Date Requested:February 21, 2013
Time Requested:02:04 PM
Agency: State Tax & Revenue Department
CBD Number: Version: Bill Number: Resolution Number:
2013R2245 Introduced SB343
CBD Subject: SEVERANCE TAX
FUND(S)
General Revenue Fund, Oil and Gas County and Municipality Reallocated Severance Tax Fund, County Special Revenue
Sources of Revenue
General Fund,Other Fund Oil and Gas County and Mu
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 reallocate and dedicate three percent of oil and gas severance tax revenues up to $20 million annually to the oil and gas producing counties of origin and their respective municipalities. The bill establishes state and local oil and gas county reallocated severance tax funds and provides for distribution of the moneys to the county commissions and governing bodies of the municipalities by the State Treasurer. The bill establishes a procedure for determining the amounts each oil and gas producing county and their respective municipalities are to receive and requires the creation of local funds into which moneys are to be deposited. The bill requires the funds to be used solely for economic development projects and infrastructure projects. The bill also provides restrictions on fund expenditures. The bill sets forth duties of State Tax Commissioner. The bill requires a report of expenditures to Joint Committee on Government and Finance. The bill also provides for audits of distributed funds when authorized by the Joint Committee on Government and Finance. The bill authorizes legislative and emergency rules.
    
     As written, this bill provides, effective July 1, 2014, that (1) one percent of the tax attributable to the severance of oil and gas is to be transferred to the county commissions of the oil and gas producing counties, (2) two percent of the tax attributable to the severance of oil and gas is to be transferred to the governing bodies of municipalities within the oil and gas producing counties. The bill also establishes a new State fund named the Oil and Gas County and Municipality Reallocated Severance Tax Fund and requires counties and cities to establish a special account for the deposit of the reallocated revenue. Additionally, the bill provides the methodology for allocating the amounts to be transferred among the governing bodies and specifies that the transfers are to occur quarterly.
    
     According to our interpretation tax, passage of this bill will not result in any change in total revenue, but a reallocation of revenue. While the Oil and Gas County and Municipality Reallocated Severance Tax Fund will receive roughly $3.8 million in FY2015 (with roughly $1.3 million to be allocated to oil and gas producing counties and roughly $2.5 million to allocated to the municipalities within the oil and gas producing counties), the General Revenue Fund would be reduced by the same $3.8 million. The continued increase in production of natural gas in West Virginia and likely continuing price declines will make the revenue changes attributable to passage of the bill highly volatile. If the current low level of natural gas prices rise to prior levels from recent years, the additional local tax distribution could grow to roughly $6 million to $9 million per year with corresponding reductions in the State General Revenue Fund.
    
     Passage of this bill will require additional reporting by oil and natural gas producers so as to identify the county where the production occurred on a quarterly basis versus the current annual production reports compiled by the Department of Environmental Protection Office of Oil and Gas. The additional reporting requirements will also impose increased compliance costs upon the more than 5,000 oil and natural gas severance taxpayers. Additional administrative costs to the State Tax Department associated with passage of this bill will be significant. The implementation of this bill will require significant modification to tax returns so the tax attributable to the county from which the production occurred can be separately identified. Also, new computer programs to tabulate the return information will need to be developed.
    

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2013
Increase/Decrease
(use"-")
2014
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, effective July 1, 2014, that (1) one percent of the tax attributable to the severance of oil and gas is to be transferred to the county commissions of the oil and gas producing counties, (2) two percent of the tax attributable to the severance of oil and gas is to be transferred to the governing bodies of municipalities within the oil and gas producing counties. The bill also establishes a new State fund named the Oil and Gas County and Municipality Reallocated Severance Tax Fund and requires counties and cities to establish a special account for the deposit of the reallocated revenue. Additionally, the bill provides the methodology for allocating the amounts to be transferred among the governing bodies and specifies that the transfers are to occur quarterly.
    
     According to our interpretation tax, passage of this bill will not result in any change in total revenue, but a reallocation of revenue. While the Oil and Gas County and Municipality Reallocated Severance Tax Fund will receive roughly $3.8 million in FY2015 (with roughly $1.3 million to be allocated to oil and gas producing counties and roughly $2.5 million to allocated to the municipalities within the oil and gas producing counties), the General Revenue Fund would be reduced by the same $3.8 million. The continued increase in production of natural gas in West Virginia and likely continuing price declines will make the revenue changes attributable to passage of the bill highly volatile. If the current low level of natural gas prices rise to prior levels from recent years, the additional local tax distribution could grow to roughly $6 million to $9 million per year with corresponding reductions in the State General Revenue Fund.
    
     Passage of this bill will require additional reporting by oil and natural gas producers so as to identify the county where the production occurred on a quarterly basis versus the current annual production reports compiled by the Department of Environmental Protection Office of Oil and Gas. The additional reporting requirements will also impose increased compliance costs upon the more than 5,000 oil and natural gas severance taxpayers. Additional administrative costs to the State Tax Department associated with passage of this bill will be significant. The implementation of this bill will require significant modification to tax returns so the tax attributable to the county from which the production occurred can be separately identified. Also, new computer programs to tabulate the return information will need to be developed.
    


Memorandum
Person submitting Fiscal Note:
Mark B. Muchow
Email Address:
Roger.D.Cox
     The stated purpose of this bill is to reallocate and dedicate three percent of oil and gas severance tax revenues up to $20 million annually to the oil and gas producing counties of origin and their respective municipalities. The bill establishes state and local oil and gas county reallocated severance tax funds and provides for distribution of the moneys to the county commissions and governing bodies of the municipalities by the State Treasurer. The bill establishes a procedure for determining the amounts each oil and gas producing county and their respective municipalities are to receive and requires the creation of local funds into which moneys are to be deposited. The bill requires the funds to be used solely for economic development projects and infrastructure projects. The bill also provides restrictions on fund expenditures. The bill sets forth duties of State Tax Commissioner. The bill requires a report of expenditures to Joint Committee on Government and Finance. The bill also provides for audits of distributed funds when authorized by the Joint Committee on Government and Finance. The bill authorizes legislative and emergency rules.
    
     As written, the bill requires the reallocated revenue to be deposited into the Oil and Gas County and Municipality Reallocated Severance Tax Fund as received and specifies the methodology to be used in determining how much revenue is to be transferred to counties and municipalities of oil and natural gas producing counties. The deposit of funds appears to be the responsibility of the State Tax Commissioner while the determination of the amount for each county and municipality appears to be the responsibility of the State Treasurer. This may require oil and natural gas producers to provide duplicate information to both entities.