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Amendment to Natural Gas Valuation Bill Creates Stir in West Virginia Senate

CHARLESTON — A bill supported by the natural gas industry and opposed by gas-producing counties was changed Tuesday to the chagrin of the bill’s lead sponsor in the West Virginia Legislature.

A strike-and-insert amendment to House Bill 2581, providing for the valuation of natural resources property and an alternate method of appeal of proposed valuation of natural resources property, was adopted. The bill now heads to the Senate Finance Committee.

HB 2581 would provide a revised methodology to value oil and natural gas properties by the State Tax Commissioner. A state Supreme Court case two years ago struck down part of the methodology the department uses to value active oil and natural gas well sites.

The House version of the bill included a formula to value oil and natural gas property. The value would be determined by using a weighted average price from regional markets, less the actual expenses as reported by the taxpayer.

According to the State Tax Department, the House version of HB 2581 would result in a property tax revenue loss of $9.1 million the first year, affecting county governments and county school systems.

While the state would compensate county school systems by increasing funding through the School Aid Formula, county commissions would still see revenue losses. Counties in the Northern Panhandle and North Central West Virginia would bear most of that loss, more than $7 million in decreased tax revenue. Those counties include Tyler, Wetzel, Marshall, Ohio, Brooke, Ritchie, Doddridge and Harrison.

The Senate Finance Committee’s strike-and-insert amendment removes the formula and directs the State Tax Department to promulgate regulations the Legislature can review and approve. The bill took up two days of committee time, from Monday to Tuesday.

An attempt by Sen. Patricia Rucker, R-Jefferson, to amend the strike-and-insert amendment failed in a 8-9 vote. The amendment attempted to return to a similar valuation formula in the original House bill, requiring the State Tax Department to follow that formulation when developing its rule.

“This amendment would essentially keep what the intent of the strike-and-insert to allow rule-making to do what they need to do,” Rucker said. “It just has language that respects what were the parameters that were discussed in the negotiations, so at least everyone understands what are the things that would be taken into account as they do their work.”

Sen. Mike Romano, D-Harrison, spoke against the amendment. A former Harrison County Commissioner, Romano said the amendment would make it hard for the State Tax Department to develop a fair-value formulation.

“The Tax Department’s obligation is to come up with a fair and equitable calculation in order to uniformly tax this type of property throughout the state,” Romano said. “My concern is if we don’t know what that effect of this will be, we’re tying the Tax Department’s hands. If they can’t divert from this, then how can we pass this without knowing what the effects are?”

The lead sponsor of HB 2581, Del. Diana Graves, R-Kanawha, gave testimony Monday and Tuesday urging the Senate Judiciary Committee to return the bill to the version passed by the House last week.

An oil and natural gas auditor for accounting firm Arnett Carbis Toothman, Graves led stakeholder meetings with the State Tax Department, representatives of the oil and natural gas industry, and others to craft HB 2581. Before the agreement, Graves said the bill would have cost counties $58 million.

Graves also said the COVID-19 relief funds from the American Rescue Plan would offset any property tax losses.

Senate Judiciary Committee Vice Chairman Ryan Weld, R-Brooke, pointed out counties, such as Graves’ counties of Kanawha and Putnam, would be minimally affected by HB 2581 while Northern Panhandle counties would take a hit.

“Your counties would lose a combined $97,000 and change,” Weld said. “My counties combined would lose a little over $2.5 million, or 28 percent of the total monies here. I’m trying to figure out exactly what we’re doing here. I’m sure you can understand the reluctance of somebody who represents an area that is standing to lose a lot from this piece of legislation by someone from an area who really loses nothing when you look at it.”

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