CHARLESTON — Members of a West Virginia House of Delegates committee have approved a compromise bill to address last year’s issues with the county’s natural gas property tax assessments, though that a Northern Panhandle legislator is unconvinced.
The House Finance Committee recommended House Bill 4336, providing for the valuation of natural resource ownership, for passage Friday afternoon by voice vote. The only unheard came from the Del. Dave Pethel, D-Wetzel.
HB 4336 would provide a revised and more specific methodology for the State Department of Taxation to assess properties producing petroleum, natural gas, and natural gas liquids for property tax assessments.
The bill retains much of the original language of House Bill 2581, passed in the 2021 legislative session, requiring the state tax commissioner to develop a revised methodology for valuing oil and gas properties based on fair market value based on a return capitalization model. Net proceeds would come from actual gross receipts based on the volume of sales and the actual price received as shown on the taxpayer’s statement after royalties and annual operating costs are subtracted from gross receipts.
Controversy has erupted over the past year since the passage of HB 2581 when the emergency rule and draft rule developed by the State Department of Taxation lowered the capitalization rate, eliminated the using a three-year weighting and leaving it up to the State Department of Taxation to use its own reasonable standard, which is not defined in the rule itself instead of the producer’s actual income and expenses .
Members of the West Virginia Legislature’s Rulemaking Review Committee decided not to approve the state Department of Taxation’s natural gas property tax rule, but the rule of emergency remains in place. HB 4336 would phase out the rule over a three-year period beginning July 1 and ending July 1, 2024. The State Department of Taxation is also expected to submit a new emergency rule and a new statutory rule by July, 1st.
Beginning in July, the state tax commissioner is required to annualize gross revenue and actual annual operating costs before calculating the direct interest model and royalty interest model for wells that produce less than 12 months in a calendar year. Companies would be allowed to provide information on actual gross revenue and actual operating expenses that can supplement or be used in place of annualization calculations. The bill also includes an exemption provision for marginally producing wells.
The bill includes a July 1, 2025 sunset provision, requiring the legislature to either renew the bill’s provisions during the 2025 legislative session or develop a new formula based on data accumulated between 2022 and 2025. .
Of the. Diana Graves, R-Kanawha, was the main sponsor for HB 4336 and HB 2581 last year. She said the bill was a compromise working with state senators Ryan Weld, R-Brooke and Charles Clements, R-Wetzel, as well as the state’s tax department.
“There was a lot of work in the crafts (HB 4336). We had to make a lot of compromises,” said Graves. “Unlike 2581, we take into account the impact on the counties. It’s a compromise on which everyone had to agree. It picks up on some of the policy decisions that were in order that softened the blow of 2581 to the counties. It makes these policy decisions through taxation and enshrines them in law so that when gas prices go up, county revenues go up.
Pethel, who voted against 2,581 last year, said he was still concerned about the cost to counties of the emergency natural gas property tax rule currently in place. 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.
“I feel like I’m in the same position as last year with 2581”, said Pethel. “I think there are about six counties that will bear the brunt of this. Especially not knowing; it’s even worse. I can’t go home and every time someone says to me, “What’s it going to cost? I have to say, “Well, I don’t know what it’s going to cost.”
House Finance Committee Vice Chairman Vernon Criss, R-Wood, called the former state tax department “lazy” for the way it calculated natural gas property tax rates, which resulted in a 2019 West Virginia Supreme Court of Appeals ruling that found the method unconstitutional. Criss said this new method would be fairer to natural gas producers who were overtaxed under the previous method.
“The Supreme Court is the one who started this,” Criss said. “They looked at the assessments that the IRS was doing and made them unfair because we weren’t taking every individual property and every individual’s income and expenses there, because our IRS was lazy in the way they did it. That is what is wrong, and this bill tries to fix it.
Steven Allen Adams can be contacted at [email protected]