Date Requested:February 10, 2011
Time Requested:01:10 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2011R2569 Introduced HB3099
CBD Subject: MARCELLUS GAS AND MANUFACTURING DEVELOPMENT ACT
FUND(S)
General Revenue Fund, Local Government Funds, Marcellus Shale Permit Fund
Sources of Revenue
General Fund,Special Fund,Other Fund local government funds
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 enact the Marcellus Gas and Manufacturing Development Act of 2011 which encourages and facilitates the development of oil and gas wells and the downstream uses of natural gas in this state and economic development in this state associated with production and various downstream uses.
    
    As written, this bill contains provisions to revise the valuation, for Property Tax purposes, of oil and natural gas drilling rigs; to re-institute and revise the Alternative-Fuel Motor Vehicles Tax Credit; to create an Alternative-Fuel Infrastructure Tax Credit; to revise the special method for appraising qualified capital additions to manufacturing facilities to include business activities using the North American Industry Classification System code of 211112 (natural gas liquid extraction); to reduce the required additional investment from $50 million (with original investment of $100 million) to $10 million (with original investment of $20 million), and to exclude the value of land from the value of the capital addition; to provide for the reallocation of any Severance Tax on oil and gas in excess of $64.8 million (where 10 percent of the excess is distributed to counties and cities using an existing methodology, $2 million to special revenue account to be created and named “Marcellus Shale Permit Fund,” and the remaining balance is divided pro rata between the General Fund and the State Road Fund); to revise the Strategic Research and Development Tax Credit to indicate that “research and development” includes the equipment or the design of manufacturing processes before commercial sales relating thereto have begun; to revise the Manufacturing Investment Tax Credit definition of manufacturing to include business activities using the North American Industry Classification System code of 211112 (natural gas liquid extraction); to extend the authority of persons who perform contracting to use an exemption for the purchase of services, machinery, supplies or materials to be directly used or consumed in the construction alteration, repair or improvement of a new or existing natural gas compressor station or gas transmission line having a diameter of twenty inches or more, if the purchaser of the contracting services would be able to claim the exemption if it had purchased the services, machinery, supplies or materials, and, to revise the definition of “alternative energy resources” for purposes of the Alternative and Renewable Energy Portfolio Standard to include “any component of raw natural gas.”
    
    According to our interpretation, the proposal to revise the special method for appraising qualified capital additions to reduce the required additional investment to qualify will have little or no direct effect on Property Tax revenue. While there will be some Property Tax revenue foregone due to the reduced valuation for purposes of the Property Tax, the special method of appraisal would not reduce any tax derived from current sources. Based upon a simulation of recent capital additions at manufacturing facilities that would likely qualify for the special method of appraisal, the tax foregone was estimated to be less than $500,000. There will likely be other direct or indirect increases in tax revenue attributable to the new or expanded facility that may offset the tax revenue foregone.
    
    Also, according to our interpretation, the provision for the reallocation of any Severance Tax on oil and gas in excess of $64.8 million is forecast to have little or no effect on revenue in FY2012 since current prices for natural gas are falling and may provide funding for Marcellus Shale permit activities beginning in late FY2013 and modest funds for the State Road Fund. There is no guaranteed funding for the Marcellus Shale permit program or the State Road Fund for any future fiscal year up through FY2016. Determination of additional funding would occur very late in each fiscal year. Provisions related to tax credits for alternative fuel vehicles would result in some decrease in revenue. However, the Tax Department does not have sufficient data to accurately estimate such decline. Other provisions should generally have a minimal impact upon tax revenues.
    
    Additional administrative costs to the State Tax Department associated with passage of this bill would be minimal in most years. However, the reactivation of the credit also reactivates a reporting requirement contained in West Virginia Code §11-6D-8©. Additional costs associated with compiling information for the report would be approximately $30,000 in Fiscal Year 2021.

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 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
3. Explanation of above estimates (including long-range effect):
    As written, this bill contains provisions to revise the valuation, for Property Tax purposes, of oil and natural gas drilling rigs; to re-institute and revise the Alternative-Fuel Motor Vehicles Tax Credit; to create an Alternative-Fuel Infrastructure Tax Credit; to revise the special method for appraising qualified capital additions to manufacturing facilities to include business activities using the North American Industry Classification System code of 211112 (natural gas liquid extraction); to reduce the required additional investment from $50 million (with original investment of $100 million) to $10 million (with original investment of $20 million), and to exclude the value of land from the value of the capital addition; to provide for the reallocation of any Severance Tax on oil and gas in excess of $64.8 million (where 10 percent of the excess is distributed to counties and cities using an existing methodology, $2 million to special revenue account to be created and named “Marcellus Shale Permit Fund,” and the remaining balance is divided pro rata between the General Fund and the State Road Fund); to revise the Strategic Research and Development Tax Credit to indicate that “research and development” includes the equipment or the design of manufacturing processes before commercial sales relating thereto have begun; to revise the Manufacturing Investment Tax Credit definition of manufacturing to include business activities using the North American Industry Classification System code of 211112 (natural gas liquid extraction); to extend the authority of persons who perform contracting to use an exemption for the purchase of services, machinery, supplies or materials to be directly used or consumed in the construction alteration, repair or improvement of a new or existing natural gas compressor station or gas transmission line having a diameter of twenty inches or more, if the purchaser of the contracting services would be able to claim the exemption if it had purchased the services, machinery, supplies or materials, and, to revise the definition of “alternative energy resources” for purposes of the Alternative and Renewable Energy Portfolio Standard to include “any component of raw natural gas.”
    
    According to our interpretation, the proposal to revise the special method for appraising qualified capital additions to reduce the required additional investment to qualify will have little or no direct effect on Property Tax revenue. While there will be some Property Tax revenue foregone due to the reduced valuation for purposes of the Property Tax, the special method of appraisal would not reduce any tax derived from current sources. Based upon a simulation of recent capital additions at manufacturing facilities that would likely qualify for the special method of appraisal, the tax foregone was estimated to be less than $500,000. There will likely be other direct or indirect increases in tax revenue attributable to the new or expanded facility that may offset the tax revenue foregone.
    
    Also, according to our interpretation, the provision for the reallocation of any Severance Tax on oil and gas in excess of $64.8 million is forecast to have little or no effect on revenue in FY2012 since current prices for natural gas are falling and may provide funding for Marcellus Shale permit activities beginning in late FY2013 and modest funds for the State Road Fund. There is no guaranteed funding for the Marcellus Shale permit program or the State Road Fund for any future fiscal year up through FY2016. Determination of additional funding would occur very late in each fiscal year. Provisions related to tax credits for alternative fuel vehicles would result in some decrease in revenue. However, the Tax Department does not have sufficient data to accurately estimate such decline. Other provisions should generally have a minimal impact upon tax revenues.
    
    Additional administrative costs to the State Tax Department associated with passage of this bill would be minimal in most years. However, the reactivation of the credit also reactivates a reporting requirement contained in West Virginia Code §11-6D-8©. Additional costs associated with compiling information for the report would be approximately $30,000 in Fiscal Year 2021.


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kerri.r.petry@wv.gov
    The stated purpose of this bill is to enact the Marcellus Gas and Manufacturing Development Act of 2011 which encourages and facilitates the development of oil and gas wells and the downstream uses of natural gas in this state and economic development in this state associated with production and various downstream uses.
    
    The bill, as written, revises the definition of “alternate fuel’ for purposes of the Alternative Fuel Motor Vehicle Tax Credit by eliminating some fuels in the current (but expired) statute and by adding other fuels. The bill definition, as revised, will be different then the definition of “alternate fuel’ used by the U.S. Department of Energy.