FISCAL NOTE
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 eliminate penalties associated with the underpayment of taxes owed from a person who is a resident individual, provided a personal income tax is timely filed and payment of any tax due is made at that time.
As written, this bill would eliminate penalties for underpayment of estimated taxes for resident individuals who timely file their Personal Income Tax return and make payment of any tax due at the time the return is filed. According to our interpretation, passage of this bill would result in a loss of roughly $3.3 million in State revenue. The direct loss of underpayment penalty revenue would be roughly $2.9 million per year. However, passage of this bill would also result in an expected change in taxpayer behavior with regard to making estimated tax payments. In the absence of a penalty for failure to make such payments, many taxpayers would forego making estimated payments altogether. The potential revenue loss attributable to the interest that would have been earned on estimated payments made throughout the year would be an additional $0.4 million per year. The estimate of the interest foregone due to the expected change in taxpayer behavior is based upon current forecasts of short-term interest rates. Due to current economic conditions, interest rates and other measures of return on investment are mere fractions of similar values of the prior year. A return to investment yields experienced prior to the current economic malaise may result in interest foregone in excess of $15 million instead of the indicated $0.4 million.
There would be no additional administrative costs to the State Tax Department associated with passage of this bill.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2009
Increase/Decrease
(use"-") |
2010
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 |
-3,300,000 |
-3,300,000 |
Explanation of above estimates (including long-range effect):
As written, this bill would eliminate penalties for underpayment of estimated taxes for resident individuals who timely file their Personal Income Tax return and make payment of any tax due at the time the return is filed. According to our interpretation, passage of this bill would result in a loss of roughly $3.3 million in State revenue. The direct loss of underpayment penalty revenue would be roughly $2.9 million per year. However, passage of this bill would also result in an expected change in taxpayer behavior with regard to making estimated tax payments. In the absence of a penalty for failure to make such payments, many taxpayers would forego making estimated payments altogether. The potential revenue loss attributable to the interest that would have been earned on estimated payments made throughout the year would be an additional $0.4 million per year. The estimate of the interest foregone due to the expected change in taxpayer behavior is based upon current forecasts of short-term interest rates. Due to current economic conditions, interest rates and other measures of return on investment are mere fractions of similar values of the prior year. A return to investment yields experienced prior to the current economic malaise may result in interest foregone in excess of $15 million instead of the indicated $0.4 million.
There would be no additional administrative costs to the State Tax Department associated with passage of this bill.
Memorandum
Person submitting Fiscal Note: Mark Muchow
Email Address: kpetry@tax.state.wv.us