Date Requested:February 21, 2005
Time Requested:02:14 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2005R686 Intro HB2544
CBD Subject: Border County Tax Credit
FUND(S)
General Revenue and State Road Funds
Sources of Revenue
General Fund,Other Fund State Road Fund
Legislation creates:
Neither Program nor Fund

Fiscal Note Summary

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

    The stated purpose of this bill is to create the Economic Development Enterprise Zone Act of 2005. The bill provides for qualified businesses in border areas to receive tax exemptions for excise taxes and consumer sales taxes applicable to sales of gasoline, special fuels and food so they will be better situated to compete with businesses closely located in contiguous states.
    
    We are unable to accurately estimate the loss to either the General Revenue Fund or the State Road Fund from passage of this bill. However, it will affect very few counties in West Virginia. The bill requires that only businesses located in counties where the unemployment rate was above 10 percent for the previous four consecutive quarters qualify for these exemptions. There are only a few counties where the unemployment rate is above 10 percent on a relatively consistent basis. Also, the bill allows an exemption from the Consumers Sales Tax for qualifying service stations, truck stops, convenience stores and grocery stores for their purchases of gasoline, special fuels and food products. However, purchases of food products are currently exempt as sales for resale. The Department does not have enough reliable information to estimate the many variables included within this bill.
    
    Additional administrative costs to the Tax Department would be $24,000 during the current fiscal year for notifying taxpayers and the purchase of new equipment. Thereafter, additional costs would be about $21,000 per year for the hiring of new employees.

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 24,000 20,760 20,760
Personal Services 0 20,760 20,760
Current Expenses 8,000 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 16,000 0 0
2. Estimated Total Revenues 0 0 0
3. Explanation of above estimates (including long-range effect):
    We are unable to accurately estimate the loss to either the General Revenue Fund or the State Road Fund from passage of this bill. However, it will affect very few counties in West Virginia. The bill requires that only businesses located in counties where the unemployment rate was above 10 percent for the previous four consecutive quarters qualify for these exemptions. There are only a few counties where the unemployment rate is above 10 percent on a relatively consistent basis. Also, the bill allows an exemption from the Consumers Sales Tax for qualifying service stations, truck stops, convenience stores and grocery stores for their purchases of gasoline, special fuels and food products. However, purchases of food products are currently exempt as sales for resale. The Department does not have enough reliable information to estimate the many variables included within this bill.
    
    Additional administrative costs to the Tax Department would be $24,000 during the current fiscal year for notifying taxpayers and the purchase of new equipment. Thereafter, additional costs would be $20,760 per year for the hiring of new employees.


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kpetry@tax.state.wv.us
    The purpose of this bill is to create the Economic Development Enterprise Zone Act of 2005. The bill provides for qualified businesses in border areas to receive tax exemptions for excise taxes and consumer sales taxes applicable to sales of gasoline, special fuels and food so they will be better situated to compete with businesses closely located in contiguous states. However, this bill has several problems. It creates a Sales Tax exemption for food products although such an exemption already exists as a sale for resale exemption.
    
    The terminology for refund of the Motor Fuel Excise Tax creates confusion. The bill provides:
    
     “That the exemption allowed for the sale of gasoline may not exceed three cents per gallon above the state tax rate imposed on similar products sold by a service station, convenience store or truck stop in a contiguous state located within the distance indicated in subsection (b) of this section.”
    
    The resulting West Virginia tax rate may not be less than three cents greater than the state tax rate in the contiguous state on the sale of a similar product. In addition, the distance requirement mentioned above is also confusing. It applies to any service station, truck stop, convenience store or grocery store located in a West Virginia county with an unemployment rate of at least 10 percent for the four previous calendar quarters that is located within five miles, measured by the shortest route by public road, from a competing service station, truck stop, convenience store or grocery store in a contiguous state. As written, a question arises as to whether the ‘business’ or the county needs to be within five miles of a similarly situated business. If the five miles applies to the county, the exemptions within this bill may apply to a greater number of businesses than intended.
    
    In addition, the Gasoline and Special Fuel Excise Tax was repealed effective January 1, 2004 and replaced with the Motor Fuel Excise Tax. The Tax is comprised of two parts: a flat rate of 20.5 cents per gallon and a variable rate that is the Sales Tax component. The total amount of tax is collected at the terminal rack and is embedded in the purchase price paid by the qualified convenience stores, service stations and truck stops. As a result, these establishments would have to apply for a refund from the State Tax Department based on the above criteria.