FISCAL NOTE
Date Requested: March 09, 2022 Time Requested: 09:11 AM 
Agency: 
Tax & Revenue Department, WV State 
CBD Number: 
Version: 
Bill Number: 
Resolution Number: 
1275 
Comm. Sub. 
HB4336 

CBD Subject: 
Taxation 


FUND(S):
General Revenue Fund, local governments
Sources of Revenue:
General Fund local property tax
Legislation creates:
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The purpose of this bill generally relates to valuation and assessment regarding personal property taxation and provides for a revised methodology to value property producing oil, natural gas, and natural gas liquids by the Tax Commissioner for property tax assessments.
The provisions of this bill would provide a formula for the valuation of oil, natural gas, and natural gas liquid properties. The formula accounts for major industry changes in recent years that were not properly reflected in past valuation formulas. The formula recognizes various natural resource products income streams produced from natural gas and oil wells in West Virginia including natural gas liquid products. The formula incorporates a greater range of costs associated with natural gas and oil well production than past formulas. The formula is based on actual annual prices as opposed to a weighted threeyear average price used in the past. Effective July 1, 2022, this formula will be used to value oil and gas well properties for purposes of the local property tax. Given that the new valuation formula differs from past formulas, the new formula will result in different valuations subject to taxation. When energy prices are very low as was the case in CY2020, the formula will result in a reduction in valuations relative to past formulas due to the inclusion of more allowable costs in the equation. Per calculations from the Legislative Auditor, the proposed formula would have lowered the most recent valuations by roughly $11 million out of an original amount of roughly $100 million for the 10 largest counties (Tyler, Marshall, Ohio, Brooke, Doddridge, Wetzel, Ritchie, Harrison, Monongalia, and Marion) in TY2023 and TY2024, and by an additional $8 million in TY2025 and beyond. The impact to the remainder of the counties would be $0.6 million in TY2023 and TY2024 and an additional $0.1 million in TY2025 and beyond. This analysis is based entirely on data from the most recent year with record low energy prices. It should be noted that when energy prices are high, the potential yield under the proposed formula may be higher than the yield under former formulas because counties will immediately feel the impact of higher pricing rather than the smoothing mechanism employed by using a 3year weighted average. Average natural gas prices roughly tripled between CY2020 and CY2021. If all else is equal, county governments should see an increase in natural gas and oil property tax revenue in the next assessment cycle with the increase being similar to the increase that they would have experienced under prior valuation formulas. We are unable to provide a more accurate estimate of future valuations under the proposed new formula relative to past formulas given the uncertainty relating to future energy prices, a key variable in the determination of property valuations.
Additional administrative costs to the State Tax Department would be $10,000 in FY2022 and $10,000 in FY2024.
Fiscal Note Detail
Effect of Proposal 
Fiscal Year 
2022 Increase/Decrease (use"") 
2023 Increase/Decrease (use"") 
Fiscal Year (Upon Full Implementation) 
1. Estmated Total Cost 
10,000 
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 longrange effect):
The provisions of this bill would provide a formula for the valuation of oil, natural gas, and natural gas liquid properties. The formula accounts for major industry changes in recent years that were not properly reflected in past valuation formulas. The formula recognizes various natural resource products income streams produced from natural gas and oil wells in West Virginia including natural gas liquid products. The formula incorporates a greater range of costs associated with natural gas and oil well production than past formulas. The formula is based on actual annual prices as opposed to a weighted threeyear average price used in the past. Effective July 1, 2022, this formula will be used to value oil and gas well properties for purposes of the local property tax. Given that the new valuation formula differs from past formulas, the new formula will result in different valuations subject to taxation. When energy prices are very low as was the case in CY2020, the formula will result in a reduction in valuations relative to past formulas due to the inclusion of more allowable costs in the equation. Per calculations from the Legislative Auditor, the proposed formula would have lowered the most recent valuations by roughly $11 million out of an original amount of roughly $100 million for the 10 largest counties (Tyler, Marshall, Ohio, Brooke, Doddridge, Wetzel, Ritchie, Harrison, Monongalia, and Marion) in TY2023 and TY2024, and by an additional $8 million in TY2025 and beyond. The impact to the remainder of the counties would be $0.6 million in TY2023 and TY2024 and an additional $0.1 million in TY2025 and beyond. This analysis is based entirely on data from the most recent year with record low energy prices. It should be noted that when energy prices are high, the potential yield under the proposed formula may be higher than the yield under former formulas because counties will immediately feel the impact of higher pricing rather than the smoothing mechanism employed by using a 3year weighted average. Average natural gas prices roughly tripled between CY2020 and CY2021. If all else is equal, county governments should see an increase in natural gas and oil property tax revenue in the next assessment cycle with the increase being similar to the increase that they would have experienced under prior valuation formulas. We are unable to provide a more accurate estimate of future valuations under the proposed new formula relative to past formulas given the uncertainty relating to future energy prices, a key variable in the determination of property valuations.
Additional administrative costs to the State Tax Department would be $10,000 in FY2022 and $10,000 in FY2024.
Memorandum
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov