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 clarify the taxation of natural gas and oil; to set the rate of tax; to require the first purchaser of natural gas or oil to collect and remit the severance tax; to phase out an annual tax credit; to set forth bonding requirements; and to specify that the severor (or severor and processor) of natural gas or oil is liable for the severance tax. As indicated in the stated purpose, this bill makes a number of changes related to the taxation of natural gas and oil. As written, the bill reduces the tax rate on natural gas and oil from 5 percent to 4.75 percent for tax years beginning on or after January 1, 2010, and to 4.5 percent for tax years beginning on or after January 1, 2011. Effective January 1, 2011,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. 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. The bill also provides for the phase out of the annual credit by reducing the $500 credit to $250 for tax years beginning on or after January 1, 2010 and totally eliminating the credit for tax years beginning on or after January 1, 2011. In addition to the items mentioned in the stated purpose, this bill essentially replaces per se exemptions for low volume natural gas and oil wells and for wells that have not produced marketable quantities for five consecutive years immediately preceding the year the well was placed back in service with a requirement that the producer beginning on or after January 1, 2011 first pay the tax and then at the end of the year apply for a refund. As written, the bill contains some provisions that, if viewed in isolation, would result in a reduction in revenue and some provisions that, if viewed in isolation, would result in an increase in revenue. However, due to opportunities for improved efficiency in administration of the tax, the net effect of the various provisions will result in only a minimal change in revenue. Additional administrative costs to the State Tax Department associated with passage of this bill would be minimal.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2009
Increase/Decrease
(use"-")
2010
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 would make number of changes related to the taxation of natural gas and oil. As written, the bill reduces the tax rate on natural gas and oil from 5 percent to 4.75 percent for tax years beginning on or after January 1, 2010, and to 4.5 percent for tax years beginning on or after January 1, 2011. Effective January 1, 2011,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. 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. The bill also provides for the phase out of the annual credit by reducing the $500 credit to $250 for tax years beginning on or after January 1, 2010 and totally eliminating the credit for tax years beginning on or after January 1, 2011. In addition to the items mentioned in the stated purpose, this bill essentially replaces per se exemptions for low volume natural gas and oil wells and for wells that have not produced marketable quantities for five consecutive years immediately preceding the year the well was placed back in service with a requirement that the producer beginning on or after January 1, 2011 first pay the tax and then at the end of the year apply for a refund. As written, the bill contains some provisions that, if viewed in isolation, would result in a reduction in revenue and some provisions that, if viewed in isolation, would result in an increase in revenue. However, due to opportunities for improved efficiency in administration of the tax, the net effect of the various provisions will result in only a minimal change in revenue. Additional administrative costs to the State Tax Department associated with passage of this bill would be minimal.



Memorandum






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