Natural Gas Severance Taxes Collected in West Virginia Less Than Expected

Natural Gas Price Decreases

Natural gas severance-tax collections in West Virginia represent about 5% of the industry revenue from selling the gas, which totaled $52.8 million for fiscal 2011. The state shares 10% of net natural-gas severance tax proceeds.  Of this 10%, producing counties get 75% and the remaining 25% is divided among all counties and municipalities based upon population share. The most recent distribution share, slightly more than $5.7 million, was sent out this past June for calendar year 2010 ­activity. 

Collections are down from recent past years as for example in calendar 2008 the gas severance tax totaled $74 million. State Sen. Jeff Kessler, (D-Marshall) said he’s surprised by the gas tax revenue. “I would expect those severance tax dollars at least from the projections that I’ve seen that have been done by the Center on Budget Policy that those would be in the hundreds of millions of dollars here in the near term, so I would be surprised if that is a reflection on the rates being so low that the more they produce the less the state is going to benefit. I think that is the contrary,” said Kessler.

Wetzel county received about $100,000 in 2006 and about $200,000 in 2011.  Doddridge county received about $400,000 in 2009 but only $250,000 in 2011. Ritchie county received $280,000 in 2009 but only $160,000 in 2011.  And, Marshall county with 29 active gas wells only received $57,000 in 2011.  Because the price of natural gas has declined over the past few years, revenues per well are down plus a number of wells have been capped.  Capping may be done when vertical wells are drilled only to preserve a lease, when gathering or transmission lines are not yet in place, or when the well owner wishes to wait for a better selling price.

The West Virginia Center on Budget and Policy is an independent organization that continues to promote an increase in the WV severance tax on coal and natural gas, with the funds going to a WV Trust Fund so that in the long term the State will benefit from the substantial level of coal and natural  gas production now underway.  Currently, severence taxes in WV represent 7.1% of total tax revenues, with seven other states gathering higher percentages. 

Total severance tax revenues in WV amount to about $328 million dollars per year, which is only 3.2% of the total value of the coal, oil and gas produced each year in the State.  This effective severance tax rate is higher in six other states.  So an increase could easily be justified to fund a WV Trust Fund, as described in an earlier report.