Sources of Revenue:

General Fund,Special 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 is to create the “Small Business Development Incentive Program for Internal Growth Act.” The bill exempts certain small businesses from paying business-related taxes if they qualify as start up businesses with limited resources. According to our interpretation, passage of this bill would result in some unquantifiable decrease in the General Revenue Fund and in potentially any State fund into which tax collections are deposited (e.g., State Road Fund, Medicaid State Share Fund, Special Medical School Fund). The bill provides that qualifying small businesses would receive an exemption from business related taxes for the business’ first five years or until the business employed more than 50 persons. A qualifying small business is one in which the owner or owners have been residents of the State for one year, the owner has no other out-of-state business locations involving similar businesses, the business has 50 or fewer employees and no other businesses of its nature exists in the county or municipality where the business is to locate. Business related taxes exclude the Personal Income Tax, Workers’ Compensation premiums and Unemployment Compensation premiums. Passage of this bill would result in significant administrative costs to the State Tax Department.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2007 Increase/Decrease (use"-")	2008 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

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

This bill would create the "Small Business Development Incentive Program for Internal Growth Act.” The bill would exempt certain small businesses from paying business-related taxes if they qualify as start up businesses with limited resources. According to our interpretation, passage of this bill would result in some unquantifiable decrease in the General Revenue Fund and potentially any State fund into which tax collections are deposited (e.g., State Road Fund, Medicaid State Share Fund, Special Medical School Fund). The bill provides that qualifying small businesses would receive an exemption from business related taxes for the business’ first five years or until the business employed more than 50 persons. A qualifying small business is one in which the owner or owners have been residents of the State for one year, the owner has no other out-of-state business locations involving similar businesses, the business has 50 or fewer employees and no other businesses of its nature exists in the county or municipality where the business is to locate. Business related taxes exclude the Personal Income Tax, Workers’ Compensation premiums and Unemployment Compensation premiums. Passage of this bill would result in significant administrative costs to the State Tax Department. Additional administrative costs for the State Tax Department would be attributable to tax schedule form development, postage and tax form processing costs, including the tracking of qualified tax exempt businesses. Also, significant personnel resources may be required to determine whether businesses applying for the exemption meet the specified qualifications.

Memorandum

The stated purpose of this bill is to create the "Small Business Development Incentive Program for Internal Growth Act.” The bill exempts certain small businesses from paying business-related taxes if they qualify as start up businesses with limited resources. The definition of “business related tax” includes any tax “required by the Department of Revenue” except Personal Income Tax, Workers’ Compensation premiums and Unemployment Compensation premiums. The State Tax Department administers certain taxes as required by the West Virginia Code. The collection of Unemployment Compensation premiums is administered by another State agency while collections of Workers’ Compensation premiums are administered by private insurers. Also, the bill uses a number of terms (e.g., “limited assets and resources,” “significant business-related tax burden,” and “legal business”) without providing an adequate definition of the terms. Additionally, as written, the bill could possibly interpreted that a qualifying business would not have to remit any Consumers Sales and Service tax that the business collects on behalf of the State. The bill also provides that the “commissioner of the department of revenue” is required to propose legislative rules to implement the article. The State Tax Division (generally referred to as the State Tax Department) is a subdivision of the Department of Revenue and is administered by the State Tax Commissioner.

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