Sources of Revenue:

General Fund,Other Fund local property tax

Legislation creates:

Neither Program nor Fund

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

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):

We are unable to quantify the potential full effect of the proposed changes in Property Tax revenue. However, using TY2007 data, the estimated effect of increasing the limit on the increase in total Property Tax revenues when calculating the regular school rate from 101% to 102% would be $4.0 million. The bill provides, for tax years beginning on or after January 1, 2008, a refundable personal income tax credit for real property taxes paid in excess of 4% of income. The maximum refundable tax credit is $1,000.00. Assuming that the intent of the bill is to provide a refundable State tax credit equal to the amount of Class II real property taxes paid during a calendar year that are in excess of 4 percent of the gross household income of the taxpayer, the reduction in State personal income tax revenue would be significantly less $1.0 million annually . There would be no additional administrative costs to the Tax Department or local governments.

Memorandum

The purpose of this bill is to require local share to be calculated assuming properties are being assessed at sixty percent of market value; eliminate the one percent limit on revenue generated by the regular school board levy; freeze the school board levy rates at their current rate; amend the growth county definition and clarify what new property values include for the purposes of the Growth County School Facilities Act; increase state aid to financially impacted counties and counties assessing at a minimum of fifty-seven percent of market value by reducing the percentage used to calculate levies for general current expense purposes; provide for a refundable property tax credit for real property taxes paid in excess of four percent of income; require that a library funding obligation created by special act be paid from funds other than local share; and limit a library funding obligation to the amount of the difference between local share and actual total school board levy revenues. Section 11-1C-5b requires the Tax Commissioner to calculate the total assessed values for the purpose of calculating the local share of each county for purposes of funding public education. All property is required to be assessed at 60% of its market value, but if the property is assessed at least at 10% of 60% (or at least 54%), it is considered to be assessed at 60% of market value. Section 11-8-6f was amended to increase from 1% to 2% the increase of the statewide aggregate assessment that would result in the reduction of the levy rate. Section 11-21-23 provides, for tax years beginning on or after January 1, 2008, a refundable personal income tax credit for real property taxes paid in excess of 4% of income. However, the section title states that the credit is for property taxes paid in excess of 2.5% of income. The bill states: If the refundable credit provided by this section exceeds the amount of taxes imposed by this article, the State Department of Revenue shall refund that amount to the homeowner. There is concern as to the meaning of the term “that.” It is unclear if it means (1) the refundable credit, (2) the amount of taxes imposed by Article 21, or (3) the difference between the two. While it probably refers to the difference between (1) and (2), this is an issue that could result in considerable litigation. Additionally, the refund would be issued by the Tax Department, not the Department of Revenue. Even though the refundable credit is authorized for each “homeowner,” there is a question as to who may claim the credit and in what amounts. There is no guidance relative to whether the homeowner is married with right of survivorship, tenancy in common, etc. because each would be considered a “homeowner,” meaning that there would be two homeowners. There may be an issue relative to a couple that is not married but living together–in those situations, both may be able to claim as maximum of $1,000.00 refundable credit. There are also no provisions for married couples filing separately. In addition, the bill states that the credit is to equal “the amount of real property taxes paid in excess of four percent of their income.” However, the appropriate definition is “gross household income.” By not using the defined term, the property owner may use the West Virginia taxable income, thereby resulting in a refund where there should not be a refund, or a larger refund than is appropriate.

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