FISCAL NOTE
Date Requested: March 20, 2025
Time Requested: 02:53 PM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 4008 |
Introduced |
SB857 |
|
|---|
| CBD Subject: |
Taxation |
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|
FUND(S):
General Revenue Fund, local governments
Sources of Revenue:
General Fund local property tax revenue
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 create economic incentives for data centers to locate within the state and further stimulate the state’s economy by relying on locally sourced coal-generated electricity. The bill provides salvage value treatment for personal property used by qualifying data centers; an exemption from the B&O tax for all coal-generated electricity sold to qualifying data centers; and provides a sales tax exemption for all personal property sold to and used in the construction or maintenance of a qualifying data center.
The bill creates the “West Virginia-Powered Data Center Incentive Act”. The bill defines “Data Center” and outlines the eligibility criteria for data centers to qualify for the incentives provided for in the act. Qualifying data centers must be located within West Virginia; make a new capital investment of at least $50 million on or after January 1, 2025; create at least 50 new jobs directly associated with the operation or maintenance of the data center; and use coal-generated electricity for at least 80 percent of its primary operational capacity.
The bill provides for special property tax treatment allowing all personal property used at any qualifying data center to be afforded salvage value for the purposes of ad valorem property taxation. Additionally, a new sales and use tax exemption is added to exempt sales of equipment and tangible personal property purchased for use in the operation and maintenance of a qualifying data center. A provision is added under section 13-2o(c) of the Business and Occupation Tax for electricity generated by a coal-fired power plant for use in a qualifying data center. The provision provides that, “After January 1, 2025, when coal-generated electricity is sold to a qualifying data center pursuant to the provisions of §11-6N-1 et seq. of this code, the generation of the coal-generated electricity used by the qualifying data center may not be taxed under this article (§11-13).”
The Property Tax portion of the bill would have an undetermined impact on revenue of the State, county commissions, and county school boards with salvage value potentially applying to both tangible personal property and real property associated with infrastructure. The sales tax exemption as proposed is very broad in scope. The sales tax exemption would have an undetermined impact on State and Local sales and service and use tax collections. The Business and Occupation Tax on electric power generation and distribution is a capacity or unit-based tax.
There would be no incremental increase in tax liability associated with any increase in net generation associated with new consumption. The provision exempting coal-generated electricity used by a qualifying data center indicates that the amount of tax payable by the electric generator be adjusted to equal an amount which is proportional to electricity sold for purposes other than the qualifying data center uses. This provision would likely result in a decrease in State revenues equal to a reduced capacity tax yield associated with the proposed proration exemption.
Additional administrative costs incurred by the State Tax Department would be $16,500 in FY2025 and $11,000 in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2025
Increase/Decrease
(use"-") |
2026
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
16,500 |
11,000 |
11,000 |
| Personal Services |
0 |
11,000 |
11,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
16,500 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
The bill creates the “West Virginia-Powered Data Center Incentive Act”. The bill defines “Data Center” and outlines the eligibility criteria for data centers to qualify for the incentives provided for in the act. Qualifying data centers must be located within West Virginia; make a new capital investment of at least $50 million on or after January 1, 2025; create at least 50 new jobs directly associated with the operation or maintenance of the data center; and use coal-generated electricity for at least 80 percent of its primary operational capacity.
The bill provides for special property tax treatment allowing all personal property used at any qualifying data center to be afforded salvage value for the purposes of ad valorem property taxation. Additionally, a new sales and use tax exemption is added to exempt sales of equipment and tangible personal property purchased for use in the operation and maintenance of a qualifying data center. A provision is added under section 13-2o(c) of the Business and Occupation Tax for electricity generated by a coal-fired power plant for use in a qualifying data center. The provision provides that, “After January 1, 2025, when coal-generated electricity is sold to a qualifying data center pursuant to the provisions of §11-6N-1 et seq. of this code, the generation of the coal-generated electricity used by the qualifying data center may not be taxed under this article (§11-13).”
