Date Requested:February 16, 2005
Time Requested:05:01 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2005R102 Intro HB2407
CBD Subject: Business Tax Credit for Coal Powered Gen
FUND(S)
General Revenue Fund
Sources of Revenue
General Fund
Legislation creates:
A New Program

Fiscal Note Summary

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

    The stated purpose of this bill is to provide a business and occupation tax credit to electric power generators for the use of each ton of coal mined in West Virginia by “small mining operations.”
    
    As written, this bill provides a credit to any corporation generating electricity for application against the taxpayer’s liability under West Virginia Code §11-13-2m. However, this section of the Code is no longer applicable to operators of electric power plants. Thus, as written, there would be no revenue impact attributable to passage of this bill.
    
    Assuming that the bill would be amended to apply to the tax liability of electric power producers as levied under West Virginia Code §11-13-2o and based upon available data and our interpretation, passage of an amended bill would possibly reduce General Revenue Fund collections by approximately $11 million in Fiscal Year 2006 and by approximately $7.7 million per year for each year thereafter. The bill would provide a $3 per ton tax credit to foreign and domestic coal-fired generators who consume West Virginia coal from qualified small mining operations. A small mining operation annually produces less than 300,000 tons of coal from all locations. According to available information, approximately 4 million tons of annual coal production comes from operators who produce less than 300,000 tons from all locations. The small mining operation provision effectively caps the maximum possible tax credit to less than $12 million per year. However, other factors would likely result in lower credit utilization.
    
    The West Virginia electric power generation industry annually consumes more than 20 million tons of West Virginia coal and pays more than $150 million in business and occupation tax. In addition, electric power generators in other states annually consume another 80 million tons of West Virginia coal.
    
    Additional administrative costs to the Tax Department would be minimal.

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2005
Increase/Decrease
(use"-")
2006
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 4,000 0 0
Personal Services 0 0 0
Current Expenses 4,000 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 -11,000,000 -7,700,000
3. Explanation of above estimates (including long-range effect):
    The bill would provide a business and occupation tax credit to electric power generators for the use of each ton of coal mined in West Virginia by “small mining operations.”
    
    As written, this bill provides a credit to any corporation generating electricity for application against the taxpayer’s liability under West Virginia Code §11-13-2m. However, this section of the Code is no longer applicable to operators of electric power plants. Thus, as written, there would be no revenue impact attributable to passage of this bill.
    
    Assuming that the bill would be amended to apply to the tax liability of electric power producers as levied under West Virginia Code §11-13-2o and based upon available data and our interpretation, passage of an amended bill would possibly reduce General Revenue Fund collections by approximately $11 million in Fiscal Year 2006 and by approximately $7.7 million per year for each year thereafter. The bill would provide a $3 per ton tax credit to foreign and domestic coal-fired generators who consume West Virginia coal from qualified small mining operations. A small mining operation annually produces less than 300,000 tons of coal from all locations. According to available information, approximately 4 million tons of annual coal production comes from operators who produce less than 300,000 tons from all locations. The small mining operation provision effectively caps the maximum possible tax credit to less than $12 million per year. However, other factors would likely result in lower credit utilization.
    
    The West Virginia electric power generation industry annually consumes more than 20 million tons of West Virginia coal and pays more than $150 million in business and occupation tax. In addition, electric power generators in other states annually consume another 80 million tons of West Virginia coal.
    
    Additional administrative costs to the Tax Department would be minimal.


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kpetry@tax.state.wv.us
    The stated purpose of this bill is to provide a business and occupation tax credit to electric power generators for the use of each ton of coal mined in West Virginia by “small mining operations.”
    
    The bill contains a definition of “small mining operation.” Although the definition makes provision for rules to be promulgated to determine whether an operation qualifies, the bill fails to specify what division will be in charge of creating those rules. Furthermore, the bill does not specify exactly what rules will be promulgated and how they will be enforced.
    
    The bill fails to establish how a corporation generating electricity will determine whether the coal it uses is from a small mining operation. The bill also does not establish how the operator of a small mining operation will determine whether its production levels will satisfy the production level set for a small mining operation. Additionally, it is unclear when that operator is to make that determination.
    
    Proposed West Virginia Code section §11-13H-5 states “any corporation generating electricity shall be allowed a credit against its liability for tax under section two-m, article thirteen of this chapter.” West Virginia Code section §11-13-2m no longer applies to electric power producers. Thus, as the bill is currently written, no taxpayer would be eligible to claim the proposed credit.