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Expert finds flaws with property tax assessment

CHARLESTON — A Marshall University economist and tax assessment expert highlighted some problems with property tax assessment Monday morning for the Joint Select Committee on Tax Reform.

Among them: Coal taxes are shrinking, but coal and natural gas property taxes aren’t collected in the same way, costing the state lost income. Another: Counties are being tempted to use a legal loophole to under assess property, so that the state contributes a greater share to public school funding.

Calvin Kent is a professor emeritus and senior fellow for Marshall’s Center for Business and Economic Research. He is also a member of the West Virginia Property Value and Training Commission and the International Association of Assessing Officers.

Property taxes, Kent said, make up the second-highest portion of state revenue: $1.6 billion of the total $4.3 billion budget. Of that $1.6 billion, real property taxes contribute $848 million. Personal property taxes contribute about $529 million.

For schools, he said, state aid under the Public School Support Program is calculated with a complex formula. Whatever the county can’t raise for its per-student allotment through property taxes the state contributes.

The amount of state aid, he said, can be raised by lowering the assessed value of county property. This is called “competitive underassessment.” Kent also termed it “the race to the bottom.”

This had been a temptation in the past, he said and became an issue again after the Legislature passed SB 1009 in 2014. The purpose of that bill was to end the use of assumed assessed real property values based on an assessment ratio study to calculate local share and employ instead actual real property values.

“This opens the door to return to competitive underassessment,” he said. He didn’t have a solution, and members didn’t offer any.

Regarding mineral taxes, Kent said West Virginia has the highest in the nation — combining severance, property, corporate income and remediation taxes.

Because about 90 percent of mineral rights in the state are severed from surface ownership, the state isn’t collecting all it can from natural gas extraction, he said.

Related: Atlantic Coast Pipeline to provide property tax boon

Property taxes on severed coal interests are collected from the coal company, which deducts them from the owner royalties, Kent said.

But property taxes on gas interests are collected directly from the royalty owner. And one gas parcels may have been divided among dozens or hundreds of heirs over time. So the state writes off lost taxes from unknown or unlocatable owners.

He proposed one solution: Allow mineral interests with unpaid taxes to revert to the surface owner. This will bring more money to the state and allow some royalty compensation to the surface owner whose land is disturbed by the gas extraction.

This solution may see the light of day. The proposed “fair pooling” bill for horizontal gas well drilling contains a provision to allow that to happen.

The pooling bill passed both houses last session but died on the last day when it came back to the House of Delegates to OK some Senate adjustments, and some members switched their votes. A slightly revised version is planned for the 2016 session.

The decline in coal taxes, as demand has declined because of regulatory and market factors, raised different questions for a couple committee members.

Along with produced coal, coal reserves are taxed, and Sen. Robert Karnes, R-Upshur, wondered if the state is taxing minerals that may never be mined.

Delegate Rupert Phillips, D-Logan, raised the same question. The taxation of coal reserves raises questions about how unmined coal is valued, they said, and how fair it might be to tax a resource that may never be used.

Kent admitted that unless prices rise, some reserves may not be mined. It might be time to rethink how reserves are taxed.

The committee will meet two more times this month. It meets during interims on Oct. 19, in a joint meeting with the Education and Finance committees, and the next day for an all-day public hearing on the various issues that have been raised since it began its work in April.

This article was written by David Beard from The Dominion Post, Morgantown, W.Va. and was legally licensed through the NewsCred publisher network.

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