FISCAL NOTE

Date Requested: February 16, 2016
Time Requested: 11:14 AM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
2514 Introduced HB4536
CBD Subject: Natural Resources, Taxation


FUND(S):

General Revenue Fund, Local Government Economic Assistance Fund, Medicaid State Share Fund

Sources of Revenue:

General Fund,Special Fund

Legislation creates:

A New Fund



Fiscal Note Summary


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


The stated purpose of this bill is to reduce the severance tax on coal to two percent of gross value; create a “Local Government Economic Assistance Fund;” and provide that all of this tax be deposited into the fund for distribution to the coal producing counties. Based on our interpretation, the proposed bill would reduce the maximum severance tax rate on coal and behavioral health services, also styled “certain health care services,” to 2 percent of the gross value. Reducing the coal severance tax to a maximum 2 percent of gross value would largely benefit coal produced from mines with average seam thicknesses greater than 45 inches. The anticipated state-level loss of revenue from this reduction is $122.2 million, exclusive of the local share, for FY2017. However, as the proposed bill also redirects all revenue from the coal severance tax to the Local Government Economic Assistance Fund, the State would lose an additional $82.0 million in coal severance taxes annually. In total, the impact of the coal severance tax portion of the proposed legislation would result in a loss to General Revenues of $204.2 million for FY2017. With respect to the severance tax reduction on behavioral health services to 2 percent of the gross value, this change would result in a loss to the Medicaid State Share Fund of approximately $9.6 million in revenues for FY2017 based on the current tax structure. It should be noted that other legislation has been introduced that would eliminate the privilege tax on behavioral health services. Based on our interpretation, up to $220.2 million in cumulative losses could be expected in FY2017 if the proposed legislation is passed. This includes $9.6 million in losses to the Medicaid State Share Fund. The balance, roughly $210.6 million, would be losses to General Revenues. Additional administrative costs incurred by the State Tax Department are expected to be $11,945 in FY2017. No additional costs are anticipated for the remainder of FY2016 or for years following FY2017.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2016
Increase/Decrease
(use"-")
2017
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 11,945 0
Personal Services 0 0 0
Current Expenses 0 265 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 11,680 0
2. Estimated Total Revenues 0 -220,200,000 -220,200,000


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


Based on our interpretation, the proposed bill would reduce the maximum severance tax rate on coal and behavioral health services, also styled “certain health care services,” to 2 percent of the gross value. Reducing the coal severance tax to a maximum 2 percent of gross value would largely benefit coal produced from mines with average seam thicknesses greater than 45 inches. The anticipated state-level loss of revenue from this reduction is $122.2 million, exclusive of the local share, for FY2017. However, as the proposed bill also redirects all revenue from the coal severance tax to the Local Government Economic Assistance Fund, the State would lose an additional $82.0 million in coal severance taxes annually. In total, the impact of the coal severance tax portion of the proposed legislation would result in a loss to General Revenues of $204.2 million for FY2017. With respect to the severance tax reduction on behavioral health services to 2 percent of the gross value, this change would result in a loss to the Medicaid State Share Fund of approximately $9.6 million in revenues for FY2017 based on the current tax structure. It should be noted that other legislation has been introduced that would eliminate the privilege tax on behavioral health services. Based on our interpretation, up to $220.2 million in cumulative losses could be expected in FY2017 if the proposed legislation is passed. This includes $9.6 million in losses to the Medicaid State Share Fund. The balance, roughly $210.6 million, would be losses to General Revenues. Additional administrative costs incurred by the State Tax Department are expected to be $11,945 in FY2017. No additional costs are anticipated for the remainder of FY2016 or for years following FY2017.



Memorandum


The stated purpose of this bill is to reduce the severance tax on coal to two percent of gross value; create a “Local Government Economic Assistance Fund;” and provide that all of this tax be deposited into the fund for distribution to the coal producing counties. The proposed bill is vague in establishing how each county’s allocable part in the newly-created Local Government Economic Assistance Fund would be determined. Further, the bill does not address whether revenue obtained through the furnishing of behavioral health services would factor into determining each county’s share. The bill does not delineate what would qualify as appropriate “expenditures” and does not establish what entity would administer the Fund. The bill does not expand on how “revenue estimates prevailing at the time” of the last quarterly transfer would be determined, how the revenue would be transferred, or into what accounts it would be transferred. Further, there appears to be a possible title defect in that the bill fails to address application of the tax reduction to the provision of “certain health care services,” referring to behavioral health services.



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