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 provide tax incentives to the first operational coal-to-liquid plant built in the state. The bill provides that the plant will be exempt from corporation income tax and the business franchise tax for four years from the date operations begin. The bill also provides that any holder of fifty percent or more in that plant or who supplies coal for the plant’s operations shall be exempt from the minimum severance tax for four years on the first fifteen thousand tons of coal. Additionally, the bill provides that the state is required to purchase all of gasoline and diesel fuel necessary to operate state vehicles from the plant for four years. The bill further provides that its provisions expire on June 30, 2019.
As written, only one coal-to-liquid plant (i.e., the first constructed to be capable of producing at least 30,000 barrels of liquid fuel per day) would qualify for the four-year exemption from the Corporation Net Income Tax and Business Franchise Tax. The bill also provides a four-year exemption from the Minimum Severance Tax on Coal, as levied via W. Va. Code 11-12B et al, to any company with at least a 50 percent ownership interest in the first qualifying plant and to any company that supplies the qualifying plant with coal, with the exemption applicable to the Minimum Severance Tax on Coal on the first 15,000 tons of coal per day supplied to the qualifying plant. According to our interpretation, passage of this bill would result in a minimal reduction in the State General Revenue Fund. The minimal revenue impact is based upon the following: an assumption that the first qualifying plant will likely not be immediately profitable and thus have little or no Corporation Net Income Tax liability subject to the four-year exemption; scheduled reductions in the Business Franchise Tax will greatly reduce the qualifying plant’s liability for the tax; and, current coal prices virtually eliminate the Minimum Severance Tax on Coal.
Additional administrative costs to the State Tax Department associated with this bill would be minimal. The Purchasing Division of the Department of Administration may incur additional administrative costs due to the requirement that the State purchase all of the gasoline and diesel fuel produced by the qualifying plant.
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):
As written, only one coal-to-liquid plant (i.e., the first constructed to be capable of producing at least 30,000 barrels of liquid fuel per day) would qualify for the four-year exemption from the Corporation Net Income Tax and Business Franchise Tax. The bill also provides a four-year exemption from the Minimum Severance Tax on Coal, as levied via W. Va. Code 11-12B et al, to any company with at least a 50 percent ownership interest in the first qualifying plant and to any company that supplies the qualifying plant with coal, with the exemption applicable to the Minimum Severance Tax on Coal on the first 15,000 tons of coal per day supplied to the qualifying plant. According to our interpretation, passage of this bill would result in a minimal reduction in the State General Revenue Fund. The minimal revenue impact is based upon the following: an assumption that the first qualifying plant will likely not be immediately profitable and thus have little or no Corporation Net Income Tax liability subject to the four-year exemption; scheduled reductions in the Business Franchise Tax will greatly reduce the qualifying plant’s liability for the tax; and, current coal prices virtually eliminate the Minimum Severance Tax on Coal.
Additional administrative costs to the State Tax Department associated with this bill would be minimal. The Purchasing Division of the Department of Administration may incur additional administrative costs due to the requirement that the State purchase all of the gasoline and diesel fuel produced by the qualifying plant.
Memorandum
The stated purpose of this bill is to provide tax incentives to the first operational coal-to-liquid plant built in the state. The bill provides that the plant will be exempt from corporation income tax and the business franchise tax for four years from the date operations begin. The bill also provides that any holder of fifty percent or more in that plant or who supplies coal for the plant’s operations shall be exempt from the minimum severance tax for four years on the first fifteen thousand tons of coal. Additionally, the bill provides that the state is required to purchase all of gasoline and diesel fuel necessary to operate state vehicles from the plant for four years. The bill further provides that its provisions expire on June 30, 2019.
As written, the bill limits the four-year exemption from the Corporation Net Income Tax and Business Franchise Tax to a single qualifying plant. Since subsequent coal-to-liquid plants would not be able to claim the exemption, the limitation to a single qualifying plant may be in violation of the West Virginia Constitution requirement for fair and equal taxation. Also, the bill does not provide any guidance on who is to determine whether or not a plant has satisfied the necessary requirements to be designated the first qualifying plant. One of the stated requirements is that the plant be capable of producing at least 30,000 barrels of liquid fuel per day. It does not appear that a potential qualifying plant must actually produce at least 30,000 barrels of liquid fuel per day.
Person submitting Fiscal Note: Mark Muchow
Email Address: kpetry@tax.state.wv.us