Date Requested:February 20, 2012
Time Requested:01:46 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2012R2292 Introduced HB4632
CBD Subject: ENERGY INTENSIVE INDUSTRIAL CONSUMERS
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 create the Energy Intensive Industrial Consumers Revitalization Tax Credit Act. The bill establishes tax credits for suppliers of coal to certain electric utilities who are subject to the coal severance tax. The bill makes legislative findings. The bill establishes a $40 million limit on the tax credits. The bill sets forth when the tax credits may be taken. The bill sets forth how the tax credits are calculated and allocated. The bill requires that in order to take the tax credit the taxpayer must make a payment equal to ninety-seven percent of the credit to the utility that provides the electric power to the special rate customer. The bill establishes that the tax credit expires in ten years from the date it becomes effective. The bill grants the Public Service Commission certain authority concerning special rates. The bill also requires information on special rates in the Public Service Commission’s annual report.
    
    As written, this bill would create the “Energy Intensive Industrial Consumers Revitalization Tax Credit.” The bill provides that the tax credit is to be determined by the Public Service Commission and would be available to taxpayers subject to the full 5 percent Severance Tax on coal who supply coal to a West Virginia electric utility providing a special rate to one or more eligible energy intensive industrial consumers of electric power. The total amount of credit would be limited to $40 million in any calendar year with the amount of credit available to an individual taxpayer could not exceed 93 percent of the taxpayer’s liability for the full 5 percent Severance Tax on coal. The bill also provides that if the full amount of the $40 million of authorized credits is not allocated and claimed in any calendar year, thus unused credits may be carried forward to future years, however, the total amount of credits allocated and claimed in any single year may not exceed $55 million. Additionally, the bill provides, that if any taxpayer receiving an allocation of credit cannot use or does not claim the credit, the credit may be allocated to other qualifying taxpayers. The taxpayer receiving the Energy Intensive Industrial Consumers Revitalization Tax Credit would, as a condition for receiving the credit, make payment of 97 percent of the credit amount to the public utility providing electric power to the special rate customer. The bill provides for the expiration of the newly created article providing for the credit ten years form the effective date of the article. Also, the bill also establishes minimum employment levels for the energy intensive industrial consumer to receive the special electric power rates.
    
    According to our interpretation, a portion of the proposed tax credits may be recouped by additional State tax collections associated with expanded industrial operations of the tax subsidized energy intensive industrial consumer. The payback level would vary depending upon the unique characteristics of the subsidized industrial consumer. However, assuming that the expanded industrial operations result in roughly $20 million of additional tax collections, passage of this bill could result in a net annual reduction in General Revenue Fund taxes of up to $20 million or more ($40 million of tax credits offset by $20 million of additional State and local tax revenue.) A small portion of the Severance Tax reduction would be shared with coal-producing counties who receive 1% to 5% of net State Coal Severance Tax beginning in FY2013. However, such a reduction may also be offset by higher local property taxes and Severance Taxes associated with greater coal production.
    
    Due to the need to track each taxpayer’s use or non-use of the allocated credits to determine if unused credits are to be allocated to another taxpayer, additional administrative costs to the State Tax Department associated with passage of this bill could be of some significance. The Public Service Commission 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 -40,000,000 -40,000,000
3. Explanation of above estimates (including long-range effect):
    As written, this bill would create the “Energy Intensive Industrial Consumers Revitalization Tax Credit.” The bill provides that the tax credit is to be determined by the Public Service Commission and would be available to taxpayers subject to the full 5 percent Severance Tax on coal who supply coal to a West Virginia electric utility providing a special rate to one or more eligible energy intensive industrial consumers of electric power. The total amount of credit would be limited to $40 million in any calendar year with the amount of credit available to an individual taxpayer could not exceed 93 percent of the taxpayer’s liability for the full 5 percent Severance Tax on coal. The bill also provides that if the full amount of the $40 million of authorized credits is not allocated and claimed in any calendar year, thus unused credits may be carried forward to future years, however, the total amount of credits allocated and claimed in any single year may not exceed $55 million. Additionally, the bill provides, that if any taxpayer receiving an allocation of credit cannot use or does not claim the credit, the credit may be allocated to other qualifying taxpayers. The taxpayer receiving the Energy Intensive Industrial Consumers Revitalization Tax Credit would, as a condition for receiving the credit, make payment of 97 percent of the credit amount to the public utility providing electric power to the special rate customer. The bill provides for the expiration of the newly created article providing for the credit ten years form the effective date of the article. Also, the bill also establishes minimum employment levels for the energy intensive industrial consumer to receive the special electric power rates.
    
    According to our interpretation, a portion of the proposed tax credits may be recouped by additional State tax collections associated with expanded industrial operations of the tax subsidized energy intensive industrial consumer. The payback level would vary depending upon the unique characteristics of the subsidized industrial consumer. However, assuming that the expanded industrial operations result in roughly $20 million of additional tax collections, passage of this bill could result in a net annual reduction in General Revenue Fund taxes of up to $20 million or more ($40 million of tax credits offset by $20 million of additional State and local tax revenue.) A small portion of the Severance Tax reduction would be shared with coal-producing counties who receive 1% to 5% of net State Coal Severance Tax beginning in FY2013. However, such a reduction may also be offset by higher local property taxes and Severance Taxes associated with greater coal production.
    
    Due to the need to track each taxpayer’s use or non-use of the allocated credits to determine if unused credits are to be allocated to another taxpayer, additional administrative costs to the State Tax Department associated with passage of this bill could be of some significance. The Public Service Commission 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 create the Energy Intensive Industrial Consumers Revitalization Tax Credit Act. The bill establishes tax credits for suppliers of coal to certain electric utilities who are subject to the coal severance tax. The bill makes legislative findings. The bill establishes a $40 million limit on the tax credits. The bill sets forth when the tax credits may be taken. The bill sets forth how the tax credits are calculated and allocated. The bill requires that in order to take the tax credit the taxpayer must make a payment equal to ninety-seven percent of the credit to the utility that provides the electric power to the special rate customer. The bill establishes that the tax credit expires in ten years from the date it becomes effective. The bill grants the Public Service Commission certain authority concerning special rates. The bill also requires information on special rates in the Public Service Commission’s annual report.
    
    As written, the bill requires a taxpayer subject to the full 5 percent Severance Tax on coal to notify the State Tax Department of its election to participate in the proposed tax credit program and requires the State Tax Department to provide the Public Service Commission with information on the identity of the taxpayers electing to participate. However, the bill does not include provisions that would require the Public Service Commission to notify the State Tax Department of the amount of credit allocated to a taxpayer.
    
    The bill, as written, purportedly makes the tax credit available to taxpayers subject to the full 5 percent Severance Tax on coal. Many taxpayers subject to the Severance Tax on coal pay tax at the 1 percent and 2 percent tax rates allowed by the Severance Tax Law in addition to the 5 percent tax rate. It is not clear if taxpayers using the 1 percent or 2 percent tax rates would be excluded entirely from the credit, or if the credit would only be available to offset tax attributable to the 5 percent tax rate.