FISCAL NOTE
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
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 provide tax incentives to an operational coal-to-liquid and/or coal gasification plant built in the state. The bill provides that the plant will be exempt from corporation income tax and the business franchise tax for ten years from the date operations begin. The bill also provides that any holder of fifty percent or more in that plant or who supplies coal for the plant’s operations shall be exempt from the minimum severance tax for ten years. Additionally, the bill provides that the state is required, when available, to purchase all gasoline and diesel fuel necessary to operate state vehicles from the plant for ten years. The bill further provides that its provisions expire on June 30, 2020.
As written, any commercialized coal-to-liquid plant, coal gasification plant, or both a coal-to-liquid plant and a coal gasification plant would qualify for a ten-year exemption from the Corporation Net Income Tax and Business Franchise Tax. The bill also provides a ten-year exemption from the Minimum Severance Tax on Coal, as levied via W. Va. Code 11-12B et al, to any company with at least a 50 percent ownership interest in a qualifying plant and to any company that supplies a qualifying plant with coal. Also, the bill requires the Department of Environmental Protection to expedite the permitting process for the construction of any qualifying plant.
According to our interpretation, passage of this bill would result in a minimal reduction in the State General Revenue Fund for the first several years of operation of qualifying plants. The minimal revenue impact is based upon the following: an assumption that qualifying plants will likely not be immediately profitable and thus have little or no Corporation Net Income Tax liability subject to the exemption; scheduled reductions in the Business Franchise Tax will greatly reduce the qualifying plant’s liability for the tax; and, current coal prices virtually eliminate the Minimum Severance Tax on Coal. However, the State Tax Department does not have sufficient information to estimate the potential value of the proposed exemptions in the later years of a plant’s exemption period.
Additional administrative costs to the State Tax Department associated with this bill would be minimal. The Department of Environmental Protection may incur additional administrative costs related to the permitting process for qualifying plants and the Purchasing Division of the Department of Administration may incur additional administrative costs due to the requirement that the State purchase gasoline and diesel fuel produced by the qualifying plant.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2010
Increase/Decrease
(use"-") |
2011
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 |
0 |
0 |
Explanation of above estimates (including long-range effect):
As written, any commercialized coal-to-liquid plant, coal gasification plant, or both a coal-to-liquid plant and a coal gasification plant would qualify for a ten-year exemption from the Corporation Net Income Tax and Business Franchise Tax. The bill also provides a ten-year exemption from the Minimum Severance Tax on Coal, as levied via W. Va. Code 11-12B et al, to any company with at least a 50 percent ownership interest in a qualifying plant and to any company that supplies a qualifying plant with coal. Also, the bill requires the Department of Environmental Protection to expedite the permitting process for the construction of any qualifying plant.
According to our interpretation, passage of this bill would result in a minimal reduction in the State General Revenue Fund for the first several years of operation of qualifying plants. The minimal revenue impact is based upon the following: an assumption that qualifying plants will likely not be immediately profitable and thus have little or no Corporation Net Income Tax liability subject to the exemption; scheduled reductions in the Business Franchise Tax will greatly reduce the qualifying plant’s liability for the tax; and, current coal prices virtually eliminate the Minimum Severance Tax on Coal. However, the State Tax Department does not have sufficient information to estimate the potential value of the proposed exemptions in the later years of a plant’s exemption period.
Additional administrative costs to the State Tax Department associated with this bill would be minimal. The Department of Environmental Protection may incur additional administrative costs related to the permitting process for qualifying plants and the Purchasing Division of the Department of Administration may incur additional administrative costs due to the requirement that the State purchase gasoline and diesel fuel produced by the qualifying plant.
Memorandum
The stated purpose of this bill is to provide tax incentives to an operational coal-to-liquid and/or coal gasification plant built in the state. The bill provides that the plant will be exempt from corporation income tax and the business franchise tax for ten years from the date operations begin. The bill also provides that any holder of fifty percent or more in that plant or who supplies coal for the plant’s operations shall be exempt from the minimum severance tax for ten years. Additionally, the bill provides that the state is required, when available, to purchase all gasoline and diesel fuel necessary to operate state vehicles from the plant for ten years. The bill further provides that its provisions expire on June 30, 2020.
As written, the bill contains a provision that the qualifying plants be capable of producing at least 30,000 barrels of liquid fuel per day. It does not appear that a potential qualifying plant must actually produce at least 30,000 barrels of liquid fuel per day. The bill provides Business Franchise Tax and Corporation Net Income Tax exemptions to qualifying coal-to-liquid plants and/or coal gasification plants, but the bill does not provide guidance on whether the exemption would only apply to the capital and/or income specifically attributable to the qualifying plant or to all the capital
and/or income of an entity that owns the plant and is involved in other activities. Also, the bill indicates the provisions expire on June 30, 2020, but makes no provision for the continuation of the ten-year exemption for plants that are placed in service less than ten years before the expiration date.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov