Date Requested:March 22, 2013
Time Requested:11:49 AM
Agency: State Tax & Revenue Department
CBD Number: Version: Bill Number: Resolution Number:
2013R1930 Introduced HB3047
CBD Subject: NATURAL GAS SEVERANCE TAX
FUND(S)
General Revenue Fund, Tax Reduction Fund
Sources of Revenue
General Fund,Other Fund Tax Reduction Fund
Legislation creates:
A New Fund

Fiscal Note Summary

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

     The purpose of this bill is to dedicate a portion of natural gas severance tax proceeds into the newly created Tax Reduction Fund. The bill permits up to fifty percent of moneys from that fund to be distributed for the purpose of tax reduction for the benefit of the citizens of West Virginia as the Legislature deems appropriate. The bill provides that, upon the ratification of a Constitutional Amendment that permits the elimination or reduction of the personal property tax on inventory and equipment held for commercial or industrial use, the fund then be annually distributed to counties on a proportionate basis. The bill further sets forth how any moneys would be distributed to the counties.
    
     As written, this bill would redirect revenue from the Severance Tax on natural gas that is in excess of $60 million in a fiscal year, and which is not dedicated for distribution to local governments, to a new fund to be named the Tax Reduction Fund. The bill provides for the distribution of moneys in the Tax Reduction Fund as follows: (1) until an amendment to the West Virginia Constitution permits the elimination or reduction of the Personal Property Tax on inventory and equipment held for commercial or industrial use up to 50 percent of each fiscal year’s deposits are to appropriated by the Legislature for the purpose of tax reduction for the benefit of the citizens of the State, (2) subsequent to the ratification of an amendment to the West Virginia Constitution permits the elimination or reduction of the Personal Property Tax on inventory and equipment held for commercial or industrial use the State Treasurer shall distribute from the balance of the Tax Reduction Fund moneys to each county in proportion to the levy upon Class III and Class IV personal property held for ongoing commercial use within each levying unit.
    
     The Severance Tax on natural gas, as levied via W. Va. Code §11-13A-3a, in its basic form is a product of the volume of production times the price per unit of production times the tax rate (i.e., 5%). The volume of natural gas production from the Marcellus Shale is expected to increase over the next several years. However, the price of natural gas is subject to significant fluctuation. Given these factors, we are unable to accurately estimate the long term decrease to the State General Revenue Fund or the long term increase to the Tax Reduction Fund attributable to passage of this bill. However, based on current estimates of State Severance Tax revenues, the decrease to the State General Revenue Fund in FY2014 would be roughly $18 million or more with the Tax Reduction Fund receiving roughly $18 million. As natural gas production in West Virginia increases, the potential amount of revenue redirected could become more significant.
    
     Additional administrative costs to the State Tax Department associated with passage of this bill would be minimal. The State Treasurer may incur additional administrative costs attributable to passage of this bill.
    

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 would redirect revenue from the Severance Tax on natural gas that is in excess of $60 million in a fiscal year, and which is not dedicated for distribution to local governments, to a new fund to be named the Tax Reduction Fund. The bill provides for the distribution of moneys in the Tax Reduction Fund as follows: (1) until an amendment to the West Virginia Constitution permits the elimination or reduction of the Personal Property Tax on inventory and equipment held for commercial or industrial use up to 50 percent of each fiscal year’s deposits are to appropriated by the Legislature for the purpose of tax reduction for the benefit of the citizens of the State, (2) subsequent to the ratification of an amendment to the West Virginia Constitution permits the elimination or reduction of the Personal Property Tax on inventory and equipment held for commercial or industrial use the State Treasurer shall distribute from the balance of the Tax Reduction Fund moneys to each county in proportion to the levy upon Class III and Class IV personal property held for ongoing commercial use within each levying unit.
    
     The Severance Tax on natural gas, as levied via W. Va. Code §11-13A-3a, in its basic form is a product of the volume of production times the price per unit of production times the tax rate (i.e., 5%). The volume of natural gas production from the Marcellus Shale is expected to increase over the next several years. However, the price of natural gas is subject to significant fluctuation. Given these factors, we are unable to accurately estimate the long term decrease to the State General Revenue Fund or the long term increase to the Tax Reduction Fund attributable to passage of this bill. However, based on current estimates of State Severance Tax revenues, the decrease to the State General Revenue Fund in FY2014 would be roughly $18 million or more with the Tax Reduction Fund receiving roughly $18 million. As natural gas production in West Virginia increases, the potential amount of revenue redirected could become more significant.
    
     Additional administrative costs to the State Tax Department associated with passage of this bill would be minimal. The State Treasurer may incur additional administrative costs attributable to passage of this bill.
    


Memorandum
Person submitting Fiscal Note:
Mark B. Muchow
Email Address:
Roger.D.Cox@wv.gov
     The purpose of this bill is to dedicate a portion of natural gas severance tax proceeds into the newly created Tax Reduction Fund. The bill permits up to fifty percent of moneys from that fund to be distributed for the purpose of tax reduction for the benefit of the citizens of West Virginia as the Legislature deems appropriate. The bill provides that, upon the ratification of a Constitutional Amendment that permits the elimination or reduction of the personal property tax on inventory and equipment held for commercial or industrial use, the fund then be annually distributed to counties on a proportionate basis. The bill further sets forth how any moneys would be distributed to the counties.
    
     As written, the bill uses the phrase “commercial or industrial use” several times before a last reference to just “commercial use.” It is not clear if the removal of “or industrial” from the last reference was intentional. Also, the terms “commercial” and “industrial” are not fully defined.