FISCAL NOTE
Date Requested: January 21, 2019
Time Requested: 01:42 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1764 |
Introduced |
HB2568 |
|
|---|
| CBD Subject: |
Energy |
|---|
|
FUND(S):
General Revenue Fund, OIl & Gas County Revenue Fund, All Counties & Municipalities Oil & Gas Revenue Fund
Sources of Revenue:
General Fund Oil & Gas County Revenue Fund, All Counties & Municipalities Oil & Gas Revenue Fund
Legislation creates:
Increases Revenue From Existing Sources, Increases Existing Expenses
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of the bill is to increase the tax on the privilege of severing natural gas and oil from 5 percent to 10 percent.
Increasing the Severance Tax on natural gas and oil from 5 percent to 10 percent would initially result in a revenue increase of more than $200 million per year. Currently 10 percent of the severance tax attributable to severance of oil and gas is dedicated for the use and benefit of the counties and municipalities in this State. Revenues for counties and associated municipalities would increase by roughly $20 million or more per year beginning as early as FY2022. Given the lack of an internal effective date, we assume that these proposed tax changes would first become effective as of January 1, 2020. FY2020 General revenues would increase by roughly $80 million if the effective date is January 1, 2020.
Additional administrative costs to the Tax Department would be $25,000 in FY2019, $65,000 in FY2020 and $10,000 in subsequent fiscal years.
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 |
25,000 |
65,000 |
10,000 |
| Personal Services |
0 |
40,000 |
10,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
25,000 |
25,000 |
0 |
| 2. Estimated Total Revenues |
0 |
80,000,000 |
200,000,000 |
Explanation of above estimates (including long-range effect):
Increasing the Severance Tax on natural gas and oil from 5 percent to 10 percent would initially result in a revenue increase of more than $200 million per year. Currently 10 percent of the severance tax attributable to severance of oil and gas is dedicated for the use and benefit of the counties and municipalities in this State. Revenues for counties and associated municipalities would increase by roughly $20 million or more per year beginning as early as FY2022. Given the lack of an internal effective date, we assume that these proposed tax changes would first become effective as of January 1, 2020. FY2020 General revenues would increase by roughly $80 million if the effective date is January 1, 2020. The magnitude of the proposed Severance Tax increase might result in lower growth of future gas well activity with some longer-term economic losses for the State.
Additional administrative costs to the Tax Department would be $25,000 in FY2019, $65,000 in FY2020 and $10,000 in subsequent fiscal years
Memorandum
The stated purpose of the bill is to increase the tax on the privilege of severing natural gas and oil from 5 percent to 10 percent.
The bill does not have an internal effective date for the change pursuant to W.Va. Code §11-10-5p. Therefore, any rate change will first apply to taxpayers for taxable years beginning after the effective date of the bill. This may cause some issues because some severance taxpayers file their annual return on a calendar year while others file their annual returns on a fiscal year. As result some taxpayers may have an increased rate to apply to them earlier than other taxpayers. This may also cause administrative and programming issues for the Tax Department. It would be cleaner if there is an internal effective date for the change.
It is also possible that a taxpayer may raise an equal protection argument under Section 10 of Article III of the West Virginia Constitution because this bill raises the Severance Tax rate under W.Va. Code §11-13A-3a but does not raise the rate on coalbed methane under W.Va. Code §11-13A-13d. Coalbed methane stays at the 5 percent rate under this bill. The state legislature “may make reasonable classifications in enacting statues provided the classifications are based on real and substantial relation to the objects sought to be accomplished by the legislation, and any person who assails any such classification has the burden of showing that if is essentially arbitrary and unreasonable.’ Sylb. Pt. 5, United Fuel Gas Co. v. Battle, 153 W.Va. 222, 167 S.E.2d 890 (1969). Therefore, there must be some basis for placing an increased tax on natural gas extracted from drilling wells and not on the natural gas extracted from coal drilling. Also, the rate of natural gas and oil would be double the rate of the most other natural resources under the statute.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov