FISCAL NOTE
Date Requested: February 12, 2025
Time Requested: 09:34 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1078 |
Introduced |
SB107 |
|
|---|
| CBD Subject: |
Environment; Real and Personal Property; Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Creates New Revenue, Increases Existing Expenses
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to balance the interests of current landowners and future landowners to ensure surface, minerals, and forest land may be developed for future economic gain by limiting use restrictions for forest carbon capture and sequestration to a maximum term of 20 years. The bill requires parties to current and new carbon offset agreements to register with the State Tax Department. The bill requires reports by the Division of Forestry and the State Tax Department. The bill authorizes the disclosure of information between the Tax Commissioner and Division of Forestry. The bill imposes excise tax on receipts derived from carbon offset agreements. The bill sets forth reporting requirements. The bill provides an effective date. The bill specifies application of West Virginia Tax Procedure and Administration Act and West Virginia Tax Crimes and Penalties Act. The bill authorizes promulgation of rules. The bill provides legislative findings and declarations. The bill provides that any covenant, restriction, condition, easement, contract, lease, deed, agreement, option, or other governing document, which is executed or recorded after the effective date, which effectively prohibits or restricts the development of land, minerals, and the harvesting of timber for the purposes of forest carbon capture, carbon offset, and carbon sequestration is void and unenforceable, unless said covenant, restriction, condition, easement, contract, lease, deed, agreement, option, or other governing document is for a maximum term of 20 years. The bill provides that options to renew or continue such arrangements beyond the initial maximum term of 20 years shall be valid only if the consideration is required to be renegotiated to exercise the option.
The proposed bill would levy on every carbon offset agreement regarding, or relating to, real estate in West Virginia or other property in West Virginia an annual excise tax in the amount of 50 percent of the gross payment under the agreement. The amount of the excise tax decreases to 15 percent if the carbon offset agreement does not prevent economic development or substantially restricts the severance of minerals or timber from the land. The tax would be paid by the party intending to sequester carbon dioxide who enters into the agreement with the landowner or property owner. The language of the bill provides that these new taxes be retroactively imposed beginning on or after January 1, 2024. This bill would require all parties to a carbon offset agreement to apply to the Tax Commissioner for a registration certificate.
According to the West Virginia Division of Forestry, there are currently over 2.6 million acres of forest under the Managed Timberland Program and a total of over 12 million acres of forestland in the state. Carbon offset agreements are relatively new in West Virginia. There does not exist a complete estimate of the number of acres currently in carbon offset agreements. This bill establishes such a registry. Landowners who currently participate in carbon offset agreements trade mostly in California Carbon Subsidy Markets. However, some unknown amount of carbon offset agreements are provided by RGGI (The Regional Greenhouse Gas Initiative of Eastern States of the U.S.). The current value established in the marketplace is between $18 and $45 per acre in annual payments. Most of the California marketplace requires 100-year agreements. This bill limits such agreements in West Virginia to 20 years with the possibility of renewal or renegotiation. The West Virginia Tax Department has no way to accurately project the number of acres of West Virginia forestland that may be entered into such carbon offset agreements. The Tax Department also has no firm knowledge of the portion of carbon offset agreements subject to the higher 50 percent tax rate versus the lower 15 percent tax rate. As such, the total revenue impact of this bill is undeterminable.
Administrative costs incurred by the Tax Department would be $73,700 in FY 2025; $45,650 in FY 2026; and $44,000 in subsequent fiscal years.
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 |
73,700 |
45,650 |
44,000 |
| Personal Services |
0 |
44,000 |
44,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
1,650 |
0 |
| Other |
73,700 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
The proposed bill would levy on every carbon offset agreement regarding, or relating to, real estate in West Virginia or other property in West Virginia an annual excise tax in the amount of 50 percent of the gross payment under the agreement. The amount of the excise tax decreases to 15 percent if the carbon offset agreement does not prevent economic development or substantially restricts the severance of minerals or timber from the land. The tax would be paid by the party intending to sequester carbon dioxide who enters into the agreement with the landowner or property owner. The language of the bill provides that these new taxes be retroactively imposed beginning on or after January 1, 2024. This bill would require all parties to a carbon offset agreement to apply to the Tax Commissioner for a registration certificate.
According to the West Virginia Division of Forestry, there are currently over 2.6 million acres of forest under the Managed Timberland Program and a total of over 12 million acres of forestland in the state. Carbon offset agreements are relatively new in West Virginia. There does not exist a complete estimate of the number of acres currently in carbon offset agreements. This bill establishes such a registry. Landowners who currently participate in carbon offset agreements trade mostly in California Carbon Subsidy Markets. However, some unknown amount of carbon offset agreements are provided by RGGI (The Regional Greenhouse Gas Initiative of Eastern States of the U.S.). The current value established in the marketplace is between $18 and $45 per acre in annual payments. Most of the California marketplace requires 100-year agreements. This bill limits such agreements in West Virginia to 20 years with the possibility of renewal or renegotiation. The West Virginia Tax Department has no way to accurately project the number of acres of West Virginia forestland that may be entered into such carbon offset agreements. The Tax Department also has no firm knowledge of the portion of carbon offset agreements subject to the higher 50 percent tax rate versus the lower 15 percent tax rate. As such, the total revenue impact of this bill is undeterminable.
Administrative costs incurred by the Tax Department would be $73,700 in FY 2025; $45,650 in FY 2026; and $44,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to balance the interests of current landowners and future landowners to ensure surface, minerals, and forest land may be developed for future economic gain by limiting use restrictions for forest carbon capture and sequestration to a maximum term of 20 years. The bill requires parties to current and new carbon offset agreements to register with the State Tax Department. The bill requires reports by the Division of Forestry and the State Tax Department. The bill authorizes the disclosure of information between the Tax Commissioner and Division of Forestry. The bill imposes excise tax on receipts derived from carbon offset agreements. The bill sets forth reporting requirements. The bill provides an effective date. The bill specifies application of West Virginia Tax Procedure and Administration Act and West Virginia Tax Crimes and Penalties Act. The bill authorizes promulgation of rules. The bill provides legislative findings and declarations. The bill provides that any covenant, restriction, condition, easement, contract, lease, deed, agreement, option, or other governing document, which is executed or recorded after the effective date, which effectively prohibits or restricts the development of land, minerals, and the harvesting of timber for the purposes of forest carbon capture, carbon offset, and carbon sequestration is void and unenforceable, unless said covenant, restriction, condition, easement, contract, lease, deed, agreement, option, or other governing document is for a maximum term of 20 years. The bill provides that options to renew or continue such arrangements beyond the initial maximum term of 20 years shall be valid only if the consideration is required to be renegotiated to exercise the option.
This is a newly created tax. For tax years beginning on or after January 1, 2024 (sic), an excise tax on every carbon offset agreement in the amount of 50% of the gross payment when the agreement prevents economic development or substantially restricts mineral extraction or 15% when the agreement does not. The tax is imposed upon the party wishing to sequester the CO2, but the parties are jointly and severally liable.
No standards are set to determine when economic development has been prevented or mineral extraction has been substantially restricted, and 50% is an unusually high tax rate. Further, joint and several liability means that the landowner is equally liable for the tax as the party seeking the sequestration.
Person submitting Fiscal Note: Mark Muchow
Email Address: RADfiscal@wv.gov