FISCAL NOTE
Date Requested: February 10, 2026
Time Requested: 03:12 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 4005 |
Introduced |
HB5399 |
|
|---|
| 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 encourage private investment in biochar manufacturing facilities located in this state by leveraging existing federal tax credit incentives through a limited, performance-based state income tax credit.
Per our interpretation, the bill establishes a Corporation Net Income Tax credit for entities that own or operate a “Qualified facility” that manufactures biochar and is allowed a federal income tax credit for carbon oxide sequestration related to biochar production. “Qualified facility” is further defined as a facility located in West Virginia that produces biochar and commences commercial operations after July 1, 2025. The credit is equal to 10 percent of the amount of any federal tax credit allowed to the taxpayer for carbon oxide sequestration under 26 U.S.C. § 45Q achieved through biochar production at a qualified facility. The tax credit is subject to carryback and carry forward treatment aligned with that of the federal tax credit. The credit may be used to offset up to 50 percent of the taxpayer’s Corporation Net Income Tax liability. The credit is first effective for taxable years beginning July 1, 2026.
Currently, federal tax incentives for biochar production primarily fall under the 45Q Carbon Oxide Sequestration Credit, which offers incentives for capturing and storing carbon in products, including potential applications for durable biochar. While 45Q requires specific, rigorous carbon permanence and storage certification, new legislation is being discussed to explicitly expand these credits to support biochar produced from forest residues. Until additional federal legislation is enacted, projects that aim to utilize forest residues for durable carbon sequestration, like biochar production, will have difficulty complying with the stringent requirements to qualify for the tax credit incentives.
According to our interpretation, the bill, if passed, would have a minimal impact on General Revenue Fund collections. However, if additional federal legislation, favorable to biochar production as a method of carbon sequestration, is enacted, the impact on the General Revenue Fund would increase.
Additional costs incurred by the State Tax Division would be $45,650 in FY2027 and $11,000 in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2026
Increase/Decrease
(use"-") |
2027
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
45,650 |
11,000 |
| Personal Services |
0 |
11,000 |
11,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
1,650 |
0 |
| Other |
0 |
33,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
Per our interpretation, the bill establishes a Corporation Net Income Tax credit for entities that own or operate a “Qualified facility” that manufactures biochar and is allowed a federal income tax credit for carbon oxide sequestration related to biochar production. “Qualified facility” is further defined as a facility located in West Virginia that produces biochar and commences commercial operations after July 1, 2025. The credit is equal to 10 percent of the amount of any federal tax credit allowed to the taxpayer for carbon oxide sequestration under 26 U.S.C. § 45Q achieved through biochar production at a qualified facility. The tax credit is subject to carryback and carry forward treatment aligned with that of the federal tax credit. The credit may be used to offset up to 50 percent of the taxpayer’s Corporation Net Income Tax liability. The credit is first effective for taxable years beginning July 1, 2026.
Currently, federal tax incentives for biochar production primarily fall under the 45Q Carbon Oxide Sequestration Credit, which offers incentives for capturing and storing carbon in products, including potential applications for durable biochar. While 45Q requires specific, rigorous carbon permanence and storage certification, new legislation is being discussed to explicitly expand these credits to support biochar produced from forest residues. Until additional federal legislation is enacted, projects that aim to utilize forest residues for durable carbon sequestration, like biochar production, will have difficulty complying with the stringent requirements to qualify for the tax credit incentives.
According to our interpretation, the bill, if passed, would have a minimal impact on General Revenue Fund collections. However, if additional federal legislation, favorable to biochar production as a method of carbon sequestration, is enacted, the impact on the General Revenue Fund would increase.
Additional costs incurred by the State Tax Division would be $45,650 in FY2027 and $11,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to encourage private investment in biochar manufacturing facilities located in this state by leveraging existing federal tax credit incentives through a limited, performance-based state income tax credit.
The tax credit is applied against corporation net income taxes, with a limitation that the credit can offset no more than 50 percent of taxes owed in any given year. The credit authorized by this section shall also be allowed as a credit against corporation net income tax imposed by this article on the flow-through income of the shareholders of the electing small business corporation, the partners, owners, or members of the partnership or limited liability company. Electing small business corporations, partnerships, limited liability companies, and other unincorporated organizations are directed to allocate the credit allowed under this section among their shareholders, partners, owners, or members in the same manner as profits and losses are allocated for the taxable year. Inclusion of the language “other unincorporated organizations,” raises questions of what entities may qualify and how they actually claim the credit. Pass-through entities (conduit entities) are more often given the opportunity to take a similar tax credit against personal income tax.
The tax credit proposed in this bill is premised on federal law not yet enacted. Biochar production is not currently subject to the federal tax credit. While federal legislation amending 26 USC §45Q to include biochar production under the broader than of “carbon oxide sequestration” has been introduced, that legislation is not yet enacted. Absent a federal tax credit for biochar, there can be no state tax credit based on an allowed federal credit.
The tax credit is effective for taxable years “beginning July 1, 2026.” Fiscal year taxpayers may start on July 1, but many have other start dates. Calendar year taxpayers may be excluded by the omission of “on or after.”
Person submitting Fiscal Note: Mark Muchow
Email Address: RADfiscal@wv.gov