FISCAL NOTE

Date Requested: February 13, 2018
Time Requested: 01:13 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2620 Introduced HB4574
CBD Subject: Natural Resources


FUND(S):

Natural Gas Severance Teacher Pay Raise Fund

Sources of Revenue:

Special Fund

Legislation creates:

Creates New Revenue, Increases Existing Expenses, Creates New Fund: Natural Gas Severance Teacher Pay Raise Fund



Fiscal Note Summary


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


The stated purpose of this bill is to establish and define rights of mineral estate owners, surface owners, royalty owners, and operators for development of oil and gas interests through cotenancy in production, to authorize development of oil and gas through agreements for horizontal well drilling, and to levy an additional amount in tax for the severance of natural gas to be distributed to all counties and used to supplement teacher salaries. According to our interpretation, the proposed bill would impose an additional Severance Tax, called the natural gas severance surtax, on natural gas produced after June 30, 2018. The tax would be imposed at a rate of 4.7 cents per thousand cubic feet (MCF) of natural gas and all proceeds would be deposited into a special fund, the Natural Gas Severance Teacher Pay Raise Fund, created by this bill. Based on our understanding, the proposed bill would be expected to yield roughly $54 million in FY2019 (reflecting lagged collections for the first year due to the July 1, 2018 effective date) and roughly $70 million in FY2020. Yield from the proposed tax in out years would depend on natural gas production trends. Additional administrative costs incurred by the State Tax Department would be $35,000 in FY2018 and $36,000 in FY2019.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2018
Increase/Decrease
(use"-")
2019
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 35,000 36,000 0
Personal Services 0 35,000 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 1,000 0
Other 35,000 0 0
2. Estimated Total Revenues 0 54,000,000 0


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


According to our interpretation, the proposed bill would impose an additional Severance Tax, called the natural gas severance surtax, on natural gas produced after June 30, 2018. The tax would be imposed at a rate of 4.7 cents per thousand cubic feet (MCF) of natural gas and all proceeds would be deposited into a special fund, the Natural Gas Severance Teacher Pay Raise Fund, created by this bill. Based on our understanding, the proposed bill would be expected to yield roughly $54 million in FY2019 (reflecting lagged collections for the first year due to the July 1, 2018 effective date) and roughly $70 million in FY2020. Yield from the proposed tax in out years would depend on natural gas production trends. Additional administrative costs incurred by the State Tax Department would be $35,000 in FY2018 and $36,000 in FY2019.



Memorandum


The stated purpose of this bill is to establish and define rights of mineral estate owners, surface owners, royalty owners, and operators for development of oil and gas interests through cotenancy in production, to authorize development of oil and gas through agreements for horizontal well drilling, and to levy an additional amount in tax for the severance of natural gas to be distributed to all counties and used to supplement teacher salaries. The portion of the proposed bill pertaining to the Severance Tax would be difficult to administer as written. In addition, it is unclear whether the exemptions listed in subsection (a) would apply to the new surtax. The bill does not indicate whether the Tax Commissioner has a role in the administration of the new tax. It is unclear whether the new tax is paid to the Tax Commissioner who then makes the deposit into the Natural Gas Severance Teacher Pay Raise Fund. Although the Tax Department has rulemaking authority under subsection (c) of this bill, the amended language is vague and can exceed statutory authority while promulgating rules. This bill does not set a standard for determining population rank, separate accounting standards are not specified, and the “compensation of public education teachers” is not defined.



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