Sources of Revenue:

General Fund,Special 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 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 bill, as written, would permit businesses to apply for qualification as a small business if the business is not directly related to the gambling industry, the owner or owners have been residents of West Virginia for one year, the owner of the business has no other out-of-state business locations of similar businesses, the business employs no more than fifty employees, and no other businesses of its nature exists in the county or municipality where the business is to locate. Upon qualifying as a small business for purposes of the Act, the business is exempted from paying any business related tax required by the Department of Revenue, with the exception of personal income tax, workers’ compensation quarterly premiums or unemployment compensation premiums. The State Tax Department does not have sufficient data to estimate the potential revenue impact that would result from passage of this bill, however, the potential revenue reduction could be substantial. Additional administrative costs to the State Tax Department associated with passage of this bill would be significant.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	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	0	0

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

Passage of this bill, would permit businesses to apply for qualification as a small business if the business is not directly related to the gambling industry, the owner or owners have been residents of West Virginia for one year, the owner of the business has no other out-of-state business locations of similar businesses, the business employs no more than fifty employees, and no other businesses of its nature exists in the county or municipality where the business is to locate. Upon qualifying as a small business for purposes of the Act, the business is exempted from paying any business related tax required by the Department of Revenue, with the exception of personal income tax, workers’ compensation quarterly premiums or unemployment compensation premiums. The State Tax Department does not have sufficient data to estimate the potential revenue impact that would result from passage of this bill, however, the potential revenue reduction could be substantial. Additional administrative costs to the State Tax Department associated with determining whether or not businesses applying for “small business” status meet the criteria would be significant.

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. As written, the bill uses a number of terms without providing an adequate definition of the term. The bill provides that qualifying small businesses are exempted from paying any business related tax required by the Department of Revenue, with the exception of personal income tax, workers’ compensation quarterly premiums or unemployment compensation premiums. The term “business related tax” could be subject to broad interpretation. It seems possible that the definition could include the Consumers Sales and Service Tax owed on sales made by the “qualified small business.” However, that tax is owed by the consumer but required to be collected and remitted by the merchant. Thus, the business would be exempt from paying a tax owed by another. Part of the criteria for designation as a qualifying small business is that the businesses are owned by “residents of the state” and that there is no other “out of state business locations involving similar businesses.” Both of these requirements appear to violate the United States Constitution by discriminating against interstate commerce.

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