FISCAL NOTE

Date Requested: February 01, 2022
Time Requested: 02:57 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2340 Introduced HB4483
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 balance the interests of current landowners and future landowners to ensure forest land may be developed for future economic gain by limiting use restrictions for forest carbon capture and sequestration to a maximum term of 30 years. The bill defines certain terms. The bill requires parties to current and new carbon offset agreements to register with the State Tax Department for tax years beginning on and after January 1, 2022, and retroactive to such date. The bill requires reports by Division of Forestry. The bill authorizes the disclosures of information by the Tax Commissioner to Division of Forestry. The bill imposes excise tax on receipts derived from carbon offset agreements. The bill sets forth reporting requirements. The bill provides an effective date of January 1, 2022, and with retroactive effect to such date. The bill defines “managed timberland” to exclude timberland that is subject to a carbon offset agreement. The bill specifies application of West Virginia Tax Procedure and Administration Act and West Virginia Tax Crimes and Penalties Act. The bill authorizes promulgation of rules. The bill provides legislative findings and declarations. The bill provides that any covenant, restriction, condition, easement, contract, lease, deed, agreement, option, or other governing document, which is executed or recorded after the effective date, which effectively prohibits or restricts the development of land and the harvesting of timber from forests for the purposes of forest carbon capture, carbon offset, and carbon sequestration is void and unenforceable, unless said covenant, restriction, condition, easement, contract, lease, deed, agreement, option, or other governing document is for a maximum term of 30 years. The bill provides that options to renew or continue such arrangements beyond the maximum term of 30 years shall be valid only if the consideration is required to be renegotiated to exercise the option. The proposed bill would levy on every carbon offset agreement regarding, or relating to, real estate in West Virginia or other property in West Virginia an annual excise tax in the amount of one percent of the gross payment under the agreement. The tax would be paid by the party intending to sequester carbon dioxide who enters into the agreement with the landowner or property owner. This bill would require all parties to a carbon offset agreement to apply to the Tax Commissioner for a registration certificate. The program of carbon offset agreements and excise taxation of such is an emerging concept.. According to the Property Tax Division, there are currently about 2.5 million acres of forest under managed forestland agreements and a total of 12.5 million acres of forestland total in the state. Carbon offset agreements are relatively new in West Virginia. There does not exist an estimate of the number of acres currently in carbon offset agreements. This bill establishes such a registry. Landowners who currently participate in carbon offset agreements trade mostly in California Carbon Subsidy Markets. The current value established in the marketplace is between $18 and $45 per acre in annual payments. Most of the California marketplace requires 100-year agreements. This bill limits such agreements in West Virginia to 30 years with the possibility of renewal or renegotiation. No excise tax is currently imposed on these agreements. As written, this bill establishes a tax at one percent of the payments such agreements generate for landowners. However, the West Virginia Tax Department has no way to project the number of acres of West Virginia forestland that may be entered into such carbon offset agreements. As such, the total revenue impact of this bill is undeterminable. Implementing the registry component of the bill will require creating a new electronic database and may also require additional manpower at the State Tax Department and potentially other government agencies that provide support. Additional administrative costs incurred by the State Tax Department would be $95,000 in FY2022 and $15,000 in subsequent fiscal years.



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 95,000 15,000 15,000
Personal Services 15,000 15,000 15,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 80,000 0 0
2. Estimated Total Revenues 0 0 0


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


The proposed bill would levy on every carbon offset agreement regarding, or relating to, real estate in West Virginia or other property in West Virginia an annual excise tax in the amount of one percent of the gross payment under the agreement. The tax would be paid by the party intending to sequester carbon dioxide who enters into the agreement with the landowner or property owner. This bill would require all parties to a carbon offset agreement to apply to the Tax Commissioner for a registration certificate. The program of carbon offset agreements and excise taxation of such is an emerging concept. According to the Property Tax Division, there are currently about 2.5 million acres of forest under managed forestland agreements and a total of 12.5 million acres of forestland total in the state. Carbon offset agreements are relatively new in West Virginia. There does not exist an estimate of the number of acres currently in carbon offset agreements. This bill establishes such a registry. Landowners who currently participate in carbon offset agreements trade mostly in California Carbon Subsidy Markets. The current value established in the marketplace is between $18 and $45 per acre in annual payments. Most of the California marketplace requires 100-year agreements. This bill limits such agreements in West Virginia to 30 years with the possibility of renewal or renegotiation. No excise tax is currently imposed on these agreements. As written, this bill establishes a tax at one percent of the payments such agreements generate for landowners. However, the West Virginia Tax Department has no way to project the number of acres of West Virginia forestland that may be entered into such carbon offset agreements. As such, the total revenue impact of this bill is undeterminable. Implementing the registry component of the bill will require creating a new electronic database and may also require additional manpower at the State Tax Department and potentially other government agencies that provide support. Additional administrative costs incurred by the State Tax Department would be $95,000 in FY2022 and $15,000 in subsequent fiscal years.



Memorandum


The stated purpose of this bill is to balance the interests of current landowners and future landowners to ensure forest land may be developed for future economic gain by limiting use restrictions for forest carbon capture and sequestration to a maximum term of 30 years. The bill defines certain terms. The bill requires parties to current and new carbon offset agreements to register with the State Tax Department for tax years beginning on and after January 1, 2022, and retroactive to such date. The bill requires reports by Division of Forestry. The bill authorizes the disclosures of information by the Tax Commissioner to Division of Forestry. The bill imposes excise tax on receipts derived from carbon offset agreements. The bill sets forth reporting requirements. The bill provides an effective date of January 1, 2022, and with retroactive effect to such date. The bill defines “managed timberland” to exclude timberland that is subject to a carbon offset agreement. The bill specifies application of West Virginia Tax Procedure and Administration Act and West Virginia Tax Crimes and Penalties Act. The bill authorizes promulgation of rules. The bill provides legislative findings and declarations. The bill provides that any covenant, restriction, condition, easement, contract, lease, deed, agreement, option, or other governing document, which is executed or recorded after the effective date, which effectively prohibits or restricts the development of land and the harvesting of timber from forests for the purposes of forest carbon capture, carbon offset, and carbon sequestration is void and unenforceable, unless said covenant, restriction, condition, easement, contract, lease, deed, agreement, option, or other governing document is for a maximum term of 30 years. The bill provides that options to renew or continue such arrangements beyond the maximum term of 30 years shall be valid only if the consideration is required to be renegotiated to exercise the option. If this bill applies to small, private landowners, [subsection (b)] seems burdensome to administer because these requirements may be challenging for some of them. Subsection (f) provides authority for the Tax Commissioner to disclose information to the Division of Forestry. This will require a written Memorandum of Understanding between the two agencies.



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