FISCAL NOTE



FUND(S):

General Revenue Fund, Workers' Compensation Debt Reduction Fund, West Virginia Infrastructure Fund

Sources of Revenue:

General Fund,Other Fund see above

Legislation creates:

Neither Program nor Fund



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


The stated purpose of this bill is to make the taxation of natural gas and coalbed methane equal and uniform, to dedicate certain amounts of tax revenue to the West Virginia Infrastructure Fund, and to grandfather certain entitlements to the exemption previously applicable to coalbed methane production. As written, this bill would, for periods on and after January 1, 2009, subject coalbed methane and methane produced from or by a coalbed methane well to the identical severance taxes (i.e., the taxes imposed under W.Va. Code 11-13A et. al. and W.Va. Code 11-13V et. al.) as imposed on natural gas. The proposed bill also provides that all coalbed methane produced from any coalbed methane well placed in service prior to January 1, 2009 would be entitled to the remainder of the original five-year exemption for coalbed methane wells placed in service after January 1, 2000. Additionally, the proposed bill provides that beginning with Fiscal Year 2009 up to $4 million per year of the tax levied via W.Va. Code 11-13A-3d are to be deposited into the West Virginia Infrastructure Fund. Finally, the bill requires that 75 percent of the funds from the tax on coalbed methane as deposited into the West Virginia Infrastructure Fund are to be distributed for infrastructure projects in the counties in which coalbed methane is produced. The 75 percent portion is to be distributed to the coalbed methane producing counties in direct proportion to the amount of tax attributable to each county. The remaining 25 percent portion is to be distributed equally among the counties in which no coalbed methane was produced. According to our interpretation, passage of this bill will result in an increase in funds for the West Virginia Infrastructure Fund and in minimal changes to the General Revenue Fund and the Workers’ Compensation Debt Reduction Fund. The increase in the West Virginia Infrastructure Fund will be attributable to additional tax revenue as the previous five-year exemption expires and additional coalbed methane production becomes subject to tax. Due to the phase-out of the exemption over a five-year period, the additional revenue for the West Virginia Infrastructure Fund may be up to $1 million in Fiscal Year 2009, up to $2 million in Fiscal Year 2010, and up to $4 million in each succeeding year. Additional administrative costs to the State Tax Department associated with this bill would be minimal.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2008
Increase/Decrease
(use"-")
2009
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 1,000,000 1,000,000


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


As written, this bill would, for periods on and after January 1, 2009, subject coalbed methane and methane produced from or by a coalbed methane well to the identical severance taxes (i.e., the taxes imposed under W.Va. Code 11-13A et. al. and W.Va. Code 11-13V et. al.) as imposed on natural gas. The proposed bill also provides that all coalbed methane produced from any coalbed methane well placed in service prior to January 1, 2009 would be entitled to the remainder of the original five-year exemption for coalbed methane wells placed in service after January 1, 2000. Additionally, the proposed bill provides that beginning with Fiscal Year 2009 up to $4 million per year of the tax levied via W.Va. Code 11-13A-3d are to be deposited into the West Virginia Infrastructure Fund. Finally, the bill requires that 75 percent of the funds from the tax on coalbed methane as deposited into the West Virginia Infrastructure Fund are to be distributed for infrastructure projects in the counties in which coalbed methane is produced. The 75 percent portion is to be distributed to the coalbed methane producing counties in direct proportion to the amount of tax attributable to each county. The remaining 25 percent portion is to be distributed equally among the counties in which no coalbed methane was produced. According to our interpretation, passage of this bill will result in an increase in funds for the West Virginia Infrastructure Fund and in minimal changes to the General Revenue Fund and the Workers’ Compensation Debt Reduction Fund. The increase in the West Virginia Infrastructure Fund will be attributable to additional tax revenue as the previous five-year exemption expires and additional coalbed methane production becomes subject to tax. Due to the phase-out of the exemption over a five-year period, the additional revenue for the West Virginia Infrastructure Fund may be up to $1 million in Fiscal Year 2009, up to $2 million in Fiscal Year 2010, and up to $4 million in each succeeding year. According to available information from the Geological and Economic Survey, total coalbed methane production rose from 17.4 million Mcf in 2005 to 18.7 million Mcf in 2006. Production from low-volume wells and wells subject to the grandfathered 5-year exemption will remain exempt from tax. Under the provisions of this bill, the 5-year well exemption will end two years earlier than the 2011 expiration date under current law. Anticipated additional State General Revenue of as much as $4 million by 2011 will be transferred to a special revenue infrastructure account. Workers’ Compensation Severance Tax collections are anticipated to rise gradually to no more than $500,000 by FY2011. Any increase in revenue in comparison to current law will gradually dissipate after FY2011. Additional administrative costs to the State Tax Department associated with this bill would be minimal.



Memorandum






    Person submitting Fiscal Note: Mark Muchow
    Email Address: kpetry@tax.state.wv.us