Bill Summary – FastDemocracy

WEST VIRGINIA LEGISLATURE
REGULAR SESSION
              Introduced Senate Bill 395
              BY SENATOR TARR
    [Introduced January 12, 2024; referred to the Committee on Finance]
     Intr SB 395
  A BILL to amend and reenact §11-1C-10 of the Code of West Virginia, 1931, relating to valuation
          of industrial property and natural resources by Tax Commissioner; making technical
          corrections; and removing a sunset provision.
     Be it enacted by the Legislature of West Virginia:
     ARTICLE 1C. FAIR AND EQUITABLE PROPERTY VALUATION.
     §11-1C-10. Valuation of industrial property and natural resources property by Tax Commissioner; penalties; methods; values sent to assessors.
          (a) As used in this section:
          (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 §11-1C-2 of this code, and other minerals.
          (b) All owners of industrial property and natural resources property each year shall make
  a return to the State Tax Commissioner and, if requested in writing by the assessor of the county
 where situated, to such county assessor at a time and in the form specified by the commissioner
 of all industrial or natural resources property owned by them. The commissioner may require any
 information to be filed which would be useful in valuing the property covered in the return. Any
 penalties provided for in this chapter or elsewhere in this code relating to failure to list any property
 or to file any return or report may be applied to any owner of property required to make a return
 pursuant to this section.
         (c) The State Tax Commissioner shall value all industrial property in the state at its fair
 market value within three years of the approval date of the plan for industrial property required in
 subsection (e) of this section. The commissioner shall thereafter maintain accurate values for all
 such property. The Tax Commissioner shall forward each industrial property appraisal to the
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     Intr SB 395
 county assessor of the county in which that property is located, and the assessor shall multiply
 each such appraisal by 60 percent and include the resulting assessed value in the land book or
 the personal property book, as appropriate for each tax year. The commissioner shall supply
 support data that the assessor might need to evaluate the appraisal.
        (d) Within three years of the approval date of the plan required for natural resources
 property required pursuant to subsection (e) of this section, the State Tax Commissioner shall
 determine the fair market value of all natural resource's property in the state and thereafter
 maintain accurate values for all such property.
        (1) In order to qualify for identification as managed timberland for property tax purposes
 the owner must annually certify, in writing to the Division of Forestry, that the property meets the
 definition of managed timberland as set forth in this article and contracts to manage property
 according to a plan that will maintain the property as managed timberland. In addition, each
 owner’s certification must state that forest management practices will be conducted in accordance
 with approved practices from the publication Best Management Practices for Forestry. Property
 certified as managed timberland shall be valued according to its use and productive potential.
 The Tax Commissioner shall promulgate rules for certification as managed timberland.
        (2) In the case of all other natural resources property, the commissioner shall develop an
 inventory on a county-by-county basis of all such property and may use any resources, including,
 but not limited to, geological survey information; exploratory, drilling, mining, and other information
 supplied by natural resources property owners; and maps and other information on file with the
 state Department of Environmental Protection and Office of Miners’ Health, Safety, and Training.
 Any information supplied by natural resources owners, or any proprietary or otherwise privileged
 information supplied by the state Department of Environmental Protection and Office of Miners’
 Health, Safety, and Training shall be kept confidential unless needed to defend an appraisal
 challenged by a natural resource's owner. Formulas for natural resources valuation may contain
 differing variables based upon known geological or other common factors. The Tax Commissioner
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     Intr SB 395
 shall forward each natural resources property appraisal to the county assessor of the county in
 which that property is located, and the assessor shall multiply each such appraisal by 60 percent
 and include the resulting assessed value in the land book or the personal property book, as
 appropriate, for each tax year. The commissioner shall supply support data that the assessor
 might need to explain or defend the appraisal. The commissioner shall directly defend any
 challenged appraisal when the assessed value of the property in question exceeds $2 million or
 an owner challenging an appraisal holds or controls property situated in the same county with an
 assessed value exceeding $2 million. At least every five years, the commissioner shall review
 current technology for the recovery of natural resources property to determine if valuation
 methodologies need to be adjusted to reflect changes in value which result from development of
 new recovery technologies.
           (3) Property producing oil, natural gas, natural gas liquids. —
           (A) The Tax Commissioner shall value property producing oil, natural gas, natural gas
 liquids, or any combination thereof in the state at its fair market value determined through the
 process of applying a yield capitalization model to the net proceeds.
           (B) For the purposes of this subdivision:
           (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.
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     Intr SB 395
        (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.
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      Intr SB 395
             (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.
            (1) "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.
            (2) "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.
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      Intr SB 395
        (3) "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.
        (4) "Compression costs" are the actual costs in the process of raising the pressure of
 minerals.
        (5) "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.
        (6) "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.
        (7) "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.
        (8) "Lifting costs" means the actual costs incurred to operate a well during production.
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      Intr SB 395
            (9) "Marginal well" means, in the calendar year immediately preceding the July 1
 assessment date, a well with an average daily production of two barrels of oil or less and an
 average daily production of 10 MCF or less of natural gas.
            (10) "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.
            (11) "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.
            (12) "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.
            (13) "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.
            (14) "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.
            (C) (i) For all assessments made on or after July 1, 2022, the valuation of property
 producing oil, natural gas, natural gas liquids, or any combination thereof shall be calculated using
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      Intr SB 395
 a yield capitalization model. The yield capitalization model shall be composed of a working interest
 model and a royalty interest model. The summation of the working interest model and the royalty
 interest model shall represent the fair market value of the property.
        (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. The net proceeds income
 series shall be calculated as a terminating series of net proceeds discounted by applying a
 capitalization rate multiplier and a decline rate multiplier. The initial term of the terminating series
 of net proceeds shall be the net proceeds for that product multiplied by a six-month capitalization
 rate multiplier and an 18-month decline rate multiplier.
        In each subsequent term of the net proceeds income series, the calculation shall use the
 value from the previous term and multiply that term by a capitalization rate multiplier and an
 applicable 12-month decline rate multiplier.
        (II) The royalty interest model shall be calculated as the sum of the royalty interest receipts
 income series for natural gas, oil, and natural gas liquids. The royalty interest receipts income
 series shall be calculated as a terminating series of royalty interest receipts discounted by
 applying a capitalization rate multiplier and a decline rate multiplier. The initial term of the
 terminating series of royalty interest receipts shall be the royalty interest receipts for that product
 multiplied by a six-month capitalization rate multiplier and an 18-month decline rate multiplier.
        In each subseq