Date Requested:March 28, 2005
Time Requested:01:00 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2005R2026 Intro HB3233
CBD Subject: Definition of "Captial"
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 amend the definition of "capital" to include loans from stockholders of corporations in order to prevent corporations from avoiding taxation by shifting their taxable equity to untaxable debt financing by shareholders.
    
    According to our interpretation, passage of this bill would result in an increase in the General Revenue Fund of approximately $2.4 million per year. This bill widens the scope of what is deemed as taxable capital in W Va. Code § 11-23-3(b)(2), thereby increasing the possible tax base associated with Business Franchise tax.
    
    There would be no additional administrative costs associated with the passage of this bill.

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 2,400,000 2,400,000
3. Explanation of above estimates (including long-range effect):
    This bill would result in loans from shareholders being accounted for as equity, resulting in shareholder loans being added to the definition of capital in W Va. Code § 11-23-3(b)(2). This bill would prevent corporations from avoiding taxation by shifting their taxable equity to untaxable debt financing by shareholders.
    
    According to our interpretation, passage of this bill would result in an increase in the General Revenue Fund of approximately $2.4 million per year. This bill widens the scope of what is deemed as taxable capital in W Va. Code § 11-23-3(b)(2), thereby increasing the possible tax base associated with Business Franchise tax.
    
    There would be no additional administrative costs associated with the passage of this bill.


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kpetry@tax.state.wv.us
    The stated purpose of this bill is to amend the definition of "capital" to include loans from stockholders of corporations in order to prevent corporations from avoiding taxation by shifting their taxable equity to untaxable debt financing by shareholders.
    
    Presently, shareholder loans result in equity that is similar to paid-in or capital surplus (which is included under subdivision (ii)), but those loans are not included in equity and thus are not part of the Business Franchise Tax base, which is “capital” defined in W Va. Code § 11-23-3(b)(2).