FISCAL NOTE
Date Requested: March 10, 2025
Time Requested: 10:44 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2970 |
Comm. Sub. |
SB448 |
|
|---|
| 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.
The 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 and natural gas 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 and natural gas and oil industries effective January 1, 2026. The bill creates a broad tax credit against coal severance taxes and natural gas and oil severance taxes equal to 50 percent of qualified expenses necessary to operate a coal mine or natural gas and oil well 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 or natural gas and oil 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 or natural gas and oil well should by itself be sufficient to fully offset 20 percent of 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. Passage of this bill would reduce General Revenue Fund collections by roughly $35.0 million in FY2026 based on current estimates. Beginning in FY2027, the annual General Revenue Fund loss would range between $85.0 million and $110.0 million per year based on current coal and natural gas prices and current collection trends. Local oil and natural gas severance tax distributions would decrease by $2.5 million in FY2027 and by at least $5.0 million each year thereafter.
We would anticipate no applications relating to the 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 and natural gas and oil company to reduce its tax bill by the 20 percent limitation due to the size of the tax credits for routine expenses. The coal 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 $225.0 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 $16,500 in FY2025, $26,400 in FY2026, 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 |
16,500 |
26,400 |
24,750 |
| Personal Services |
0 |
24,750 |
24,750 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
1,650 |
0 |
| Other |
16,500 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
-35,000,000 |
0 |
Explanation of above estimates (including long-range effect):
The provisions of this bill would create two separate investment tax credit applications for the coal and natural gas and oil industries effective January 1, 2026. The bill creates a broad tax credit against coal severance taxes and natural gas and oil severance taxes equal to 50 percent of qualified expenses necessary to operate a coal mine or natural gas and oil well 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 or natural gas and oil 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 or natural gas and oil well should by itself be sufficient to fully offset 20 percent of 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. Passage of this bill would reduce General Revenue Fund collections by roughly $35.0 million in FY2026 based on current estimates. Beginning in FY2027, the annual General Revenue Fund loss would range between $85.0 million and $110.0 million per year based on current coal and natural gas prices and current collection trends. Local oil and natural gas severance tax distributions would decrease by $2.5 million in FY2027 and by at least $5.0 million each year thereafter.
We would anticipate no applications relating to the 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 and natural gas and oil company to reduce its tax bill by the 20 percent limitation due to the size of the tax credits for routine expenses. The coal 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 $225.0 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 $16,500 in FY2025, $26,400 in FY2026, and $24,750 per year in subsequent fiscal years.
Memorandum
The 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 and natural gas 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 terms “coal production and processing facility”, “natural gas production and processing facility”, and “coal or natural gas production and processing facility” are not defined. Use of the phrase “in furtherance of” could be interpreted to make the list of covered expenditures very broad. Most of the specifically included expenditures in this bill relate only to coal production and processing facilities and not to natural gas production and processing facilities.
Person submitting Fiscal Note: Mark Muchow
Email Address: RADfiscal@wv.gov