Date Requested:March 22, 2005
Time Requested:03:33 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2005R1670 Intro HB3148
CBD Subject: Phase Out Food Tax
FUND(S)
General Revenue Fund & Lottery Funds
Sources of Revenue
General Fund,Other Fund Lottery Funds
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 apply a consumer sales and service tax upon sales of wagers or plays by racetrack video lottery licenses to players of racetrack video lottery, while removing the exemption of the consumers sales and service tax for sales of wagers or plays by racetrack video lottery licensees to players of racetrack video lottery. The bill also provides a graduated exemption over a three year period from the consumer sales and service tax upon food and food products sold for human consumption off the premises where sold.
    
    Since this bill does not provide specific definitions of “sales of wagers or plays”, we are unable to provide an accurate estimate of the revenue impact of an 18 percent sales tax on such “sales”. However, such a tax would most likely have a negative impact on the four racetracks. The payout on the racetrack video lottery machines is 92 percent (i.e., 92 cents on the dollar). An 18 percent sales tax would effectively lower the payout ratio for the wagerer (i.e., consumer). As a result, other forms of gambling/lottery would become more attractive to both residents of West Virginia and residents of surrounding states who come across the border to play racetrack video lottery.
    
     Also, there would be fewer video lottery funds available for distribution. Currently, video lottery terminal income is only 8 percent of the total wagered and is allocated as follows:
    
    47% is paid to the racetrack,
    36% is paid to state and local governments, and
    17% is distributed to other non-governmental recipients (most of which is for racing purses).
    
    Beginning in FY2006, $11 million each year will be taken from the share for racing purses for Workers Compensation debt reduction.
    
    This bill would also eliminate the Consumers Sales Tax on food sold for human consumption off the premises where sold by a three-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 2009 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 -$97.1 million
    
    FY2008 -$147.8 million
    
    FY2009 -$152.0 million
    
    Additional administrative costs to the Tax Department would be about $24,000 per year until the tax is eliminated due to notifying taxpayers of the rate changes. Thereafter, there would be no additional administrative costs to the Tax Department. However, the costs to the Racetracks would be significant due to reprogramming each video lottery machine to deduct the new sales tax from the wagers. Currently, there are a total of 10,792 machines at the four racetracks combined.

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 0 0
3. Explanation of above estimates (including long-range effect):
    Since this bill does not provide specific definitions of “sales of wagers or plays”, we are unable to provide an accurate estimate of the revenue impact of an 18 percent sales tax on such “sales”. However, such a tax would most likely have a negative impact on the four racetracks. The payout on the racetrack video lottery machines is 92 percent (i.e., 92 cents on the dollar). An 18 percent sales tax would effectively lower the payout ratio for the wagerer (i.e., consumer). As a result, other forms of gambling/lottery would become more attractive to both residents of West Virginia and residents of surrounding states who come across the border to play racetrack video lottery.
    
    Also, there would be fewer video lottery funds available for distribution. Currently, video lottery terminal income is only 8 percent of the total wagered and is allocated as follows:
    
    47% is paid to the racetrack,
    36% is paid to state and local governments, and
    17% is distributed to other non-governmental recipients (most of which is for racing purses).
    
    Beginning in FY2006, $11 million each year will be taken from the share for racing purses for Workers Compensation debt reduction.
    
    This bill would also eliminate the Consumers Sales Tax on food sold for human consumption off the premises where sold by a three-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 2009 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 -$97.1 million
    
    FY2008 -$147.8 million
    
    FY2009 -$152.0 million
    
    Additional administrative costs to the Tax Department would be about $24,000 per year until the tax is eliminated due to notifying taxpayers of the rate changes. Thereafter, there would be no additional administrative costs to the Tax Department. However, the costs to the Racetracks would be significant due to reprogramming each video lottery machine to deduct the new sales tax from the wagers. Currently, there are a total of 10,792 machines at the four racetracks combined.


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kpetry@tax.state.wv.us
    The stated purpose of this bill is to apply a consumer sales and service tax upon sales of wagers or plays by racetrack video lottery licenses to players of racetrack video lottery, while removing the exemption of the consumers sales and service tax for sales of wagers or plays by racetrack video lottery licensees to players of racetrack video lottery. The bill also provides a graduated exemption over a three year period from the consumer sales and service tax upon food and food products sold for human consumption off the premises where sold.
    
    The bill is unclear as to how a sales tax on “sales of wagers or plays by racetrack video lottery licensees to players of racetrack video lottery” would work. There is no definition of “wagers” or “plays” or at what point the tax is to be collected.
    
    Also, 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.