Energy Leaders Provide Severance Tax Information
Coal and natural gas officials speak to W.Va. lawmakers
CHARLESTON — A coal mining lobbyist group is asking for a lower severance tax rate for coal, while two organizations representing natural gas interests are asking to keep their severance tax rates the same.
The Legislature’s joint standing committees on energy and finance heard from representatives of the West Virginia Coal Association, the West Virginia Oil and Natural Gas Association and the Independent Oil and Gas Association during interim meetings Monday in Charleston.
The taxing of oil, natural gas and coal severance goes back almost 100 years with the first coal mining severance taxed at .4 percent in 1921. Today, coal production and processing are taxed at 4.65 percent, with an additional .35 percent for local coal severance taxes.
Other severance tax rates include:
∫ The state collects 5 percent on gross receipts at the well-head for oil and natural gas;
∫ The state collects 5 percent on gross receipts for the extraction of sand, gravel, limestone, sandstone and other minerals;
∫ The state collects 2.5 percent on the reclamation of coal from coal waste ponds;
∫ The state collects 1.5 percent on gross receipts for timber, which started in 2016 and will end June 30, 2019.
Bill Raney, president of the coal association, said the state has seen a slight comeback thanks to coal exports, but West Virginia is still losing ground domestically.
“Our export market is fragile,” Raney said. “When you start dealing with every other country in the world, you can imagine how fragile it really is.”
Raney says the coal tax severance rate is too high when compared to other states that mine coal. If the coal severance tax rate is lowered to 2 percent, Raney said that would benefit utilities, which would then buy more coal and result in lower electric rates.
Delegate Mike Caputo, D-Marion, asked Raney how the state would replace the revenue generated by the nearly 5 percent coal severance tax.
“I’m all for the coal mining industry being competitive, that’s all I’ve done my entire life, but I’ve also been around here a long time and whichever party is in control, we have to balance the budget,” Caputo said.
“That would take a lot of resources out of this state’s budget.”
“It’s not very comfortable to suggest you tax other things, and I’m not going to make that recommendation today,” Raney said. “Without proposing any new taxes, without proposing specific cuts to budgets … we think it would generate more business on our side, and we can hire more people and all those taxes that accrue from more people working and more production entering the economy.
Anne Blankenship, executive director of the West Virginia Oil and Natural Gas Association, said efforts to raise the natural gas severance tax as a revenue stream for the state’s Public Employees Insurance Agency would do more long-term harm to the industry and curtail growth.
“We absolutely cannot sustain an increase in the tax,” Blankenship said. “Not only the industry, but really the entire state of West Virginia.”
Blankenship refuted claims that raising the natural gas severance tax rate won’t cause drillers to move to Ohio, which only charges 2.5 cents per thousand cubic feet, and Pennsylvania which only charges a drilling fee.
“That’s just not true, that’s not accurate,” Blankenship said. “We have 22 percent of the acreage and we are absolutely competing with our surrounding states. It is part of the equation when we look at this state’s future and the industry’s future potential.”
According to data from the association, the natural gas severance tax has provided more than $1 billion in tax revenue to the state over the last decade, peaking in 2014 with $161 million in tax collections.
According to IOGA, the bulk of the state’s natural gas production — 93 percent – comes from 2,700 horizontal wells owned by 15 producers, while conventional well production has decreased over the same time period by 68 percent.
Phil Reale, an attorney representing IOGA, said Doddridge, Wetzel, Marshall, Ritchie and Harrison counties are the top five counties for natural gas production.
“Ohio produces more gas today than West Virginia does,” Reale said. “However, in West Virginia the severance tax produces more than twice the revenue than the severance tax in Ohio does. When the corporate bean-counter is looking at what might be the best investment opportunity, you can see it might be better to invest in drilling in Ohio.”
Reale said the natural gas severance tax rate should stay at 5 percent and has no plans to ask for a lower rate. He said the state needs to do more to make it easier for companies to drill.