Date Requested: February 12, 2015
Time Requested: 01:13 PM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
2998 Introduced SB461
CBD Subject: Tax


FUND(S):

State Road Fund

Sources of Revenue:

Other Fund State Road 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 properly exempt fuel used to propel railroad locomotives from the Gasoline and Special Fuel Excise Tax and the Motor Fuel Excise Tax.
    
    According to our interpretation, passage of the bill would exempt fuel used in locomotives from the variable rate of the tax, as the fuel is already exempt from the fixed portion of the tax. The proposed exemption would be effectively accomplished through changes to the definition of taxable fuel in W.Va. Code §11-14-2 and §11-14C-2. The current variable rate is at 14.1 cents per gallon. According to available information, and assuming that concerns over the definitions in the bill are addressed, the revenue lost to the State Road Fund will be approximately $1.2 million the first fiscal year the bill is effective, and $4.9 million in each subsequent fiscal year at the current level of taxation. The variable sales tax level may vary by up to 10 percent per year based on changes in the wholesale price of motor fuels. If the definitions are not fixed, the cost to state revenue could be more than $40 million per year due to the creation of a blanket exemption for dyed diesel fuel.
    
    If the concerns with the broad language are corrected, the administrative costs to the State Tax Department would be $60,000 the first year and $15,000 each subsequent year. If the concerns are not addressed, the costs could be much higher.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2015
Increase/Decrease
(use"-")
2016
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 60,000 15,000
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 -1,200,000 -4,900,000


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


    According to our interpretation, passage of the bill would exempt fuel used in locomotives from the variable rate of the tax, as the fuel is already exempt from the fixed portion of the tax. The proposed exemption would be effectively accomplished through changes to the definition of taxable fuel in W.Va. Code §11-14-2 and §11-14C-2. The current variable rate is at 14.1 cents per gallon. According to available information, and assuming that concerns over the definitions in the bill are addressed, the revenue lost to the State Road Fund will be approximately $1.2 million the first fiscal year the bill is effective, and $4.9 million in each subsequent fiscal year at the current level of taxation. The variable sales tax level may vary by up to 10 percent per year based on changes in the wholesale price of motor fuels. If the definitions are not fixed, the cost to state revenue could be more than $40 million per year due to the creation of a blanket exemption for dyed diesel fuel.
    
    If the concerns with the broad language are corrected, the administrative costs to the State Tax Department would be $60,000 the first year and $15,000 each subsequent year. If the concerns are not addressed, the costs could be much higher.
    



Memorandum


    The stated purpose of this bill is to properly exempt fuel used to propel railroad locomotives from the Gasoline and Special Fuel Excise Tax and the Motor Fuel Excise Tax.
    
    The proposed bill amends a definition in W. Va. Code §11-14-2 which has been repealed since January 1, 2004.
    
    Railroad diesel locomotives are already exempt from the flat rate of motor fuel excise tax in W. Va. Code §11-14C-9(c)(14). All motor fuel used in West Virginia is currently subject to the variable wholesale fuel sales tax including both on-road and off-road uses. Railroads are not the only off-road users subject to a tax benefiting the State Road Fund. Exemptions from the variable rate are set forth under W. Va. Code §11-14C-9(d). This is the place the exemption should be placed.
    
    The proposed changes in definitions may have unintended consequences in possibly exempting other off road motor vehicle uses from the variable wholesale fuel sales tax. For example, the bill excepts from the definition of “motor fuel” “any type of fuel used to propel a railroad locomotive.” This could mean all dyed diesel fuel and other fuels a locomotive could use would not be taxed even when used in another unrelated activity. The bill’s language exempts a type of fuel rather than the final use of fuel from the variable wholesale motor fuel sales tax.
    
    There is no internal effective date. The bill will be effective 90 days from passage. As to each motor fuel taxpayer, it will be effective on the taxable year beginning after 90 days from passage.
    



    Person submitting Fiscal Note: Mark Muchow
    Email Address: kerri.r.petry@wv.gov