Committee tables hydrogen severance tax bill after administration and valuation concerns

The Minerals, Business & Economic Development Committee considered House Bill 161, a bill to impose severance taxes on hydrogen produced from water, but tabled the measure for interim study after testimony raised legal and administrative questions.

Vice Chair Ruben Tarver, who presented the bill, described it as “pretty short and sweet,” saying it would provide language to tax hydrogen produced from either produced water or fresh water. Tarver said the bill differentiates a lower tax rate for hydrogen made from byproduct (produced) water and a higher severance rate for hydrogen produced from water used as a feedstock.

The bill would apply two separate rates: a 3% rate for hydrogen made from byproduct water and a 6% severance rate for hydrogen produced from water used as a feedstock. Representative Knapp summarized the structure during questions: “you've got 2 different tax rates basically. 1 is a byproduct water at, 3% and 1 is a, produced from water, which is at a severance rate of 6%.”

Matt Sachet, administrator of the Mineral Tax Division at the Wyoming Department of Revenue, told the committee the measure raises novel administrative issues. “This would be the first time we would be applying a severance tax to something that is not taxable at the point of severance,” Sachet said, noting that water is not currently taxable at the point it is severed and that the bill lacks a clear “point of valuation” for taxed hydrogen. He said the department would need an explicit valuation point (for example, the wellhead or a custody-transfer meter) to determine what is deductible and what is taxable.

Committee members asked technical questions about hydrogen types and feedstocks. Representative Kelly Campbell noted that hydrogen is classified by feedstock and process (so-called color codes such as green or blue hydrogen) and asked whether the bill intentionally targets water-based production. Tarver and Sachet said the bill was meant to address hydrogen produced from water.

Sachet suggested alternative approaches for administration, including treating the tax more like a sales tax rather than a severance tax if the legislature wished to tax hydrogen created after production rather than the raw mineral at severance.

Industry witnesses and interested parties urged caution. Pete Obermueller, president of the Petroleum Association of Wyoming, said the proposal needs more work and recommended more technical briefings and stakeholder discussions before enactment. Attorney Shane Schultz said potential investors and developers would want a clearer tax framework before moving projects forward. Local engineer Bill Winnie recommended taxing at the point where hydrogen is purified and becomes a saleable fuel.

Representative Lalley moved to table the bill and refer it as a priority for the interim study; Representative Campbell seconded the motion. The committee voted by voice and tabled HB 161, with members saying the bill merits more research on valuation, feedstock definitions and administration before the legislature acts.

Ending: Committee members and witnesses recommended an interim study to clarify valuation rules, the tax point and how to distinguish hydrogen feedstocks before the bill is amended and reintroduced.