FISCAL NOTE
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
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 simplify the taxation and clarify the regulation and treatment under the law of the production, marketing and delivery of natural gas and oil.
As written this bill, effective January 1, 2008, makes the first person to purchase natural gas or oil after it has been severed (or after it has been severed and processed if the processing occurs before the first sale) liable for collection, from the person severing (or severing and processing) natural gas or oil, of the taxes levied on natural gas or oil via W. Va. Code §§11-13A et al and 11-13V et al. The first purchaser is then responsible for remitting the collected tax to the State Tax Commissioner. The bill provides for a number of exceptions to the requirement that the first purchaser collect the tax from the severer including the presentation by the severer of a valid direct severance payment authorization number and direct sales from the severer to the ultimate consumer. In the event of the exceptions to the first purchaser collecting the tax, the liability for the tax and the requirement to remit the tax to the State Tax Commissioner reverts to the severer.
According to our interpretation, passage of this bill may result in slight increases in the General Revenue Fund and in the Workers’ Compensation Debt Reduction Fund due to the potential for increased compliance with the tax.
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):
Passage of this bill, makes the first person to purchase natural gas or oil after it has been severed (or after it has been severed and processed if the processing occurs before the first sale) liable for collection, from the person severing (or severing and processing) natural gas or oil, of the taxes levied on natural gas or oil via W. Va. Code §§11-13A et al and 11-13V et al, effective January 1, 2008. The first purchaser is then responsible for remitting the collected tax to the State Tax Commissioner. The bill provides for a number of exceptions to the requirement that the first purchaser collect the tax from the severer including the presentation by the severer of a valid direct severance payment authorization number and direct sales from the severer to the ultimate consumer. In the event of the exceptions to the first purchaser collecting the tax, the liability for the tax and the requirement to remit the tax to the State Tax Commissioner reverts to the severer.
According to our interpretation, passage of this bill may result in slight increases in the General Revenue Fund and in the Workers’ Compensation Debt Reduction Fund due to the potential for increased compliance with the tax.
Additional administrative costs to the State Tax Department associated with passage of this bill would be minimal.
Memorandum
The stated purpose of this bill is to simplify the taxation and clarify the regulation and treatment under the law of the production, marketing and delivery of natural gas and oil.
The bill, as written, proposes changes, effective January 1, 2008, requiring purchasers of natural gas or oil to withhold tax. Since the proposed effective date has already elapsed, it is unclear what effect this would have on the required changes. Additionally, the bill indicates that “the person severing the natural gas or oil is the taxpayer . . .” Since there are a number of tax credits, including an annual credit of up to $500 for each taxpayer, that may offset the Severance Tax levied by W. Va. Code §11-13A, it is unclear if the tax collected by the first purchaser would include allowances for the tax credits. The statutory requirement that the State Tax Commissioner report on certain tax credits that may be claimed by a severer of natural gas or oil may become extremely complicated. Also, the bill refers to a “direct severance payment authorization number” but does not provided any guideline concerning the requirements for such an authorization number or who would issue the number.
Person submitting Fiscal Note: Mark Muchow
Email Address: kpetry@tax.state.wv.us