The first originating bill put through House Finance yesterday morning reduced the severance tax on thermal or steam coal from 5% to 3% overall. Many delegates were concerned with the impact on counties.
Breakdown of the tax: of the 5% tax, .35% goes straight to counties/municipalities; of the remaining 4.65%, a secondary distribution of 5% is also given to counties/municipalities. Of both of those revenue streams to counties, 75% of the revenue goes to coal producing counties, while the other 25% is distributed to non-coal producing areas and based on population. You can find quarterly revenue distributions for counties and municipalities here.
The sneakiness of an originating bill ensures that no fiscal note can be prepared in advance of discussion or consideration in the committee. The Tax department estimated this severance tax will cost roughly $60-$70 million per year. This severance tax only applies to thermal or steam coal, not metallurgical coal. The breakdown of thermal coal v. met. coal in WV is approximately 60/40 of the 100 million tons we produce each year. As one delegate said “met builds buildings, steam keeps the lights on”.
According to WV Center on Budget and Policy in a blog, “So while cutting the severance tax would be costly to the state budget, it would also be largely ineffective at increasing production or employment. There are a number of factors at play affecting West Virginia’s coal industry that offering a severance tax break just won’t overcome. Chief among those is the fact that there is little evidence that the severance tax plays a big role in determining production and employment. Instead, reserve location, market demand, and logistics all play a much greater part in driving production and employment.“
Delegate Sponaugle asked why the #1 coal-producing state, Wyoming has a much higher 7.5% severance tax on coal, saying the tax cut will not help our state or the industry. The tax department repeatedly said cutting the severance tax would have very little effect on the creation or retention of jobs in the coal industry, however House Finance sent the bill to the floor with recommendation that it do pass.
Another bill, HB3144 was originated in House Finance yesterday afternoon, called the North Central Appalachian Coal Severance Tax Rebate Act, that introduced a 35% tax credit on new machinery for the coal industry.