State Tax Department would be $5,000 in FY2021.
    



Memorandum


    



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