FISCAL NOTE
Date Requested: February 10, 2020
Time Requested: 10:25 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3045 |
Introduced |
SB731 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing 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 is to limit the two percent tax break on steam coal to the first six million tons of production per operator per year.
According to our interpretation, passage of this bill attempts to retroactively limit the application of preferable tax rates for certain steam coal production to only the first six million tons of annual production by an operator. Presumably, any production in excess of six million tons would be taxed at a higher rate of 5.0 percent. However, the proposed change might also be interpreted to eliminate tax on production in excess of six million tons each year. Taxpayer behavior might significantly reduce these results. The term operator is not defined. Enactment of this bill would have minimal long-term impact on tax collections because only a couple mines in the State have annual production in excess of six million tons, and qualifying steam coal production is declining over time. As written, the proposed change may increase State General Revenue by up to $3 million in FY2020 and by less than $10 million by FY2023 if current output levels are maintained for affected mines.
Additional administrative costs to the Tax Department would be approximately $5,000 in FY2020, $15,000 in FY2021 and $5,000 in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2020
Increase/Decrease
(use"-") |
2021
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
5,000 |
15,000 |
5,000 |
| Personal Services |
5,000 |
5,000 |
5,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
10,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation, passage of this bill attempts to retroactively limit the application of preferable tax rates for certain steam coal production to only the first six million tons of annual production by an operator. Presumably, any production in excess of six million tons would be taxed at a higher rate of 5.0 percent. However, the proposed change might also be interpreted to eliminate tax on production in excess of six million tons each year. Taxpayer behavior might significantly reduce these results. The term operator is not defined. Enactment of this bill would have minimal long-term impact on tax collections because only a couple mines in the State have annual production in excess of six million tons, and qualifying steam coal production is declining over time. As written, the proposed change may increase State General Revenue by up to $3 million in FY2020 and by less than $10 million by FY2023 if current output levels are maintained for affected mines.
Additional administrative costs to the Tax Department would be approximately $5,000 in FY2020, $15,000 in FY2021 and $5,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to limit the two percent tax break on steam coal to the first six million tons of production per operator per year.
Although the language of the bill appears to infer that the any amount of steam coal over 6 million tons would not be eligible to receive the incremental reduction of the severance tax , language explicitly stating so would be preferable. The bill as drafted could be aggressively interpreted to mean that production above six million tons goes untaxed.
The bill does not define “operator” which might be problematic in determining the entity entitled to the reduction of the rate. A review of 110 CSR 13A, §5.1, Severance Tax, reveals that “operator” is defined for purposes of oil and gas production.
The provisions of this bill are retroactive to July 1, 2019.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov