Date Requested:January 17, 2012
Time Requested:12:35 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2012R1548 Introduced SB206
CBD Subject: CAPITAL ADDITION TO A MANUFACTURING FACILITY
FUND(S)
General Revenue Fund, local government funds
Sources of Revenue
General 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 extend the special valuation of certified capital addition property to include certain significant initial investment in certain manufacturing facilities, without the qualifying requirement of preexisting investment, and to enlarge the time over which that special valuation applies from 10 years to 25 years.
    
    As written, this bill provides that capital additions to manufacturing facilities by entities whose business activities are classified under North American Industry Classification System (NAICS) code 211112 (natural gas liquid extraction) or capital additions at manufacturing facilities that use one or more products produced at a facility with NAICS code 211112 with a combined investment in excess of $2 billion are eligible for the special method for appraising qualified capital additions to manufacturing facilities. The bill also provides that the special method for appraising qualified capital additions to manufacturing facilities for facilities whose combined original cost exceeds $2 billion is available for 25 years. The proposed change extends the period of salvage treatment on a certified capital addition from the 10-year period first established in 1997 to 25 years for certain qualified manufacturing investments in excess of $2 billion. Such investment would also no longer be required to be added to an existing facility in the State. West Virginia is competing with Ohio and Pennsylvania for a natural gas liquid extraction manufacturing facility. Neither Ohio nor Pennsylvania impose local property taxes on manufacturing machinery and equipment. However, local property taxes are imposed on manufacturing machinery and equipment by the State Constitution in West Virginia.
    
    According to our interpretation, the proposed changes to the special method for appraising qualified capital additions will have little or no direct effect on Property Tax revenue because manufacturing capital investments exceeding $2 billion in a single facility rarely, if ever, occur in West Virginia. While there could 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. With the proposed changes to the special method for appraising qualified capital additions to manufacturing facilities, a $2 billion investment in capital, including buildings, machinery and equipment, would produce roughly $1.5 million in new direct Property Taxes each year. In addition, there will likely be other direct or indirect increases in tax revenue attributable to the new or expanded facility that would result in the creation of thousands of new jobs that may offset the tax revenue foregone.
    
    Additional administrative costs for the State Tax Department attributable of this bill would be minimal.

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2012
Increase/Decrease
(use"-")
2013
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 provides that capital additions to manufacturing facilities by entities whose business activities are classified under North American Industry Classification System (NAICS) code 211112 (natural gas liquid extraction) or capital additions at manufacturing facilities that use one or more products produced at a facility with NAICS code 211112 with a combined investment in excess of $2 billion are eligible for the special method for appraising qualified capital additions to manufacturing facilities. The bill also provides that the special method for appraising qualified capital additions to manufacturing facilities for facilities whose combined original cost exceeds $2 billion is available for 25 years. The proposed change extends the period of salvage treatment on a certified capital addition from the 10-year period first established in 1997 to 25 years for certain qualified manufacturing investments in excess of $2 billion. Such investment would also no longer be required to be added to an existing facility in the State. West Virginia is competing with Ohio and Pennsylvania for a natural gas liquid extraction manufacturing facility. Neither Ohio nor Pennsylvania impose local property taxes on manufacturing machinery and equipment. However, local property taxes are imposed on manufacturing machinery and equipment by the State Constitution in West Virginia.
    
    According to our interpretation, the proposed changes to the special method for appraising qualified capital additions will have little or no direct effect on Property Tax revenue because manufacturing capital investments exceeding $2 billion in a single facility rarely, if ever, occur in West Virginia. While there could 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. With the proposed changes to the special method for appraising qualified capital additions to manufacturing facilities, a $2 billion investment in capital, including buildings, machinery and equipment, would produce roughly $1.5 million in new direct Property Taxes each year. In addition, there will likely be other direct or indirect increases in tax revenue attributable to the new or expanded facility that would result in the creation of thousands of new jobs that may offset the tax revenue foregone.
    
    Additional administrative costs for the State Tax Department attributable of this bill would be minimal.
    


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kerri.r.petry@wv.gov