The Property Tax portion of the bill would have an undetermined impact on revenue of the State, county commissions, and county school boards with salvage value potentially applying to both tangible personal property and real property associated with infrastructure. The sales tax exemption as proposed is very broad in scope. The sales tax exemption would have an undetermined impact on State and Local sales and service and use tax collections. The Business and Occupation Tax on electric power generation and distribution is a capacity or unit-based tax.
There would be no incremental increase in tax liability associated with any increase in net generation associated with new consumption. The provision exempting coal-generated electricity used by a qualifying data center indicates that the amount of tax payable by the electric generator be adjusted to equal an amount which is proportional to electricity sold for purposes other than the qualifying data center uses. This provision would likely result in a decrease in State revenues equal to a reduced capacity tax yield associated with the proposed proration exemption.
Additional administrative costs incurred by the State Tax Department would be $16,500 in FY2025 and $11,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to create economic incentives for data centers to locate within the state and further stimulate the state’s economy by relying on locally sourced coal-generated electricity. The bill provides salvage value treatment for personal property used by qualifying data centers; an exemption from the B&O tax for all coal-generated electricity sold to qualifying data centers; and provides a sales tax exemption for all personal property sold to and used in the construction or maintenance of a qualifying data center.
The numbering in several sections of bill is unconventional. The title of Article 6N states that it provides “Special property tax treatment for new data centers and providing a tax credit for the coal-fired electric utilities that supply them.” There is no tax credit for coal-fired utilities in the new article.
The bill defines a “data center” as “A facility that (1) Houses computer systems and associated components, including storage systems and telecommunications equipment, for the purposes of processing, storage, retrieval, or communication of data; and (2) Maintains a minimum electricity consumption capacity of design plans, for the operation of its systems and infrastructure.” This is definition is vague and could potentially be interpreted to cover any facility where computers are used.
“Coal-generated electricity,” is defined as electricity where at least 75% of the energy is derived from coal combusted from a coal-fired power plant that is either: (1) Burning West Virginia coal; or (2) A coal-fired power plant physically located within the state of West Virgina. The definition has interstate commerce implications since it attempts to regulate the source of coal burned in power plants in other states. Further, it would be difficult to determine whether an out of state power plant was burning West Virginia coal when it sent power to the data center.
The eligibility requirements state that the data center must be in West Virginia, make a new capital investment of at least $50 million on or after January 1, 2025, use coal-generated electricity for at least 80% of its primary operational capacity, and “eligibility shall not apply to capacity used for backup, redundancy, or secondary capacity.” No definitions are provided for “primary operational capacity” and “backup, redundancy, or secondary capacity.”
Section§11-6N-5 sets forth property tax treatment for qualifying data centers. All personal property used at a data center shall be granted salvage value, which means “the lower of fair market salvage value or five percent of the total value of the qualifying data center, including all equipment and infrastructure necessary for its operation.” Valuation and assessment shall be carried out in accordance with §11-6-1, et seq, Assessment of Public Service Businesses. It is not clear to what degree the data centers would otherwise be subject to the Board of Public Works. It is not clear how data centers that are not “qualified” will be treated. Further, “all” personal property used at the center is an extremely broad category and it could conceivably include construction equipment used to build or maintain the center and company cars. Also of concern is the explicit inclusion of “infrastructure” in the property granted salvage value. “Infrastructure” is not defined in the bill, but definitions available online include buildings and equipment. Thus, everything included in a data center, but the underlying land could conceivably be allowed salvage value.
Section §11-6N-6, sets forth a sales tax exemption for qualified data centers. This section does not reference the subdivision of the new sales tax exemption, (a)(51). The centers must meet and maintain the requirements to qualify within five years of claiming the incentive or repay benefits claimed during the prior three years. This provision could result in problems with compliance and recapture. Counties close their books yearly after the budgets are set. Therefore, the counties books would have to be reopened to adjust property tax valuations.
The Tax Commissioner is required to promulgate rules to ensure compliance, including audit procedures, penalties for false claims, and prescribing forms and deadlines for the application process.
Person submitting Fiscal Note: Mark Muchow
Email Address: RADfiscal@wv.gov