FISCAL NOTE

Date Requested: January 29, 2018
Time Requested: 01:44 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2292 Introduced SB413
CBD Subject: Taxation


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund

Legislation creates:

Increases Revenue From Existing Sources, Increases Existing Expenses



Fiscal Note Summary


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


    The stated purpose of this bill is to levy a .5 percent annual severance tax on Marcellus, Utica and all other deep sand Gas; and a .5 percent privilege tax on all future cracker plants which will be dedicated to retired public employees.
    
    According to the provisions of this bill, a five-tenths percent annual severance tax on Marcellus, Utica and all other deep sand natural gas and a five-tenths percent annual severance tax on all future cracker plant operations will be dedicated to retired public employees. The proposed taxes would be effective on December 31, 2018 and would be available for support to retired public employees. As currently written, we cannot estimate the revenue which would be generated to benefit public retirees. If the intent of the bill is to raise the current State Severance Tax on natural gas produced from horizontal shale wells from 5.0% to 5.5% and to dedicate 100% of the proceeds from the extra 0.5% tax rate to a special fund for benefit of public retirees, then such special fund could receive up to $6 million in FY2019 and closer to $18 million per year beginning in FY2020. The base of a proposed tax on future cracker facilities is undefined in this bill.
    
    Additional administrative costs incurred by the State Tax Department would be $71,000 in FY2020 and $35,000 in fiscal years thereafter.
    
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2018
Increase/Decrease
(use"-")
2019
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 71,000 35,000
Personal Services 0 35,000 35,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 1,000 0
Other 0 35,000 0
2. Estimated Total Revenues 0 0 0


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


    According to the provisions of this bill, a five-tenths percent annual severance tax on Marcellus, Utica and all other deep sand natural gas and a five-tenths percent annual severance tax on all future cracker plant operations will be dedicated to retired public employees. The proposed taxes would be effective on December 31, 2018 and would be available for support to retired public employees. As currently written, we cannot estimate the revenue which would be generated to benefit public retirees. If the intent of the bill is to raise the current State Severance Tax on natural gas produced from horizontal shale wells from 5.0% to 5.5% and to dedicate 100% of the proceeds from the extra 0.5% tax rate to a special fund for benefit of public retirees, then such special fund could receive up to $6 million in FY2019 and closer to $18 million per year beginning in FY2020. The base of a proposed tax on future cracker facilities is undefined in this bill.
    
    Additional administrative costs incurred by the State Tax Department would be $71,000 in FY2020 and $35,000 in fiscal years thereafter.
    
    



Memorandum


    The stated purpose of this bill is to levy a .5 percent annual severance tax on Marcellus, Utica and all other deep sand Gas; and a .5 percent privilege tax on all future cracker plants which will be dedicated to retired public employees.
    
    This bill would be difficult to administer because the language is ambiguous. Although the bill purports to impose a one-half percent severance tax on Marcella, Utica and other deep sand gas, it does not clarify the tax base. The bill does not expressly state that the one-half percent proposed tax is to be in addition to the existing tax. Further, there is no indication of what is meant by making the revenues “available for support to retired public employees.”
    
    



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