BILL ANALYSIS AND FISCAL IMPACT REPORT	Page 1 of  2

DATE:  February 17, 2001	Submitted by: TAXATION AND REVENUE DEPT.
	T. GLENN ELLINGTON, SECRETARY
BILL NUMBER: HB – 703 (revised to show local government impact)

SPONSOR: Representative Rodella

BILL SHORT TITLE: Gross Receipts Tax Deduction for Receipts from Sale of Firewood and Pellets

DESCRIPTION: This bill proposes a gross receipts tax deduction for receipts from the sale of firewood or pellets for pellet stoves. An NTTC is not required for this deduction.

EFFECTIVE DATE: July 1, 2001

FISCAL IMPACT (Thousands of dollars):  		Note: Parenthesis ( ) indicate a revenue loss:

		Recurring or		
Estimated Impact on Revenues	Nonrecurring	Funds 	
	 FY 2002 	Full Year	     Impact     t     	             Affected          .             	
	(200)	(220)	Recurring	General Fund	
	(100)	(110)	Recurring	Local Governments	

From DOE/EIA data it can be inferred that .267% of the total energy consumption in the state is residential or commercial use of “wood”, including pellets, grain for production of gasahol and wood waste. Based on the total energy consumed in the state and a statewide average energy cost per million BTU of $9.45, this translates to a BTU-based value for all residential and commercial wood fuel of about $9 million for the value of 1.6T BTU consumed. This is probably a high estimate for firewood component – the bigger share by BTU content -- since the overall efficiency of the typical kiva fireplace or “airtight” wood stove rarely exceeds 40% of the heat contained in the fuel actually delivered to the living space. This causes a downward pressure on firewood prices. Some relatively small proportion of the total wood burned (pinon, in particular) is purely amenity consumption and prices reflect small supply and strong demand. For the purpose of an estimate, pellet fuel is expected to be about half the total, or $4.5M, while the cash taxable value of firewood is about $1M. A couple of points should be noted: (1) there is a significant imbedded manufacturing cost to pelletize biomass. This increases the cost of pellet fuel by at least a factor of two on a BTU basis over firewood; (2) a pellet stove can only burn properly pelletized fuel. (3) at present, there is no manufacturer of pelletized fuel in the state; (4) a substantial portion of firewood is bartered or produced by the users; (5) firewood is largely produced in the informal segments of the economy. Tax compliance is unlikely to be very high. An entrepreneur who cuts, splits, markets and delivers a single truck-load of firewood a year can probably claim a  tax exemption under the “isolated and occasional” sale rule.

ADMINISTRATIVE IMPACT: minimal. This is a forms and instructions issue, not a processing or systems issue. It will be somewhat difficult to regulate this issue in the case of biomass consumed in industrial cogeneration, or the production of grain for transportation alcohol, and similar areas. 

TECHNICAL ISSUES: While the Department will do its best to regulate this issue to minimize the gratuitous loss of revenue from industrial consumption of wood waste, the addition of “for residential or commercial, but not industrial or transportation, use of biomass” would provide authority to the Department and instructions to keep the deduction narrow.

OTHER IMPACTS AND ISSUES:
1.	Virtually all the 647 trillion BTU of energy consumed now in the state is subject to the gross receipts tax. This bill raises the question of why .267% of total consumption should be tax advantaged and 99.733% of total energy consumption should be exempt.

2.	After peaking in the early 1980’s in response to shortages and high prices, use of wood fuel has become gradually less popular. Part of this decline in popularity is attributable to high purchase price of EPA certified, low-emission wood appliances.