FISCAL NOTE

Date Requested: January 12, 2024
Time Requested: 01:43 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1428 Introduced SB201
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 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, 2024, 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 17 million tons by in-state electric power generators and an average current price of more than $60 per ton, the anticipated annual cost of the proposed legislation would be close to $30 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. Approximately one-third of the steam coal derived from the Coal Severance Tax is sold to West Virginia coal-fired electric generated facilities, and the remaining two-thirds is either sold to other states or countries. Passage of this bill would result in a loss to the General Revenue Fund of roughly $7.0 million in FY2024, $26.0 million in FY2025 and $30.0 million in in FY2026 and subsequent fiscal years. Additional administrative costs incurred by the State Tax Department would be $15,000 in FY2024.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2024
Increase/Decrease
(use"-")
2025
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 15,000 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 15,000 0 0
2. Estimated Total Revenues -7,000,000 -26,000,000 -30,000,000


Explanation of above estimates (including long-range effect):


According to our interpretation of this bill, thermal or steam coal extracted after March 31, 2024, 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 17 million tons by in-state electric power generators and an average current price of more than $60 per ton, the anticipated annual cost of the proposed legislation would be close to $30 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. Approximately one-third of the steam coal derived from the Coal Severance Tax is sold to West Virginia coal-fired electric generated facilities, and the remaining two-thirds is either sold to other states or countries. Passage of this bill would result in a loss to the General Revenue Fund of roughly $7.0 million in FY2024, $26.0 million in FY2025 and $30.0 million in in FY2026 and subsequent fiscal years. Additional administrative costs incurred by the State Tax Department would be $15,000 in FY2024.



Memorandum


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: kerri.r.petry@wv.gov