FISCAL NOTE
FUND(S):
Workers’ Compensation Debt Reduction Fund
Sources of Revenue:
Other Fund Workers’ Compensation Deb
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 remove the severance tax on timber.
As written, this bill would discontinue both the regular Severance Tax on timber for the benefit of the state Division of Forestry and the additional Workers’ Compensation timber severance tax. The amendment to W.Va. Code §11-13V-4(g) provides that the two Severance Taxes on timber expire on the “effective date of the enactment of the amendment...” According to our interpretation, passage of this bill would result in a reduction in the Workers’ Compensation Debt Reduction Fund of approximately $2.5 million per year beginning in FY 2015. The reduction of the Workers’ Compensation Debt Reduction Fund would be attributable to the expiration of the W.Va. Code §11-13V-4 tax on timber. Since the W.Va. Code §11-13A-3b tax on timber is currently suspended due to a conditional moratorium (i.e., a moratorium active as long as the W.Va. Code §11-13V-4 tax is levied), it is our interpretation that passage of this bill would make the moratorium permanent. Since no W.Va. Code §11-13A-3b timber tax was expected in FY 2015 due to the current moratorium, passage of this bill will have no impact on revenue from the W.Va. Code §11-13A-3b timber tax in either FY 2015 or FY 2016. If the Workers’ Compensation Debt is fully paid for by the end of calendar year 2016, then the provisions of this bill would thereafter eliminate the regular Timber Severance Tax.
Wood is West Virginia’s greatest renewable resource, with almost 80 percent of the state covered in productive forests. Over 500 companies are directly involved in state-based forest product operations. Severance tax revenue collections on timber have increased by 29% between FY 2012 and FY 2013. In FY 2013, approximately $2.2 million of Timber Severance tax revenue was allocated to the Workers’ Compensation Debt Reduction Fund, approximately $66 million of this fund was from the coal severance tax revenue, and approximately $28 million was from natural gas severance tax revenue. During the first half of FY 2014, workers’ compensation timber severance taxes rose an additional 18 percent from the prior year. Recent growth in activity relate to improvements in the U.S. housing industry following a long period of decline.
According to W.Va. Code §11-13V-4, an independent certified actuary has to determine that the unfunded liability of the Workers’ Compensation Debt Reduction Fund has been paid or provided for in its entirety. The Governor also has to certify that the payment of the debt service has been provided. According to the Office of the Insurance Commissioner, the Workers’ Compensation Debt should be paid off by the end of calendar year 2016. Absent the provisions of the bill, the 2.78% workers’ compensation timber severance tax would be replaced by a 1.22% regular Timber Severance Tax dedicated to the WV Division of Forestry in FY 2017.
There would be no additional administrative costs to the State Tax Department associated with this bill.
Fiscal Note Detail
Effect of Proposal |
Fiscal Year |
2014 Increase/Decrease (use"-") |
2015 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, this bill would discontinue both the regular Severance Tax on timber for the benefit of the state Division of Forestry and the additional Workers’ Compensation timber severance tax. The amendment to W.Va. Code §11-13V-4(g) provides that the two Severance Taxes on timber expire on the “effective date of the enactment of the amendment...” According to our interpretation, passage of this bill would result in a reduction in the Workers’ Compensation Debt Reduction Fund of approximately $2.5 million per year beginning in FY 2015. The reduction of the Workers’ Compensation Debt Reduction Fund would be attributable to the expiration of the W.Va. Code §11-13V-4 tax on timber. Since the W.Va. Code §11-13A-3b tax on timber is currently suspended due to a conditional moratorium (i.e., a moratorium active as long as the W.Va. Code §11-13V-4 tax is levied), it is our interpretation that passage of this bill would make the moratorium permanent. Since no W.Va. Code §11-13A-3b timber tax was expected in FY 2015 due to the current moratorium, passage of this bill will have no impact on revenue from the W.Va. Code §11-13A-3b timber tax in either FY 2015 or FY 2016. If the Workers’ Compensation Debt is fully paid for by the end of calendar year 2016, then the provisions of this bill would thereafter eliminate the regular Timber Severance Tax.
Fiscal year Loss to Workers’ Compensation Debt Reduction Fund
2015 $2.5 million
Wood is West Virginia’s greatest renewable resource, with almost 80 percent of the state covered in productive forests. Over 500 companies are directly involved in state-based forest product operations. Severance tax revenue collections on timber have increased by 29% between FY 2012 and FY 2013. In FY 2013, approximately $2.2 million of Timber Severance tax revenue was allocated to the Workers’ Compensation Debt Reduction Fund, approximately $66 million of this fund was from the coal severance tax revenue, and approximately $28 million was from natural gas severance tax revenue. During the first half of FY 2014, workers’ compensation timber severance taxes rose an additional 18 percent from the prior year. Recent growth in activity relate to improvements in the U.S. housing industry following a long period of decline.
According to W.Va. Code §11-13V-4, an independent certified actuary has to determine that the unfunded liability of the Workers’ Compensation Debt Reduction Fund has been paid or provided for in its entirety. The Governor also has to certify that the payment of the debt service has been provided. According to the Office of the Insurance Commissioner, the Workers’ Compensation Debt should be paid off by the end of calendar year 2016. Absent the provisions of the bill, the 2.78% workers’ compensation timber severance tax would be replaced by a 1.22% regular Timber Severance Tax dedicated to the WV Division of Forestry in FY 2017.
There would be no additional administrative costs to the State Tax Department associated with this bill.
Memorandum
The stated purpose of the bill is to remove the severance tax on timber.
The wording of the proposed amendment to W.Va. Code §11-13V, which according to the stated purpose of the bill is to remove the Severance Tax on timber, may bring into question the continuation of the entire tax levied by Article 13V of Chapter 11, including the tax on coal and natural gas. The proposed wording for the sunset provision, subsection (g) of W.Va. Code §11-13V-4 could be clearer. The proposed provision attempts to identify the timber severance tax but refers to “the severance tax imposed by this section.” Subsection (a) applies to coal severance tax; subsection (b) to natural gas severance tax and subsection (c) to timber severance tax. It would be clearer if the sentence read “the timber severance tax imposed by this section (or alternatively, by subsection (c) of this section. However, in identifying the timber severance tax the sentence also correctly references the timber severance tax of W.Va. Code §11-13A-3b. Even though the proposed language is not precise, read as a whole the proposed sunset provision, W.Va. Code §11-13V-4 subsection (g), references the timber severance tax and not the severance tax on coal or natural gas.
Person submitting Fiscal Note: Mark B. Muchow
Email Address: Roger.D.Cox