HB 4850 — Removing the sunset clause from Oil and Gas Personal Property Tax

WEST VIRGINIA LEGISLATURE REGULAR SESSION ENROLLED Committee Substitute for House Bill 4850 ByB DelegatesYDELEGATES Criss,CRISS, Anderson,NDERSON, Zatezalo,ATEZALO, Hardy,ARDY Householder, andH FehrenbacherOUSEHOLDER,AND [OriginatingFEHRENBACHER in[Passed theFebruary Committee23, on2024; Finance;

Reportedin oneffect Februaryninety 12,days 2024]from passage.] Enr CS for HB 4850 AAN BILLACT to amend and reenact §11-1C-10 of the Code of West Virginia, 1931, as amended, relating to the valuation of industrial property and natural resources property by the Tax Commissioner;

(1) "Industrial property" means real and personal property integrated as a functioning unit intended for the assembling, processing and manufacturing of finished or partially finished products.

(2) "Natural resources property" means coal, oil, natural gas, limestone, fireclay, dolomite, sandstone, shale, sand and gravel, salt, lead, zinc, manganese, iron ore, radioactive minerals, oil shale, managed timberland as defined in section two of this article, and other minerals.

The commissioner shall thereafter maintain accurate values for all 1Enr CS for HB 4850 such property.

Formulas for natural resources valuation may contain differing variablesEnr 2 CS for HB 4850 variables based upon known geological or other common factors.

(i) "Natural gas liquids" means propane, ethane, butanes, and pentanes (also referred to as condensate), or a combination of them that are subject to recovery from raw gas liquids by processing in field separators, scrubbers, gas processing and reprocessing plants, or cycling plants.

(ii) "Actual annual operating costs" shall include, without limitation, all lease operating expenses, lifting costs, gathering, compression, processing, separation, fractionation, and transportation costs;

as further defined herein.

(iii) "Net proceeds" means actual gross receipts on a sales volume basis determined from the actual price received by the taxpayers as reported on the taxpayer’s returns, less royalty interest receipts, and less actual annual operating costs as reported on the taxpayer’s returns.

3 CS for HB 4850 (iv) "Royalty interest receipts" means the fractional interest in production of oil, natural gas, natural gas liquids, or any combination thereof, that may or may not be subject to development costs or operating expenses and extends undiminished over the life of the property.

Typically, it is retained by the mineral owner, mineral lessor, or both.

(v) "Capitalization rate" means a single state-wide capitalization rate for oil, natural gas, and natural gas liquids producing property, which shall be determined annually by the Tax Department based on a "Build-up-Model" of the Weighted Average Cost of Capital (WACC).

(vi) "Lease operating expenses" means the actual costs incurred to bring the subsurface minerals (oil, natural gas, and natural gas liquids) up to the surface and convert them to marketable products.

Lease operating expenses refers to the costs of operating the wells and equipment.

"Lease operating expenses" includes actual costs of labor, fuel, utilities, materials, rent or supplies, which are directly related to the production, processing, or transportation of oil, natural gas, natural gas liquids, or any combination thereof and that can be documented by the producer.

For the purposes of this calculation, depreciation, depletion, extraordinary expenses, ad valorem taxes, capital expenditures, intangible drilling costs, expenditures relating to vehicles or other tangible personal property not permanently used in the production of oil, natural gas, natural gas liquids, or any combination thereof shall not be included as lease operating expenses.

(vii) "Lifting costs" means the actual costs incurred to operate a well during production.

(viii) "Gathering costs" means the actual costs of transportation of oil, natural gas, natural gas liquids, condensate, or any combination thereof from multiple wells by separate and individual pipelines to a central point of accumulation, dehydration, compression, separation, heating and treating or storage.

(ix) "Compression costs" are the actual costs in the process of raising the pressure of minerals.

4 CS for HB 4850 (x) "Processing, Separation and Fractionation costs" means de-ethnization fees, processing or fractionation fees, pipeline or transportation fees, fuel fees, and electric fees charged by a processing or fractionation plant to the producer.

(xi) "Fractionation costs" means the actual costs incurred by the producer in fractionation.

Fractionation is the separating of components of a mixture through differences in physical or chemical properties.

Fractionation is the process by which raw hydrocarbons are separated into products.

(xii) "Processing costs" means the actual costs incurred by the producer for activities occurring beyond the inlet to an oil, natural gas, or natural gas liquids processing facility that changes the physical or chemical characteristics, enhances the marketability, or enhances the value of the separate components.

Processing costs are limited to the costs for the following activities:

fractionation, adsorption, flashing, refrigeration, cryogenics.

sweetening, dehydration within a processing facility, beneficiation.

stabilizing, compression, and separation which occurs within a processing facility.

(xiii) "Transportation costs" means the actual costs of moving oil, natural gas, natural gas liquids, unprocessed gas, residue gas, or gas plant products or any combination thereof to a point of sale.

(xiv) "Marginal well" means in the calendar year immediately preceding the July 1 assessment date a well with an average daily production of 2 barrels of oil or less and an average daily production of 10 MCF or less of natural gas.

5 CS for HB 4850 (iii) "Compression costs" are the actual costs in the process of raising the pressure of minerals.

Enr CS for HB 4850 (iv) "Fractionation costs" means the actual costs incurred by the producer in fractionation.

(ix) "Natural gas liquids" means propane, ethane, butanes, and pentanes (also referred to as condensate), or a combination of them that are subject to recovery from raw gas liquids by 6 CS for HB 4850 processing in field separators, scrubbers, gas processing and reprocessing plants, or cycling plants.

Enr CS for HB 4850 (x) "Net proceeds" means actual gross receipts on a sales volume basis determined from the actual price received by the taxpayers as reported on the taxpayer’s returns, less royalty interest receipts, and less actual annual operating costs as reported on the taxpayer’s returns.

The yield capitalization model shall be composed of a working interest 7 CS for HB 4850 model and a royalty interest model.

Enr CS for HB 4850 (I) The working interest model shall be calculated as the sum of the working interest net proceeds income series for natural gas, oil, and natural gas liquids.

Companies may provide additional actual gross 8 CS for HB 4850 receipts and actual operating expense information that will be supplemented or used in lieu of the Tax Commissioner annualization calculations.

Enr CS for HB 4850 (iii) For all assessments made on or after July 1, 2024, but not before, the Tax Commissioner may not include a minimum valuation for any calculation related to determining the value of any well.

(F) ThisThe subdivisionTax Commissioner shall bepropose effectiverules forrequired allto assessmentsadminister madethis onsubdivision, orincluding afteremergency Julyrules, 1,in 2022.accordance with §29A-3-1 et seq.