FISCAL NOTE
Date Requested: February 05, 2016
Time Requested: 01:47 PM |
| Agency: |
Tax Department, State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2334 |
Introduced |
SB505 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
State Road Fund
Sources of Revenue:
Other Fund State Road 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 exempt from the motor fuel excise taxes certain uses of field gas as that term is defined in the bill.
According to our interpretation, passage of this bill would exempt field gas from the West Virginia Sales and Use Tax on sales of gasoline and special fuels. In the past, nearly all tax revenue from this tax came from the sale of gasoline, gasohol, diesel, kerosene and natural gas based propane. The West Virginia Code was updated in 2011 to specifically provide additional rules for taxation of alternative fuels including natural gas. The new Law provided for a change from a single average annual wholesale price determination for all fuels, the basis of the tax, to separate average wholesale prices for alternative fuels including natural gas. The new law did not specifically reference field gas, a use of natural gas in some combustion engines. Field gas is an industry term used to define raw natural gas produced in the field. The provisions of this bill may be in response to the Tax Department’s Administrative Notice 2015-26, which notifies taxpayers of the determination of the average wholesale price calculations for alternative fuels subject to the 5 percent wholesale sales and use tax. Off-road use of gasoline and special fuels is subject to this tax. In some cases, alternative fuels may be displacing use of taxable diesel fuel in off-road combustion engines. The taxation of field gas represents a new application of an old tax to the natural gas industry. Field gas is currently in use in the shale gas industry.
To the extent that natural gas is a substitute for diesel, an exemption for natural gas would mean that there would be more substitution of natural gas for diesel. The practice of such fuel substitution was highlighted in a brief 2013 article from fuelfix.com at http://fuelfix.com/blog/2013/09/17/companies-power-fracturing-job-with-field-gas/#12611101=0. For the shale producing industry, field gas is often a cheaper alternative to diesel fuel. The Tax Department is now collecting fuel taxes associated with natural gas products for the State Road Fund, but the tax returns do not isolate field gas from other natural gas products. However, based on available information, the Tax Department has likely yet to collect any meaningful revenue from the taxation of field gas. The proposed exemption would apply only to field gas, a natural gas use defined for the first time in this bill. Any future revenue loss to the State Road Fund would be limited to the amount of displaced taxable diesel fuel in favor of field gas.
Administrative costs to the Tax Department associated with this bill will be $16,000 in FY2017.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2016
Increase/Decrease
(use"-") |
2017
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
16,000 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
16,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation, passage of this bill would exempt field gas from the West Virginia Sales and Use Tax on sales of gasoline and special fuels. In the past, nearly all tax revenue from this tax came from the sale of gasoline, gasohol, diesel, kerosene and natural gas based propane. The West Virginia Code was updated in 2011 to specifically provide additional rules for taxation of alternative fuels including natural gas. The new Law provided for a change from a single average annual wholesale price determination for all fuels, the basis of the tax, to separate average wholesale prices for alternative fuels including natural gas. The new law did not specifically reference field gas, a use of natural gas in some combustion engines. Field gas is an industry term used to define raw natural gas produced in the field. The provisions of this bill may be in response to the Tax Department’s Administrative Notice 2015-26, which notifies taxpayers of the determination of the average wholesale price calculations for alternative fuels subject to the 5 percent wholesale sales and use tax. Off-road use of gasoline and special fuels is subject to this tax. In some cases, alternative fuels may be displacing use of taxable diesel fuel in off-road combustion engines. The taxation of field gas represents a new application of an old tax to the natural gas industry. Field gas is currently in use in the shale gas industry.
To the extent that natural gas is a substitute for diesel, an exemption for natural gas would mean that there would be more substitution of natural gas for diesel. The practice of such fuel substitution was highlighted in a brief 2013 article from fuelfix.com at http://fuelfix.com/blog/2013/09/17/companies-power-fracturing-job-with-field-gas/#12611101=0. For the shale producing industry, field gas is often a cheaper alternative to diesel fuel. The Tax Department is now collecting fuel taxes associated with natural gas products for the State Road Fund, but the tax returns do not isolate field gas from other natural gas products. However, based on available information, the Tax Department has likely yet to collect any meaningful revenue from the taxation of field gas. The proposed exemption would apply only to field gas, a natural gas use defined for the first time in this bill. Any future revenue loss to the State Road Fund would be limited to the amount of displaced taxable diesel fuel in favor of field gas.
Administrative costs to the Tax Department associated with this bill will be $16,000 in FY2017.
Memorandum
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov