Date Requested:February 13, 2012
Time Requested:01:29 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2012R2081 Introduced HB4473
CBD Subject: NATURAL GAS SEVERANCE TAX PROCEEDS
FUND(S)
General Revenue Fund, Surplus Natural Gas Severance Tax Fund
Sources of Revenue
General Fund,Special Fund
Legislation creates:
A New Fund

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

     The stated purpose of this bill is to dedicate a portion of natural gas severance tax proceeds. The bill redirects a portion of natural gas severance tax revenues from the Surplus Natural Gas Severance Tax Fund to county assessors of each county. The bill sets forth amounts of deposits and distributions. The bill requires funds redirected to county assessors to be applied to reduce the personal property tax rate applied to certain personal property held or used for commercial use.
    
     As written, this bill provides that for fiscal years beginning on or after July 1, 2013 Severance Tax collections attributable to natural gas in excess of $60 million are to be deposited into a newly created fund named the Surplus Natural Gas Severance Tax Fund. Additionally, the bill provides that contingent upon the passage of a Constitutional Amendment approving the elimination of the Property Tax on inventory and equipment held for commercial use, the State Treasurer is directed to distribute the balance of funds in the Surplus Natural Gas Severance Tax Fund to county commissions in proportion to the levy upon Class III and Class IV personal property held for ongoing commercial use. The distribution to a county may only occur if the county had an increase of less than 25 percent in the total assessed value of the Class III and Class IV personal property held for commercial use compared to the preceding year. Absent the Constitutional Amendment, the bill provides that up to 50 percent of each fiscal year’s surplus may be appropriated by the Legislature for the purpose of tax reduction for the benefit of the citizens of the State.
     According to our interpretation of this bill, passage of this bill will redirect roughly $44.3 million per year to the Surplus Natural Gas Severance Tax Fund beginning in FY2014. The redirection to the Surplus Natural Gas Severance Tax Fund will reduce deposits to the General Revenue Fund by the same amount (i.e., $44.3 million). Since the Severance Tax on natural gas is subject to a high degree of volatility due to rapid increases in production from the Marcellus Shale and to likely continuing price declines, the annual amount of revenue redirected from the General Revenue Fund to the Surplus Natural Gas Severance Tax Fund could vary significantly from year to year.
    
     Additional administrative costs for the State Tax Department would be $20,000. The State Treasurer may incur additional administrative costs due to passage of this bill.
    
    

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 -44,300,000
3. Explanation of above estimates (including long-range effect):
     As written, this bill provides that for fiscal years beginning on or after July 1, 2013 Severance Tax collections attributable to natural gas in excess of $60 million are to be deposited into a newly created fund named the Surplus Natural Gas Severance Tax Fund. Additionally, the bill provides that contingent upon the passage of a Constitutional Amendment approving the elimination of the Property Tax on inventory and equipment held for commercial use, the State Treasurer is directed to distribute the balance of funds in the Surplus Natural Gas Severance Tax Fund to county commissions in proportion to the levy upon Class III and Class IV personal property held for ongoing commercial use. The distribution to a county may only occur if the county had an increase of less than 25 percent in the total assessed value of the Class III and Class IV personal property held for commercial use compared to the preceding year. Absent the Constitutional Amendment, the bill provides that up to 50 percent of each fiscal year’s surplus may be appropriated by the Legislature for the purpose of tax reduction for the benefit of the citizens of the State.
     According to our interpretation of this bill, passage of this bill will redirect roughly $44.3 million per year to the Surplus Natural Gas Severance Tax Fund beginning in FY2014. The redirection to the Surplus Natural Gas Severance Tax Fund will reduce deposits to the General Revenue Fund by the same amount (i.e., $44.3 million). Since the Severance Tax on natural gas is subject to a high degree of volatility due to rapid increases in production from the Marcellus Shale and to likely continuing price declines, the annual amount of revenue redirected from the General Revenue Fund to the Surplus Natural Gas Severance Tax Fund could vary significantly from year to year.
    
     Additional administrative costs for the State Tax Department would be $20,000. The State Treasurer may incur additional administrative costs due to passage of this bill.
    


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kerri.r.petry@wv.gov
     The stated purpose of this bill is to dedicate a portion of natural gas severance tax proceeds. The bill redirects a portion of natural gas severance tax revenues from the Surplus Natural Gas Severance Tax Fund to county assessors of each county. The bill sets forth amounts of deposits and distributions. The bill requires funds redirected to county assessors to be applied to reduce the personal property tax rate applied to certain personal property held or used for commercial use.
    
     While the bill’s title and the bill’s stated purpose above indicate funds are to be directed to county assessors, no such reference could be found in the body of the bill.
    
     As written, the bill proposes to amend W. Va. Code §11-13A-20a by adding a new dedication “from the total annual collections for the privilege of engaging in or continuing within this state in the business of severing natural gas for sale, profit or commercial use the extraction of natural gas . . .” Both W. Va. Code §11-13A-3a and W. Va. Code §11-13V-4(b) contain similar wording in regards to the imposition of the tax on natural gas. Absent a specific reference in the new dedication language to the W. Va. Code §11-13A-3a tax, the bill could be subject to a broader interpretation than intended.