November 6, 2023 - West Virginia’s severance tax collections are significantly down compared to last year.
October’s total severance tax collections came out to negative $37 million, mainly due to payment distributions to local governments, and official state estimates show collections are expected to be down nearly 70% this year compared to last.
Gov. Jim Justice, during an administration briefing, shared a partial view of the state’s October revenue collection data and said the “severance tax number came in poorly.”
“It surely would look like the severance tax number came in poorly,” he said.
Justice, who said he didn’t have the exact figures in front of him, later said the month’s severance tax figure was down nearly $40 million.
“Our severance tax dollars are down $36 million for the month,” he said. “On an annual basis, that’s (down) $400 million in a year. My good Lord a’ living, that’s terrible. But at the end of the day, our state is still percolating and still doing pretty dadgum good.”
According to the state Budget Office, October’s severance tax collections were -$37,490,000. Total severance tax collections from the beginning of July to the end of October were $34,971,000.
Total severance tax collections in October 2022 were $69,080,000. Total severance tax collections from the beginning of July to the end of October 2022 were $341,230,000.
In a press release, Justice’s office said “total severance tax collections for October 2023 for all funds” was $55.7 million.
“Due to a record return of local oil and gas severance receipts of nearly $74.5 million dollars, the general fund total was -$37.5 million,” the release states. “The large payout to local governments was due to the very high 2022 energy prices. Local governments received an additional $12 million of local coal severance tax distributions during the month. There was also a total $6.75 million of oil and gas severance tax revenues that went to the DEP well plugging fund.”
Severance taxes are taxes imposed on extracted minerals in the state, including coal, oil, natural gas, limestone and sandstone.
Current severance tax rates are 5% gross value on oil; 5% gross value on gas; and 1%, 2% or 5% gross value on coal (dependent upon thickness of the seam it is mined from), according to the West Virginia Tax Division.
Local governments receive 10% of the net proceeds of taxes from oil and natural gas; 100% of the proceeds from taxes on natural gas production from coal-bed methane wells; and 100% of the proceeds taxes on reclamation of waste coal.
Justice, whose family owns more than 100 businesses, including more than a dozen mining operations, commented extensively about how gas, coal and coal prices declined over the past several years.
“The net-net of that whole situation is that we absolutely have dropped significantly there, and we’ve probably dropped to some value that could be as little as a third of what we were getting before,” he said.
Although prices for metallurgical coal, thermal coal and natural gas have “fallen like a rock,” West Virginia is no longer as economically dependent on its natural resources as it has been historically, Justice said.
“We’re sitting right today with a first quarter (of the fiscal year) surplus of $242 million,” he said. “Our state has many, many things going on today that absolutely are perpetuating the engine in the state beyond just our natural resources.”
Justice pointed to high-profile investments like Nucor’s sheet steel mill in Mason County as examples of the state’s diversified economy.
“If we have some level of rebound in our natural resources, more power to us,” he said. “Absolutely, at the end of the day, as much as I love coal and our people, we had to have something more in West Virginia than just coal, coal, coal. We had to have other things, and today we do.”
West Virginia Revenue Secretary Dave Hardy expressed concerns about falling severance tax collections to members of the West Virginia Legislature’s Joint Committee on Finance in mid-October.
“Volume is great — natural gas, coal are doing great,” he said. “The price is not so great — the price is low. Now we have the additional curve ball of the potential Israeli war. So what effect will that have on energy prices?”
The state’s September severance tax collections were down 68.9% compared to the previous year, Hardy said.
During September’s meeting of the Joint Committee on Finance, state Deputy Revenue Secretary Mark Muchow said the official estimate for FY 2024 shows a decline in severance taxes of more than $633 million, or 66.9%.
“Natural gas prices are down somewhere around 80% from a year ago, so the biggest decrease is natural gas. Oil is a little more steady — it’s down a little bit, but steady. Coal is down, closer to around 25%,” he said.
September’s severance tax collections were $27.5 million, or $4.4 million above official estimates.
As of the end of September, year-to-date severance collections were $72.5 million, or $13 million below estimates.
“Severance is a very difficult number at times to predict,” Hardy said.