The West Virginia state Senate has unanimously passed a bill to eliminate volumetric fees that natural gas producers pay in addition to the state’s severance tax.
Introduced Jan. 28, the chamber wasted no time in providing a $110 million tax cut to gas and coal producers. That’s the amount the state tax department said the fees would have generated in fiscal year (FY) 2016-2017, which begins in July (see Shale Daily, Feb. 8). The Senate passed SB 419 by a vote of 34-0 on Thursday and sent the bill to the House of Delegates.
The bill would eliminate taxes passed in 2005 to generate revenue to pay the state’s workers compensation debts. It imposes 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 last year.
The bill, which was recommended by Democratic Gov. Earl Ray Tomblin, passed despite a more than $800 million budget deficit for FY 2016. Both the Tomblin administration and Senate lawmakers have noted that the workers’ compensation taxes were always meant to be eliminated when the debts were paid off, which they mostly have been about 10 years ahead of schedule as a result of increased production from the Marcellus Shale in recent years.
The Senate rejected two amendments to the bill on Wednesday. One would have kept the taxes in place for another six to 18 months until the state’s Rainy Day Fund was replenished to the level it was before withdrawals to balance the budget. The chamber voted against that amendment with a voice vote, while a second to temporarily double the timber severance tax also failed.
A dramatic decline in severance tax collections forced Tomblin to announce $170 million of budget cuts for state agencies in October (see Shale Daily, Oct. 6, 2015). At the end of last year, the state budget office said severance tax collections through November were running nearly $80 million below estimates for the current budget year on low oil and gas prices (see Shale Daily, Dec. 14, 2015)
Lawmakers told local news media that the coal industry had asked the state to remove the volumetric fees prior to the start of FY 2016 as SB 419 calls for. The bill was introduced in the House on Friday, where it moved to the finance committee for consideration. If the bill passes the legislature, producers would still be required to pay a 5% severance tax on the market value of natural gas. The legislature adjourns next month.
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