FISCAL NOTE
Date Requested: January 13, 2023
Time Requested: 01:38 PM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1363 |
Introduced |
HB2169 |
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|---|
| CBD Subject: |
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FUND(S):
General Revenue Fund, local governments
Sources of Revenue:
General Fund local property tax revenue
Legislation creates:
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, for assessments made on or after July 1, 2024, to provide that the arithmetic means for annual production and average coal price to value coal properties shall be based upon the full calendar year immediately preceding the July 1st assessment date; to provide that the Tax Commissioner shall utilize an average coal density of 1800 tons per acre foot, unless clear and convincing evidence is submitted by a taxpayer establishing a lower density value; to provide that density information reported on returns, due on or before May 1 of each year, shall be used to determine values for the immediately following July 1 assessments; to provide that the Tax Commissioner shall take into consideration economic viability and engineering considerations when establishing values for coal properties; to provide that coal beds which are of a thickness of less than 35 inches shall not be classified as mineable coal for valuation for property tax purposes unless there is clear and convincing evidence to the contrary; to provide that no permitted coal seam may be classified for taxation as active until actual depletion of coal commences under a permit; to provide that for any owner, operator, or producer which fails to make a return within the time required, any and all penalties imposed shall be equally and uniformly applied across all forms of industrial property and natural resources property; and to specify an effective date.
The bill would change procedurally how coal property values are calculated. Removing the three-year average will make valuations more responsive to highs and lows; therefore, predictable income streams for counties and other local governments would be less certain. Revenue losses for local governments would be enhanced during coal market downturns, and revenue gains to local governments would be enhanced during coal market upturns.
According to available information, the revenue loss for changing “mineable coal” from seams greater than 30-inch thickness to greater than 35-inch thickness is an annual loss of $250,000. Removal of the three-year average provisions would increase property tax revenues by $2.3 million based on tax year 2023 production and average coal price and by an even greater level in tax year 2024 due to higher coal prices.
Additional administrative costs to the Tax Department to reprogram for the valuation differences in the bill would $50,000. Other additional costs cannot be determined.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2023
Increase/Decrease
(use"-") |
2024
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
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 long-range effect):
The bill would change procedurally how coal property values are calculated. Removing the three-year average will make valuations more responsive to highs and lows; therefore, predictable income streams for counties and other local governments would be less certain. Revenue losses for local governments would be enhanced during coal market downturns, and revenue gains to local governments would be enhanced during coal market upturns.
According to available information, the revenue loss for changing “mineable coal” from seams greater than 30-inch thickness to greater than 35-inch thickness is an annual loss of $250,000. Removal of the three-year average provisions would increase property tax revenues by $2.3 million based on tax year 2023 production and average coal price and by an even greater level in tax year due to higher coal prices.
Additional administrative costs to the Tax Department to reprogram for the valuation differences in the bill would $50,000. Other additional costs cannot be determined.
Memorandum
The stated purpose of this bill is, for assessments made on or after July 1, 2024, to provide that the arithmetic means for annual production and average coal price to value coal properties shall be based upon the full calendar year immediately preceding the July 1st assessment date; to provide that the Tax Commissioner shall utilize an average coal density of 1800 tons per acre foot, unless clear and convincing evidence is submitted by a taxpayer establishing a lower density value; to provide that density information reported on returns, due on or before May 1 of each year, shall be used to determine values for the immediately following July 1 assessments; to provide that the Tax Commissioner shall take into consideration economic viability and engineering considerations when establishing values for coal properties; to provide that coal beds which are of a thickness of less than 35 inches shall not be classified as mineable coal for valuation for property tax purposes unless there is clear and convincing evidence to the contrary; to provide that no permitted coal seam may be classified for taxation as active until actual depletion of coal commences under a permit; to provide that for any owner, operator, or producer which fails to make a return within the time required, any and all penalties imposed shall be equally and uniformly applied across all forms of industrial property and natural resources property; and to specify an effective date.
Article X, Section 1 of the W. Va. Constitution requires taxation to be equal and uniform throughout the State, property to be taxed in proportion to its value, and no one species of property be taxed higher than any other species of property of equal value. A fundamental tenet of ad valorem taxation is that an item does not have to be on the market to have value. This bill seeks to change this tenet so that a natural resource property must be in production for the entire assessment period in order to be taxed as having accurate active value.
If passed, this bill would likely result in litigation. Some of its provisions are extremely vague and would be difficult to administer.
The requirement to use the density on returns is vague because it is not clear if the density reported shall always be used or only when the density is disputed as being less than 1800.
No permitted coal seam may be classified for taxation as active until actual depletion of coal commences under a permit. The meaning of “actual depletion” is unclear.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov