FISCAL NOTE

Date Requested: March 03, 2016
Time Requested: 04:25 PM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
2943 Engrossed SB705
CBD Subject: Taxation


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund

Legislation creates:

Neither Program nor Fund



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


The stated purpose of this bill is to reduce the severance tax on coal to three percent over two years and specify effective dates. Based on our interpretation, the proposed legislation would reduce the maximum severance tax rate on coal, limestone, sandstone, natural gas and oil from 5.0 percent to 4.0 percent effective July 1, 2017 and from 4.0 percent to 3.0 percent effective July 1, 2018. From the perspective of coal, this rate reduction would only affect coal produced from surface mines and from underground mines with average seam thickness equal to or greater than 45 inches. Total severance tax collections would decrease by an estimated $57.0 million in FY2017, by $110.0 million in FY2018 and by up to $136.0 million for each year thereafter. State General Revenues would decrease by $55.0 million in FY2017, by $105.0 million in FY2018 and by up to $129.0 million for each year thereafter. Local coal revenues would decrease by roughly $2.0 million in FY2017, by $4.0 million in FY2018 and by up to $6.0 million for each year thereafter. Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2017 and $10,000 for each year thereafter. No additional costs are anticipated for the remainder of FY2016.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2016
Increase/Decrease
(use"-")
2017
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 20,000 10,000
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 20,000 10,000
2. Estimated Total Revenues 0 -57,000,000 -110,000,000


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


Based on our interpretation, the proposed legislation would reduce the maximum severance tax rate on coal, limestone, sandstone, natural gas and oil from 5.0 percent to 4.0 percent effective July 1, 2017 and from 4.0 percent to 3.0 percent effective July 1, 2018. From the perspective of coal, this rate reduction would only affect coal produced from surface mines and from underground mines with average seam thickness equal to or greater than 45 inches. Total severance tax collections would decrease by an estimated $57.0 million in FY2017, by $110.0 million in FY2018 and by up to $136.0 million for each year thereafter. State General Revenues would decrease by $55.0 million in FY2017, by $105.0 million in FY2018 and by up to $129.0 million for each year thereafter. Local coal revenues would decrease by roughly $2.0 million in FY2017, by $4.0 million in FY2018 and by up to $6.0 million for each year thereafter. Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2017 and $10,000 for each year thereafter. No additional costs are anticipated for the remainder of FY2016.



Memorandum


The stated purpose of this bill is to reduce the severance tax on coal to three percent over two years and specify effective dates. The proposed bill actually reduces the rate for coal, limestone and sandstone from 5 percent to 4 percent beginning July 1, 2017 and to 3 percent beginning July 1, 2018. In this bill’s version of §11-13A-3a(b), the bill provides that the severance tax on natural gas or oil production shall coincide with the changes to the severance tax on coal. The fact that the effect of the bill is to reduce the severance tax on coal, limestone, sandstone, natural gas and oil, and yet the sole tax addressed in the title is the severance tax on coal, constitutes a title defect. The tax imposed upon behavioral health services would remain at 5 percent in the proposed bill. However, the tax on behavioral health providers was terminated by SB421.



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