Date Requested:February 21, 2005
Time Requested:02:15 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2005R833 Intro HB2580
CBD Subject: Food Tax Eliminated in 10 Years
FUND(S)
General Revenue Fund
Sources of Revenue
General 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 phase out the sales tax on food over a period of ten years, or sooner if surplus revenue collections permit a quicker reduction.
    
    As stated, the passage of this bill would reduce the Consumers Sales Tax on food by one-half of 1 percent each year for ten years until there is no tax on food. However, the bill does not specifically define food. If the bill is meant to be narrow in scope, it may imply only sales of food intended for home consumption (e.g., certain food items sold at grocery stores) would be exempt. A more broad interpretation of this bill would imply that all sales of food would be exempt, including sales at grocery stores, restaurants and other eating and drinking establishments. Also, a broad interpretation of the bill may include food intended for both human and animal consumption. The following table provides estimates of possible revenue loss to the General Revenue Fund for both the narrow interpretation and the broad interpretation of a food exemption. Fiscal Year 2017 represents the first full year of removal of the Consumers Sales Tax on food.
    
     Sales of Food
    
     Meant for Home All Food
    
     Consumption Only Sales
    
    FY2006 $11.6 million $20.1 million
    
    FY2007 $24.3 million $42.0 million
    
    FY2008 $36.9 million $63.9 million
    
    FY2009 $49.6 million $85.8 million
    
    FY2010 $62.3 million $107.8 million
    
    FY2011 $80.2 million $138.8 million
    
    FY2012 $87.6 million $151.6 million
    
    FY2013 $100.3 million $173.5 million
    
    FY2014 $125.6 million $217.3 million
    
    FY2015 $138.3 million $239.3 million
    
    FY2016 $150.9 million $261.1 million
    
    FY2017 $152.0 million $263.0 million
    
    Also, the bill states that the phase out may apply earlier than the ten-year schedule if a revenue surplus occurs. If revenues exceed the previous year’s collections, than the rate of the sales tax on food shall be reduced by an amount proportionate to the surplus revenue collections. However, we are unable to estimate such a surplus or when such surplus might occur. Therefore, the above estimates only provide the revenue loss associated with the minimum graduated reduction in the Consumers Sales Tax on food. We were unable to tie the estimates to any type of revenue surplus.
    
     Additional administrative costs to the Tax Department would be approximately $24,000 during the current fiscal year for notifying taxpayers, key encoding for new forms, and any associated programming costs. There would be no additional administrative costs thereafter.
    

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 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 -20,100,000 -263,000,000
3. Explanation of above estimates (including long-range effect):
    As stated, the passage of this bill would reduce the Consumers Sales Tax on food by one-half of 1 percent each year for ten years until there is no tax on food. However, the bill does not specifically define food. If the bill is meant to be narrow in scope, it may imply only sales of food intended for home consumption (e.g., certain food items sold at grocery stores) would be exempt. A more broad interpretation of this bill would imply that all sales of food would be exempt, including sales at grocery stores, restaurants and other eating and drinking establishments. Also, a broad interpretation of the bill may include food intended for both human and animal consumption. The above worksheet reflects such an assumption.
    
    Also, the bill states that the phase out may apply earlier than the ten-year schedule if a revenue surplus occurs. If revenues exceed the previous year’s collections, than the rate of the sales tax on food shall be reduced by an amount proportionate to the surplus revenue collections. However, we are unable to estimate such a surplus or when such surplus might occur. Therefore, the above estimates only provide the revenue loss associated with the minimum graduated reduction in the Consumers Sales Tax on food. We were unable to tie the estimates to any type of revenue surplus.


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kpetry@tax.state.wv.us
    The purpose of this bill is to phase out the sales tax on food over a period of ten years, or sooner if surplus revenue collections permit a quicker reduction. However, the bill fails to define food. Therefore, it is questionable as to what sales will be exempt. There is a concern as to whether the phase out is related to the sale of “food” by grocery stores or does it apply to sales at restaurants.
    
    Also, the bill states that sales tax on “food” is to be reduced by an amount equal to the increase in revenue collections from sales tax for the “past tax year” over the like revenues for the tax year immediately preceding that year. This reduction is to begin July 1, 2005 and continue in each subsequent year. However, the bill does not provide a method for correlating any increase in sales tax revenue to the tax rate for sales tax. Since there is no definition of food, there is concern as to which sales the reduced rate will be applied.