Date Requested:February 16, 2005
Time Requested:02:00 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2005R876 Intro HB2197
CBD Subject: Income Tax Exempted for Graduates
FUND(S)
General Revenue Fund
Sources of Revenue
General Fund
Legislation creates:
A New Program

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

    The stated purpose of this bill is to exempt undergraduate students attending state colleges or universities as well as graduates of undergraduate programs of such state institutions for the first two tax years postgraduation, from the payment of state income tax. The bill also provides that the undergraduate students and undergraduate graduates for the first two years after graduating shall pay seventy-five percent of any state income tax that they otherwise would owe to the particular institution or other qualified lending creditor they owe for student loans. The tax commissioner is directed to propose legislative rules to effectuate the purposes of the bill.
    
    We are unable to accurately estimate the loss to the State General Revenue Fund from passage of this bill. The State Tax Department does not possess the necessary information on the income tax liability of students or graduates with student loans. Due to the lack of an internal effective date, the provisions of this bill would first become effective for tax years beginning on or after January 1, 2006.
    
    Additional administrative costs to the Tax Department, attributable to the collection and processing of information necessary for this tax exemption program, would total $35,000.

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2005
Increase/Decrease
(use"-")
2006
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 35,000
Personal Services 0 0 27,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 8,000
Other 0 0 0
2. Estimated Total Revenues 0 0 0
3. Explanation of above estimates (including long-range effect):
    The bill would provide full-time students in an accredited undergraduate program at a West Virginia public institution of higher learning with an exemption from Personal Income Tax if the student has incurred debt in the form of a student loan and has paid the institution an amount equal to at least 75% of their Personal Income Tax liability. Graduates of undergraduate programs at West Virginia public institutions of higher learning would also be eligible for the exemption in the first two years following graduation. We are unable to accurately estimate the loss to the State General Revenue Fund from passage of this bill. The State Tax Department does not possess the necessary information on the income tax liability of students or graduates with student loans.
    
    Additional administrative costs to the Tax Department, attributable to the collection and processing of information necessary for this exemption, would total $35,000 in FY2006-2007, and $27,000 in each year thereafter. The additional administrative costs include the hiring of one employee to review the application and supporting documentation required for the exemption.


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kpetry@tax.state.wv.us
    The stated purpose of this bill is to exempt undergraduate students attending state colleges or universities as well as graduates of undergraduate programs of such state institutions for the first two tax years postgraduation, from the payment of state income tax. The bill also provides that the undergraduate students and undergraduate graduates for the first two years after graduating shall pay seventy-five percent of any state income tax that they otherwise would owe to the particular institution or other qualified lending creditor they owe for student loans. The tax commissioner is directed to propose legislative rules to effectuate the purposes of the bill.
    
    The bill creates an exemption that is only available if the student can provide proof that they have paid at least seventy-five percent of their tax liability to the institution or other qualified lending entity to which the taxpayer has incurred a debt in the form of a student loan or student loans. As written, the student would have to pay their tax liability to their school or creditor to have the option of the exemption.
    
    Also, the bill specifically limits the exemption to those students who prove they have made payments “to the institution or other qualified lending entity to which the taxpayer has incurred a debt in the form of a student loan or student loans.” Therefore, the exemption is only available to those students that take out student loans. A student who pays their tuition directly to the institution without taking out a loan is not eligible for this exemption. It should also be noted that in many instances, students are not required to make payments on student loans until after graduation. Thus for those students with deferred loans, this exemption is only available for the two years after graduation.
    
    The bill contains no internal effective date for this new exemption from Personal Income Tax.