The West Virginia Senate is moving swiftly toward passing a bill that would terminate volumetric fees that natural gas producers pay in addition to the state's severance tax.
The bill would eliminate taxes included in the Workers' Compensation Debt Reduction Act of 2005, which was passed to generate revenue to pay the state's workers' compensation debts. It imposed a 4.7 cent/Mcf fee on natural gas production and a 56 cent/ton fee on coal producers. The fees generated $122 million for the state in fiscal year (FY) 2015.
Fees would also be terminated for coal producers under the legislation. Eliminating those fees, according to the West Virginia State Tax Department, would cost the state $110 million next year.
SB 419 was recommended by Democratic Gov. Earl Ray Tomblin. It comes as the state faces a projected $250 million budget deficit this fiscal year, which began last July. Much of the shortfall is attributable to the drop in oil, natural gas, timber and coal prices (see Shale Daily, Oct. 6, 2015).
But both the Tomblin administration and Senate lawmakers have noted in recent days that the Workers' Compensation taxes were always meant to be eliminated when the debts were paid off, which they have been about 10 years ahead of schedule as the result of increased production from the Marcellus Shale in recent years. The funds that would have been used for the debts in the second half of FY 2016 would also go toward the state's general revenue and help plug the deficit.
The West Virginia legislature meets from January to March each year. SB 419 was introduced Jan. 28. The Senate Finance Committee made quick work of it on Friday, passing the bill unanimously. It had its first reading in the chamber on Saturday and was laid over on its second reading on Monday for further consideration on Tuesday.
If the bill passes, producers would still be required to pay severance taxes, or 5% of the market value of natural gas.