CHARLESTON — A bill being considered by the House Finance Committee Monday afternoon would give the state tax department another attempt at crafting a rule to determine tax assessments for natural gas-producing properties in West Virginia.
The committee recommended passage of House Bill 4162, authorizing the State Department of Taxation to enact a statutory rule relating to the valuation of properties that produce petroleum, natural gas, and gas liquids natural. It also indicates that the legislative rule previously filed by the State Department of Taxation is not authorized.
HB 4162 comes nearly a month after the West Virginia Legislature’s Rulemaking Review Committee decided not to approve an earlier legislative rule submitted by the state’s tax department in the summer the latter concerning the evaluations of natural gas producing properties.
House Bill 2581, passed in the 2021 legislative session, required the state tax commissioner to develop a revised methodology for valuing oil and gas properties on a fair market value basis based on a model of capitalization of return applied to gross royalty payments for net royalty interest. produced after royalties and annual operating costs are subtracted from gross revenue.
Instead, the contingency rule and draft rule developed by the State Tax Department lowered the capitalization rate, eliminated the use of a three-year weighting, and left the Tax Department to the state to use its own reasonable standard, not defined in the rule. itself, instead of the producer’s actual income and expenses.
By not approving the rule submitted by the agency in January, the emergency rule submitted by the State Department of Taxation remains in place for the 2022 tax year. The emergency rule and the rule finale proved unpopular with lawmakers, county assessors and representatives of the natural gas industry.
Last year’s original version of HB 2581 would have resulted in $9.1 million in lost property tax revenue for county governments and school systems, including $7 million affecting eight northern counties. panhandle and north-central West Virginia.
Of the. Dave Pethtel, D-Wetzel, asked state tax commissioner Matthew Irby why the department was unable to provide a new tax impact statement for natural gas-producing counties.
“We didn’t do (a tax memo) on how the bill ultimately passed,” Irby said. “The tax note that we originally produced assumed a lot of things.”
Irby said the effect on county budgets and county school system budgets would depend on natural gas prices. Irby estimated that tax revenue fell by $45 million in 2022, 75% of which was due to the passage of HB 2581 last year.
This does not include property tax assessments for major utilities in several counties established by the state Board of Public Works. Some of the largest drops between the provisional tax assessment and the total assessment for the 2022 tax year were for natural gas.
The tax assessment for natural gas pipelines decreased by $52.4 million, from $3.44 billion for the 2021 tax year to $3.39 billion for the 2022 tax year. The assessment for underground natural gas storage has decreased by $40.2 million, from $204 million in 2021 to $163.8 million for 2022.
Still, Irby said the state Department of Taxation did not recommend the committee approve HB 4162 on Monday.
“From our perspective, we believe the rule is an appropriate implementation of Bill 2581. We’re not urging its rejection, but it’s a political decision for all of you,” Irby said.
“If we accept this rule as you recommend, we still don’t know what kind of tax effect it will have on counties,” Pethtel said.
The bill now heads to the House Government Organizing Committee.