FISCAL NOTE
Date Requested: January 28, 2019
Time Requested: 11:09 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1465 |
Introduced |
HB2334 |
|
|---|
| CBD Subject: |
Natural Resources, Taxation |
|---|
|
FUND(S):
West Virginia Future Fund
Sources of Revenue:
Other Fund West Virginia Future Fund
Legislation creates:
Creates New 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 this bill is establishing industrial water extraction fees. The bill places a penny fee on every gallon of water extracted for industrial use. The bill places an additional penny on every gallon of water that extracted for industrial use that is transported over the state roads. The bill requires measuring of water withdraws by a specific method. The bill defines terms and provides rule-making authority.
Based on our interpretation, passage of the bill will result in a 1 cent per gallon tax or fee on water extracted for industrial use and an additional 1 cent per gallon on such water that is transported over any state road. It is estimated, the tax on water extracted for industrial use will generate up to $581.0 million per year for the first-year implementation based upon data gathered from the West Virginia Department of Environmental Protection (DEP). This figure represents a maximum revenue estimate as “industrial use” is not clearly defined in the bill. Restrictions on what constitutes “industrial use” could reduce this estimate. These funds benefit the West Virginia Future Fund.
The tax on water withdrawn and transferred over state roads is estimated to generate at $15.2 million per year for the first year of implementation. This figure represents a conservative revenue estimate. Funds collected will be transferred to the counties.
The amount of water withdrawn and transportation trips are expected to decrease if there is an over-supply of natural gas which would result in a decrease in the amount of oil and natural gas drilling. A decrease in oil & natural gas drilling would result in the decrease in tax revenue from the water extraction and water transportation taxes. The recent volatility of the oil and gas market makes it difficult to estimate future revenue from this tax with any accuracy or certainty.
The proposed tax or fee would impose significant additional costs on certain affected industries operating in West Virginia. These additional costs would result in less overall economic activity from the affected sectors.
There is no effective date noted in the proposed bill and the term “collection period” is not defined. Assuming a July 1, 2019 effective date and that the “collection period” is a month, total collections, including the local benefit, are estimated to be $546.5 million in FY2020 and $596.2 million per year thereafter.
Additional administrative costs incurred by the State Tax Department are expected to be $51,000 for the FY2019 and $40,000 per year for each fiscal year thereafter.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2019
Increase/Decrease
(use"-") |
2020
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
51,000 |
40,000 |
40,000 |
| Personal Services |
10,000 |
40,000 |
40,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
1,000 |
0 |
0 |
| Other |
40,000 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
546,500,000 |
596,200,000 |
Explanation of above estimates (including long-range effect):
Based on our interpretation, passage of the bill will result in a 1 cent per gallon tax or fee on water extracted for industrial use and an additional 1 cent per gallon on such water that is transported over any state road. It is estimated, the tax on water extracted for industrial use will generate up to $581.0 million per year for the first-year implementation based upon data gathered from the West Virginia Department of Environmental Protection (DEP). This figure represents a maximum revenue estimate as “industrial use” is not clearly defined in the bill. Restrictions on what constitutes “industrial use” could reduce this estimate. These funds benefit the West Virginia Future Fund.
The tax on water withdrawn and transferred over state roads is estimated to generate at $15.2 million per year for the first year of implementation. This figure represents a conservative revenue estimate. Funds collected will be transferred to the counties.
The amount of water withdrawn and transportation trips are expected to decrease if there is an over-supply of natural gas which would result in a decrease in the amount of oil and natural gas drilling. A decrease in oil & natural gas drilling would result in the decrease in tax revenue from the water extraction and water transportation taxes. The recent volatility of the oil and gas market makes it difficult to estimate future revenue from this tax with any accuracy or certainty.
The proposed tax or fee would impose significant additional costs on certain affected industries operating in West Virginia. These additional costs would result in less overall economic activity from the affected sectors.
There is no effective date noted in the proposed bill and the term “collection period” is not defined. Assuming a July 1, 2019 effective date and that the “collection period” is a month, total collections, including the local benefit, are estimated to be $546.5 million in FY2020 and $596.2 million per year thereafter.
Additional administrative costs incurred by the State Tax Department are expected to be $51,000 for the FY2019 and $40,000 per year for each fiscal year thereafter.
Memorandum
The stated purpose of this bill this bill is establishing industrial water extraction fees. The bill places a penny fee on every gallon of water extracted for industrial use. The bill places an additional penny on every gallon of water that extracted for industrial use that is transported over the state roads. The bill requires measuring of water withdraws by a specific method. The bill defines terms and provides rule-making authority.
The proposed bill fails to define “industrial use” and “waters of the state.” The former could allow imposition of the fee on a broad number of business activities. Further, the bill does not define what is intended by the “cradle-to-grave monitoring system” to determine gallons withdrawn for industrial use. The language used in the proviso for the 1 cent fee on every gallon of water withdrawn from the waters of the state for industrial use: “that the withdrawn water is not intended to be returned to the hydrologic cycle,” is silent as to whom the “intent” applies.
There does not appear to be any provision in the bill for enforcement of the proposed statute. The bill also fails to provide penalties for failure to collect the proposed fees.
Using the term “fee” as opposed to “tax” could be considered a title defect and may lead to a Constitutional concern. The West Virginia Supreme Court of Appeals ruled in Cooper v. City of Charleston, 624 S.E.2d 716, 218 W. Va. 279 (WV 2005) that “[t]he primary purpose of a tax is to obtain revenue for the government, while the primary purpose of a fee is to cover the expense of providing a service or of regulation and supervision of certain activities.” The bill does not designate a particular service of activity for which the “water extraction fee” is to be spent.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov