FISCAL NOTE
FUND(S):
Division of Forestry Severance Tax Operations Fund, Workers Compensation Debt Reduction Fund
Sources of Revenue:
Other Fund see above
Legislation creates:
Neither Program nor Fund
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to increase the rate of tax paid on the privilege of severing timber and eliminating the exemptions allowing reductions from the tax while creating a means of collecting the tax. The bill also imposes criminal penalties.
Assuming that the various agencies are able to administer their tax collection responsibilities under this bill, the potential yield would be approximately $3.3 million to $5.0 million to the Division of Forestry Severance Tax Operations Fund annually. Due to the expected reduction in timber production from the additional tax, the Workers’ Compensation Debt Reduction Fund would lose approximately $100,000 to $300,000 annually. Due to the lack of an internal effective date these changes would apply to tax years beginning 90 days after the passage of the bill.
Additional administrative costs to the State Tax Department associated with this bill would be minimal. There would be additional administrative costs to the State Auditor’s Office and the Department of Weights and Measurements.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2008
Increase/Decrease
(use"-") |
2009
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
0 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
The stated purpose of this bill is to increase the rate of tax paid on the privilege of severing timber and eliminating the exemptions allowing reductions from the tax while creating a means of collecting the tax. The bill also imposes criminal penalties.
The provisions of this bill would increase the regular severance tax rate on timber for 1.22% to 5.0%. The additional Worker’s Compensation Severance Tax rate remains at 2.78% for a total tax rate of 7.78%. The bill also requires the first purchaser to withhold the tax from the timber owner, who is now designated to be the taxpayer. Non-payment of the tax becomes a criminal offense.
Assuming that the various agencies are able to administer their tax collection responsibilities under this bill, the potential yield would be approximately $3.3 million to $5.0 million to the Division of Forestry Severance Tax Operations Fund annually. Due to the expected reduction in timber production from the additional tax, the Workers’ Compensation Debt Reduction Fund would lose approximately $100,000 to $300,000 annually. Due to the lack of an internal effective date these changes would apply to tax years beginning 90 days after the passage of the bill.
Additional administrative costs to the State Tax Department associated with this bill would be minimal. There would be additional administrative costs to the State Auditor’s Office and the Department of Weights and Measurements.
Memorandum
The stated purpose of this bill is to increase the rate of tax paid on the privilege of severing timber and eliminating the exemptions allowing reductions from the tax while creating a means of collecting the tax. The bill also imposes criminal penalties.
The proposed legislation places the responsibility of paying the tax on the owner of the timber, and places on the purchaser the responsibility of withholding the tax. The tax collected is to be remitted quarterly.
These provisions may create some confusion over who is to actually pay. The proposed bill fails to take into account that the person harvesting the timber or hauling the timber to a mill may not be the “owner” of the timber. This confusion may extend to who is to be prosecuted for failure to pay the tax.
Subsection (e) of the proposed legislation provides that sawmills or processing plants receiving timber must evaluate the gross value prior to transport. West Virginia lacks jurisdiction over businesses located in other states. This may create problems in administration and enforcement.
The proposed bill places the burden of enforcement on the Department of Weights and Measures rather than the State Tax Department Compliance Division or Criminal Investigation Division, who already have authority to enforce the law. Further, the proposed bill creates severe criminal penalties for failure to pay over the proper amount of tax due. The Code already provides penalties for failure to pay taxes. The penalties in the proposed legislation are far more harsh than those currently provided by the Code for similar violations. The penalties and administration in the proposed legislation vary from existing provisions of the Code. These differences may create confusion and difficulties in administration.
Person submitting Fiscal Note: Mark Muchow
Email Address: kpetry@tax.state.wv.us