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 reduce the consumer sales tax on food to: (1) Four cents on the dollar of sales as of July 1, 2005; (2) two cents on the dollar of sales as of July 1, 2006; and to eliminate the sales tax on food as of July 1, 2007. Although the stated purpose indicates a three-year phase-out, this bill as written would presumably eliminate the Consumers Sales Tax on food sold for human consumption off the premises where sold by a two-year phase-out. According to our interpretation, this bill would apply to food items sold at grocery stores. The following table provides estimates of revenue loss to the General Revenue Fund. Fiscal Year 2008 represents the first full year of removal of the Consumers Sales Tax on food sold at grocery stores. Sales of Food Meant for Home Consumption Only FY2006 -$46.4 million FY2007 -$143.6 million FY2008 -$152.0 million Additional administrative costs to the Tax Department would be approximately $24,000 during the current fiscal year and next 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

Effect of Proposal	Fiscal Year
Effect of Proposal	2005 Increase/Decrease (use"-")	2006 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	23,925	23,925	0
Personal Services	0	0	0
Current Expenses	23,925	23,925	0
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	0	0
2. Estimated Total Revenues	0	-46,400,000	-152,000,000

Explanation of above estimates (including long-range effect):

Although the stated purpose indicates a three-year phase-out, this bill as written would presumably eliminate the Consumers Sales Tax on food sold for human consumption off the premises where sold by a two-year phase-out. According to our interpretation, this bill would apply to food items sold at grocery stores. The following table provides estimates of revenue loss to the General Revenue Fund. Fiscal Year 2008 represents the first full year of removal of the Consumers Sales Tax on food sold at grocery stores. Sales of Food Meant for Home Consumption Only FY2006 -$46.4 million FY2007 -$143.6 million FY2008 -$152.0 million Additional administrative costs to the Tax Department would be $23,925 during the current fiscal year and next fiscal year for notifying taxpayers, key encoding for new forms, and any associated programming costs. There would be no additional administrative costs thereafter.

Memorandum

The stated purpose of this bill is to reduce the consumer sales tax on food to: (1) Four cents on the dollar of sales as of July 1, 2005; (2) two cents on the dollar of sales as of July 1, 2006; and to eliminate the sales tax on food as of July 1, 2007. The bill does not specifically define food or “food products,” nor does it provide guidance for the requirement that the food be sold for consumption off the premises where sold. Also, the bill sets two different tax rates on July 1, 2006, which would be administratively problematic for the Department. In §11-15-9i(a)(2), the bill states that “On or after the first day of July, two thousand six, and until the thirtieth day of June, two thousand seven is reduced to two cents on the dollar of sales.” The next section (§11-15-9i(b)), states that “On or after the first day of July, two thousand six, sales of food and food products sold for human consumption off the premises where sold are exempt from the tax imposed in this article.” As a result, the bill reflects both a 2 percent Sales Tax rate on food sold for home consumption on July 1, 2006 and a complete exemption from Sales Tax on food sold for home consumption on July 1,2006.

Person submitting Fiscal Note: Mark Muchow
Email Address: kpetry@tax.state.wv.us