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 extend the economic opportunity tax credit to producers of natural resources and to allow the tax credit to be used to offset severance tax liability.
    
     As written, this bill would extend the Economic Opportunity Tax Credit by adding to the list of businesses eligible for the credit Taxpayers engaged in the production of natural resources. Natural resource producers qualifying for the Economic Opportunity Tax Credit would be permitted to offset up to 80 percent of their Severance Tax attributable to qualified investment for purposes of the tax credit.
    
     The State Tax Department is unable to provide a quantitative estimate of the potential impact on tax revenue attributable to the passage of this bill, but based upon natural resource producers’ use of West Virginia’s former job creation tax credit (i.e., the Business Investment and Jobs Expansion Tax Credit {also known as the Super Credit}) the reduction in revenue attributable to the extension of the Economic Opportunity Tax Credit to Severance Tax could be significant. In addition to the State General Revenue Fund, portions of the Severance Tax are dedicated to the Infrastructure Fund, Division of Forestry, and local governments. The reduction in Severance Tax by the expanded Economic Opportunity Tax Credit could result in reductions to each fund and entity.
    
     Additional administrative costs to the State Tax Department associated with passage of this bill would be roughly $100,000 in FY2014 and roughly $50,000 per year thereafter. Potential tax credit claimants would incur additional compliance costs related to the Severance Tax and the Economic Opportunity Tax Credit.



Fiscal Note Detail


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


Explanation of above estimates (including long-range effect):


     As written, this bill would extend the Economic Opportunity Tax Credit by adding to the list of businesses eligible for the credit Taxpayers engaged in the production of natural resources. Natural resource producers qualifying for the Economic Opportunity Tax Credit would be permitted to offset up to 80 percent of their Severance Tax attributable to qualified investment for purposes of the tax credit.
    
     The State Tax Department is unable to provide a quantitative estimate of the potential impact on tax revenue attributable to the passage of this bill, but based upon natural resource producers’ use of West Virginia’s former job creation tax credit (i.e., the Business Investment and Jobs Expansion Tax Credit {also known as the Super Credit}) the reduction in revenue attributable to the extension of the Economic Opportunity Tax Credit to Severance Tax could be significant. In addition to the State General Revenue Fund, portions of the Severance Tax are dedicated to the Infrastructure Fund, Division of Forestry, and local governments. The reduction in Severance Tax by the expanded Economic Opportunity Tax Credit could result in reductions to each fund and entity.
    
     Additional administrative costs to the State Tax Department associated with passage of this bill would be roughly $100,000 in FY2014 and roughly $50,000 per year thereafter. The State Tax Department’s additional costs include expenditures for form redesign to incorporate the Economic Opportunity Tax Credit on all Severance Tax returns, additional programming costs, and the hiring of additional personnel to monitor and certify Applications for the Economic Opportunity Tax Credit, and to gather data, process information, and report on the accountability of the Economic Opportunity Tax Credit per Statute. Potential tax credit claimants would incur additional compliance costs related to the Severance Tax and the Economic Opportunity Tax Credit.



Memorandum


     The stated purpose of this bill is to extend the economic opportunity tax credit to producers of natural resources and to allow the tax credit to be used to offset severance tax liability.
    
     As written, the bill amends W. Va. Code §11-13Q-19(a) with a new sub-paragraph (i.e., W. Va. Code §11-13Q-19(a)(7)) indicating that the “production of natural resources” is an eligible industry or business activity for purposes of the Economic Opportunity Tax Credit. However, the bill left unchanged a portion of W. Va. Code §11-13Q-19(a)(1) that excludes “timbering or timber severance or timber hauling, or mineral severance, hauling, processing or preparation, or coal severance, hauling, processing or preparation” from eligible manufacturing activity. The two different references in W. Va. Code §11-13Q-19(a) regarding natural resources may lead to different interpretations as to what industries or business activities are eligible for the Economic Opportunity Tax Credit.
    



    Person submitting Fiscal Note: Mark B. Muchow
    Email Address: Roger.D.Cox@wv.gov