West Virginia Lawmakers Reject Natural Gas Property Tax Rule | News, Sports, Jobs

The West Virginia Legislature’s Rule-Making Review Committee decided not to approve a new rule for natural gas property tax assessments, putting the issue forward for the entire Legislature. . (Photo by Steven Allen Adams)

CHARLESTON – Lawmakers in West Virginia will need to start from scratch to develop a process for assessing natural gas property taxes during the 2022 legislative session.

The West Virginia Legislature’s Rule-Making Review Committee ruled on Sunday not to approve a legislative rule submitted by the state’s tax department over the summer regarding appraisals of producing properties of natural gas. The motion was carried unanimously.

By not approving the rule submitted by the agency, the emergency rule submitted by the state tax department remains in place for tax year 2022.

Any new rule should have been developed and approved by Saturday January 15 – an impossibility due to the tight deadline.

“This will remain active as a state of emergency until the final decision of the legislature,” said Del. Geoff Foster, R-Putnam, Vice Chair, Rule Making Review Committee. “It gives a little time to make up the difference and it gives us time, as a legislature, to pass a law.”

Foster said the Office of the Legislative Auditor had determined that the state’s tax department rule was beyond the scope of House Bill 2581 – passed last year – requiring the tax commissioner to the state is developing a revised methodology for valuing oil and gas properties.

Foster said the agency also could not withdraw the legislative rule, which would revert to previous rules for valuing natural gas properties, which were ruled unconstitutional by the West Virginia Supreme Court of Appeal in 2019.

“If they were to withdraw the rule, then they would have to go back to the previous rule, whatever it was,” Foster said. “From what I understand with the tax commissioner, this is not possible.”

HB 2581 requires fair appraisals for natural gas, petroleum and natural gas liquids producing properties based on fair market value based on a yield capitalization model applied to gross royalty payments for royalty interest. net proceeds after royalties and annual operating costs are subtracted from crude receipts.

However, the emergency rule and the draft rule developed by the state tax department lower the capitalization rate, eliminate the use of a three-year weighting, and leave the state tax department with the care to use its own reasonable standard, which is not defined in the instead of only the actual income and expenditure of the producer.

Of the. Brandon Steele, R-Raleigh, asked Stephen Stockton, a lawyer in the legal division of the state’s tax department, about why the agency went beyond the intentions of the legislature when developing of the rule.

“I don’t think it could have been any clearer,” Steele said. “You’re telling me the Tax Commission doesn’t think the legislature is quite right, so you’re going to fix it for us?” “

“No sir, we are just trying to implement what the legislature told us to do,” Stockton replied.

“You think ‘reasonableness’ is implied,” Steel asked.

“Yes. We’re just making it explicit in this rule,” Stockton replied.

Stockton explained that a reasonableness standard allows the department to set parameters to assess whether a registrant is making claims on the value of their natural gas property beyond what other registrants are claiming.

“It’s a way of not auditing so many people,” Del said. Barbara Fleischauer, D-Monongalia. “If something is outside the norm, you can use your limited staff to conduct audits. “

“I think that’s one aspect of it,” Stockton said. “When we set standards and someone does not meet them, they will know that they will be audited and that they will have to provide additional information. If they want to avoid that, they will have to adhere to a certain set of guidelines that would be considered reasonable. “

Phil Reale, a lobbyist for the Gas and Oil Association of West Virginia (GO-WV), said large natural gas companies are already required to produce accurate income and expense figures for shareholders and the Securities and Exchange Commission. The emergency rule allows state tax authorities to base assessments on reasonableness if a company’s tax return documents are incomplete, such as missing or incomplete information.

“These companies cannot afford to take the risk of intentionally skewing their actual income and their actual spending,” Reale said. “To do so would put them into bankruptcy and in much more danger than it is going to be if they missed an address or anything on a form that would require them to be put in a pile where reasonableness would be determined by someone.” one else. “

Jonathan Adler, a lobbyist for the West Virginia Association of Counties, said county governments and school systems in natural gas-producing counties risk losing millions of dollars in property tax revenue under the emergency rule. state tax department.

“We’re frustrated that we’ve never been part of the process,” Adler said. “There is a lot of worry and confusion… there needs to be clarity as well. There must be clarity for the use. There needs to be clarity for the industry.

Adler said county commissioners and assessors had been left out of discussions about the rule and that a request for estimates on the potential cost to county governments was never released. The original version of HB 2581 would have resulted in a loss of $ 9.1 million in property tax revenue for county governments and county school systems, including $ 7 million for eight counties in the Northern Panhandle and North Central -Western Virginia.

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