Date Requested:January 14, 2008
Time Requested:01:56 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2008R1498 Introduced SB216
CBD Subject: Eliminating Coalbed Methane Tax Exemption
FUND(S)
General Revenue Fund, Workers' Compensation Debt Reduction Fund, West Virginia Infrastructure Fund
Sources of Revenue
General Fund,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 make the taxation of natural gas and coalbed methane equal and uniform, to dedicate certain amounts of tax revenue to the West Virginia Infrastructure Fund, and to grandfather certain entitlements to the exemption previously applicable to coalbed methane production.
    
    As written, this bill would, for periods on and after January 1, 2008, subject coalbed methane and methane produced from or by a coalbed methane well to the identical severance taxes (i.e., the taxes imposed under W.Va. Code 11-13A et. al. and W.Va. Code 11-13V et. al.) as imposed on natural gas. The proposed bill also provides that all coalbed methane produced from any coalbed methane well placed in service prior to January 1, 2008 would be entitled to the remainder of the original five-year exemption for coalbed methane wells placed in service after January 1, 2000. Additionally, the proposed bill provides that a portion of annual Severance Tax collections are to be deposited into the West Virginia Infrastructure Fund beginning with up to $1 million in Fiscal Year 2009, up to $2 million in Fiscal Year 2010 and up to $4 million in each fiscal year thereafter. According to our interpretation, passage of this bill would have a minimal revenue impact on the General Revenue Fund and the Workers’ Compensation Debt Reduction Fund. The amounts to be dedicated to the West Virginia Infrastructure Fund, as stated above, will be funded through the additional revenue resulting from the elimination of the previous five-year exemption for coalbed methane.
    
    Additional administrative costs to the State Tax Department associated with this bill would be minimal.
    

Fiscal Note Detail
Over-all effect
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 1,000,000 4,500,000
3. Explanation of above estimates (including long-range effect):
    As written, this bill would, for periods on and after January 1, 2008, subject coalbed methane and methane produced from or by a coalbed methane well to the identical severance taxes (i.e., the taxes imposed under W.Va. Code 11-13A et. al. and W.Va. Code 11-13V et. al.) as imposed on natural gas. The proposed bill also provides that all coalbed methane produced from any coalbed methane well placed in service prior to January 1, 2008 would be entitled to the remainder of the original five-year exemption for coalbed methane wells placed in service after January 1, 2000. Additionally, the proposed bill provides that a portion of annual Severance Tax collections are to be deposited into the West Virginia Infrastructure Fund beginning with up to $1 million in Fiscal Year 2009, up to $2 million in Fiscal Year 2010 and up to $4 million in each fiscal year thereafter. According to our interpretation, passage of this bill would have a minimal revenue impact on the General Revenue Fund and the Workers’ Compensation Debt Reduction Fund. The amounts to be dedicated to the West Virginia Infrastructure Fund, as stated above, will be funded through the additional revenue resulting from the elimination of the previous five-year exemption for coalbed methane.
    
    According to available information from the Geological and Economic Survey, total coalbed methane production rose from 17.4 million Mcf in 2005 to 18.7 million Mcf in 2006. Production from low-volume wells and wells subject to the grandfathered 5-year exemption will remain exempt from tax. Under the provisions of this bill, the 5-year well exemption will end three years earlier than the 2011 expiration date under current law. Anticipated additional State General Revenue of as much as $4 million by 2011 will be transferred to a special revenue infrastructure account. Workers’ Compensation Severance Tax collections are anticipated to rise gradually to no more than $500,000 by FY2011. Any increase in revenue in comparison to current law will gradually dissipate after FY2011.
    
    Additional administrative costs to the State Tax Department associated with this bill would be minimal.
    


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kpetry@tax.state.wv.us