FISCAL NOTE
Date Requested: February 12, 2025
Time Requested: 09:27 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1922 |
Introduced |
SB66 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
Summarize in a clear and concise manner what impact this measure will have on costs and revenues of state government.
The stated purpose of this bill is to encourage an incentivize the sale of thermal or steam coal to coal-fired electric generating facilities, which are located in West Virginia and that serve West Virginia residents, by exempting the sale of such coal from the severance tax, thereby providing cheaper electricity to the State’s residents.
According to our interpretation of this bill, thermal or steam coal extracted after March 31, 2025, and sold for the purpose of generating electricity to a coal-fired electric generating facility that is physically located within the State of West Virginia would be exempt from the State Severance Tax. The tax rate on such coal would decrease from 3.0 percent to 0.35 percent. Based on average annual West Virginia coal purchases of roughly 16 million tons by in-state electric power generators and an average current price of nearly $60 per ton, the anticipated annual cost of the proposed legislation would be close to $25.5 million. Given that the local 5 percent share of net State Coal Severance Tax collections is protected by a minimum statutory share, a portion of the cost to the State may involve maintenance of the minimum local share. Total cost to the State could be enhanced by up to 5 percent of the tax reduction or as much as $1.275 million given current price assumptions. Approximately 40 percent of the steam coal derived from the Coal Severance Tax is sold to West Virginia coal-fired electric generated facilities, and the remaining 60 percent is either sold to other states or countries.
Passage of this bill would result in a loss to the General Revenue Fund of roughly $4.2 million in FY2025, $26.0 million in FY2026 and $27.0 million in FY2027 and subsequent fiscal years.
Additional administrative costs incurred by the State Tax Department would be $18,150 in FY2025.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2025
Increase/Decrease
(use"-") |
2026
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
18,150 |
0 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
1,650 |
0 |
0 |
| Other |
16,500 |
0 |
0 |
| 2. Estimated Total Revenues |
-4,200,000 |
-26,000,000 |
-27,000,000 |
Explanation of above estimates (including long-range effect):
Please explain increases and decreases in personal services, current expenses, repairs and alterations, assets, other costs and revenues, including assumptions and data sources and delineation between start-up and ongoing costs. Please also include a long-range schedule of costs and revenues if fiscal impact is expected to vary in future years.
According to our interpretation of this bill, thermal or steam coal extracted after March 31, 2025, and sold for the purpose of generating electricity to a coal-fired electric generating facility that is physically located within the State of West Virginia would be exempt from the State Severance Tax. The tax rate on such coal would decrease from 3.0 percent to 0.35 percent. Based on average annual West Virginia coal purchases of roughly 16 million tons by in-state electric power generators and an average current price of nearly $60 per ton, the anticipated annual cost of the proposed legislation would be close to $25.5 million. Given that the local 5 percent share of net State Coal Severance Tax collections is protected by a minimum statutory share, a portion of the cost to the State may involve maintenance of the minimum local share. Total cost to the State could be enhanced by up to 5 percent of the tax reduction or as much as $1.275 million given current price assumptions. Approximately 40 percent of the steam coal derived from the Coal Severance Tax is sold to West Virginia coal-fired electric generated facilities, and the remaining 60 percent is either sold to other states or countries.
Passage of this bill would result in a loss to the General Revenue Fund of roughly $4.2 million in FY2025, $26.0 million in FY2026 and $27.0 million in FY2027 and subsequent fiscal years.
Additional administrative costs incurred by the State Tax Department would be $18,150 in FY2025.
Memorandum
Please identify any areas of vagueness, technical defects, reasons a bill would not have a fiscal impact, and/or any special issues not captured elsewhere on this form.
The stated purpose of this bill is to encourage an incentivize the sale of thermal or steam coal to coal-fired electric generating facilities, which are located in West Virginia and that serve West Virginia residents, by exempting the sale of such coal from the severance tax, thereby providing cheaper electricity to the State’s residents.
This bill raises some constitutional concerns. Since the exemption would only apply to coal sold for use within the state, the effect of the bill would be to create a de facto export tariff on coal sold for use outside of the state. The Commerce Clause of the U.S. Constitution generally prohibits such taxes.
Person submitting Fiscal Note: Mark Muchow
Email Address: radfiscal@wv.gov