FISCAL NOTE
Date Requested: February 20, 2025
Time Requested: 04:05 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2650 |
Introduced |
HB2716 |
|
|---|
| 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 create a credit against the severance tax to encourage private companies to make infrastructure improvements to highways, roads, and bridges in the state. The bill limits the total amount of road and highway infrastructure improvement credits, which can be verified by the Secretary of Transportation. The bill seeks to encourage greater capital investment in coal production and processing facilities. The bill will increase economic opportunity to the state. The bill authorizes the claiming of the credits. Finally, the bill provides for an effective date.
The provisions of this bill would create two separate investment tax credit applications for the coal industry effective January 1, 2025. The bill creates a broad tax credit against coal severance taxes equal to 50 percent of qualified expenses necessary to operate a coal mine and related properties. The bill also creates a narrow 50 percent tax credit for qualified expenses of a surface mine associated with the development of a certified road or highway infrastructure improvement project up to a total limit of $50,000 based on a maximum certification of no more than $100,000 in eligible expenses. The resulting tax credits may be used to offset up to 20 percent of the Taxpayer’s coal severance tax liability with excess tax credits carried over for up to nine additional years. The broad tax credit equal to 50 percent of the qualified operating expenses of a mine should by itself be sufficient to fully offset 20 percent of coal severance tax liability without need for additional benefits from the narrower tax credit for highway improvement projects. The narrow tax credit for highway improvement projects would require pre-certification from the Secretary of Transportation with a limit of no more than $100,000 in total expenditures eligible for the tax credit. Beginning in FY2026, passage of this bill would result in an annual General Revenue Fund loss of roughly $50.0 million to $62.0 million per year based on current coal prices and current collection trends. Given the effective date of January 2025 of these proposed tax credits, a revenue loss ranging from $21.0 million to $26.0 million could be anticipated for the balance of FY2025 based on an expectation of claims against monthly tax payments.
We would anticipate no applications relating to development of a certified road or highway infrastructure improvement project due to both low limits on the credit and the complexities associated with such an application. However, we would expect every coal company to reduce its tax bill by the 20 percent limitation due to the size of the tax credits for routine expenses. The industry already has another investment tax credit called the Coal Rebate Credit equal to 35 percent of qualified investment but with requirements of increased coal production and employment to qualify. The coal industry has already accumulated more than $225 million in potential tax credit under the Coal Rebate program. The provisions of this bill would reduce the industry tax rates by 20 percent through a complex tax credit mechanism rather than a straightforward tax rate cut.
Additional administrative costs incurred by the State Tax Department would be $18,150 in FY2025 and $24,750 per year 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 |
18,150 |
24,750 |
24,750 |
| Personal Services |
0 |
24,750 |
24,750 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
1,650 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
16,500 |
0 |
0 |
| 2. Estimated Total Revenues |
-26,000,000 |
-62,000,000 |
-62,000,000 |
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.
The provisions of this bill would create two separate investment tax credit applications for the coal industry effective January 1, 2025. The bill creates a broad tax credit against coal severance taxes equal to 50 percent of qualified expenses necessary to operate a coal mine and related properties. The bill also creates a narrow 50 percent tax credit for qualified expenses of a surface mine associated with the development of a certified road or highway infrastructure improvement project up to a total limit of $50,000 based on a maximum certification of no more than $100,000 in eligible expenses. The resulting tax credits may be used to offset up to 20 percent of the Taxpayer’s coal severance tax liability with excess tax credits carried over for up to nine additional years. The broad tax credit equal to 50 percent of the qualified operating expenses of a mine should by itself be sufficient to fully offset 20 percent of coal severance tax liability without need for additional benefits from the narrower tax credit for highway improvement projects. The narrow tax credit for highway improvement projects would require pre-certification from the Secretary of Transportation with a limit of no more than $100,000 in total expenditures eligible for the tax credit. Beginning in FY2026, passage of this bill would result in an annual General Revenue Fund loss of roughly $50.0 million to $62.0 million per year based on current coal prices and current collection trends. Given the effective date of January 2025 of these proposed tax credits, a revenue loss ranging from $21.0 million to $26.0 million could be anticipated for the balance of FY2025 based on an expectation of claims against monthly tax payments.
We would anticipate no applications relating to development of a certified road or highway infrastructure improvement project due to both low limits on the credit and the complexities associated with such an application. However, we would expect every coal company to reduce its tax bill by the 20 percent limitation due to the size of the tax credits for routine expenses. The industry already has another investment tax credit called the Coal Rebate Credit equal to 35 percent of qualified investment but with requirements of increased coal production and employment to qualify. The coal industry has already accumulated more than $225 million in potential tax credit under the Coal Rebate program. The provisions of this bill would reduce the industry tax rates by 20 percent through a complex tax credit mechanism rather than a straightforward tax rate cut.
Additional administrative costs incurred by the State Tax Department would be $18,150 in FY2025 and $24,750 per year in subsequent fiscal years.
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 create a credit against the severance tax to encourage private companies to make infrastructure improvements to highways, roads, and bridges in the state. The bill limits the total amount of road and highway infrastructure improvement credits, which can be verified by the Secretary of Transportation. The bill seeks to encourage greater capital investment in coal production and processing facilities. The bill will increase economic opportunity to the state. The bill authorizes the claiming of the credits. Finally, the bill provides for an effective date.
The reference in this bill to the entirety of Article 13A could be problematic because Article 13A includes severance taxes for natural gas, oil, coalbed methane, and other natural resources in addition to coal. Additionally, use of phrases such as “in furtherance of” and “not limited to” could be interpreted to make the list of covered expenditures very broad.
The proposed tax credit may survive a mere change in the form of a business and may be transferred by way of a sale of stock or assets of the taxpayer to a successor business that continues to operate in West Virginia. There is no provision in this bill that would allow sales of the credit separate from a sale of the taxpayer.
Person submitting Fiscal Note: Mark Muchow
Email Address: radfiscal@wv.gov