Date Requested:January 31, 2011
Time Requested:01:48 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2011R2323 Introduced SB353
CBD Subject: MARCELLUS SHALE
FUND(S)
General Revenue Fund, Other
Sources of Revenue
General Fund,Other Fund unspecified
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 tax on gas severed from Marcellus Shale or by fracturing if sold or transported out of the state to 10 percent. The bill provides for disposition of the increased taxes collected:(1) One percent of the taxes collected to local county economic development; (2) one percent for water and sewer; (3) two percent for roads and bridges; and (4) one percent for other post-employment benefits (OPEB) debt.
    
    As written, this bill creates a new tax on natural gas from Marcellus Shale that is sold or transported out of West Virginia. According to our interpretation, the new tax of 10 percent created via proposed West Virginia Code §11-13A-3a(f) would be in addition to the 5 percent tax levied via West Virginia Code §11-13A-3a(b). Based upon available data from recent years, the additional tax may yield roughly $20 million to $40 million in the initial year. The high volatility of natural gas prices and the potential for increased utilization could result in dramatic increases or decreases in the annual tax yield. The bill provides for the dedication of the new tax revenue as follows:
    
    Local County Economic Development 10% $ 2 million to $ 4 million
    Water and Sewer 10% $ 2 million to $ 4 million
    Roads and Bridges 20% $ 4 million to $ 8 million
    Post-Employment Benefits 10% $ 2 million to $ 4 million
    General Revenue Fund 50% $10 million to $20 million
    
    The State Tax Department will incur one-time additional administrative costs of roughly $160,000 associated with passage of this bill.
    

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2011
Increase/Decrease
(use"-")
2012
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 160,000 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 160,000 0
2. Estimated Total Revenues 0 0 0
3. Explanation of above estimates (including long-range effect):
    As written, this bill creates a new tax on natural gas from Marcellus Shale that is sold or transported out of West Virginia. According to our interpretation, the new tax of 10 percent created via proposed West Virginia Code §11-13A-3a(f) would be in addition to the 5 percent tax levied via West Virginia Code §11-13A-3a(b). Based upon available data from recent years, the additional tax may yield roughly $20 million to $40 million in the initial year. The high volatility of natural gas prices and the potential for increased utilization could result in dramatic increases or decreases in the annual tax yield. The bill provides for the dedication of the new tax revenue as follows:
    
    Local County Economic Development 10% $ 2 million to $ 4 million
    Water and Sewer 10% $ 2 million to $ 4 million
    Roads and Bridges 20% $ 4 million to $ 8 million
    Post-Employment Benefits 10% $ 2 million to $ 4 million
    General Revenue Fund 50% $10 million to $20 million
    
    The State Tax Department will incur one-time additional administrative costs of roughly $160,000 associated with passage of this bill. The additional costs would be attributable to tax form revisions, computer program changes, and the notification of affected Taxpayers.


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kerri.r.petry@wv.gov
    The stated purpose of this bill is to increase the tax on gas severed from Marcellus Shale or by fracturing if sold or transported out of the state to 10 percent. The bill provides for disposition of the increased taxes collected:(1) One percent of the taxes collected to local county economic development; (2) one percent for water and sewer; (3) two percent for roads and bridges; and (4) one percent for other post-employment benefits (OPEB) debt.
    
    As written, this bill would levy a new tax on Marcellus Shale natural gas that is sold or transported out of the State. Since the tax treats natural gas going out of state differently than the natural gas used in the state, the new tax would seem to unconstitutionally burden interstate commerce.
    
    The bill may present administrative challenges for both the Taxpayers and the State Tax Department. The point of taxation of the natural gas subject to the new tax would likely be at the point of sales. Since natural gas producers often sell their natural gas to other businesses with transmission capabilities, the producer would generally not know which gas is sold or used in-state versus the gas that is sold or transported out of state.
    
    The bill also provides for the dedication of the new tax proceeds as follows:
    
    Local County Economic Development 10%
    Water and Sewer 10%
    Roads and Bridges 20%
    Post-Employment Benefits 10%
    General Revenue Fund 50%
    
    However, the bill neither referenced any specific funds, other than the General Revenue Fund, nor provided any additional guidance on how the distribution should be administered. For example, it is unclear whether the funds for “Local County Economic Development” are to be distributed based upon some pro-rated formula or based upon a distribution of equal amounts. Also, the references to “Water and Sewer” and “Roads and Bridges” do not indicate whether the intent is for local use or state-wide development.