Date Requested:February 11, 2009
Time Requested:03:46 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2009R1273 Introduced SB142
CBD Subject: SMALL TOURISM BUSINESS DEVELOPMENT ACT
FUND(S)
General Revenue Fund, Small Business Tourism Development Fund & General Tax Administration Fund
Sources of Revenue
General Fund,Special Fund
Legislation creates:
A New Program,A New Fund

Fiscal Note Summary

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

    The purpose of this bill is to create a tax incentive for the creation, construction or enlargement of tourism attractions or amenities. The credit operates to allow the taxpayer to recover up to twenty-five percent or, in the case of bed and breakfast facilities, fifty percent, of qualified eighty percent investment in a tourism attraction or amenity by offsetting up to eighty percent of consumers sales and service tax collected by the taxpayer from customers over a period of either five or ten years at the election of the taxpayer.
    
    This bill, as written, would reduce General Revenue Fund collections by up to $1 million during FY2009-2010. The potential cost of this bill would gradually rise to not more than $3 million per year by the date of scheduled program termination. There would be a minimal increase in Special Revenue. Total tax credit certifications would be capped at $10 million per year. The credit allotment would be available on a first-come first-serve basis.
    
    The Small Tourism Business Development Act would provide eligible taxpayers with a tax credit equal to 25 percent (50 percent for bed and breakfast lodging) of “qualified investment” in a certified “tourism development” project. At the election of the taxpayer, the credit would be pro-rated over a period of either five years or ten years and could offset up to 80 percent of vendor sales tax collections in each of those years. A tourism development project would include new or expanded tourism attraction facilities and new or expanded lodging facilities. Expanded facilities would have to increase their capacity by at least 10 percent to qualify for the tax credit. If the credit is based upon investment in replacement property, then the investment would have to result in at least a 50 percent increase in capacity. The cost basis of qualified investment would be determined in the same manner as qualified investment for other existing investment-based tax credits. Projects that qualify for the Business Investment and Jobs Expansion Credit would not qualify for this tourism tax credit. Possible “tourism attraction” taxpayers would include those who invest in facilities related to: certified cultural or historical sites; recreation or entertainment attractions; areas of scenic beauty, natural phenomenon or scientific significance; a theme park; an amusement park; an indoor or outdoor theater for the exhibition of plays or live shows; botanical gardens; cultural or educational centers; whitewater rafting trips or other water tours; state parks; rail excursions; river boat tours; rails-to-trails tours; water sports; mountain biking areas; cycling areas, hunting areas; snow skiing and related recreation areas; fishing areas; golf courses; hiking areas; bird watching areas; camping areas; industrial tourism sites; sports arenas; and, automobile or motorcycle race tracks.
    
    To qualify for credit, the qualified tourism property would have to be located within a “qualified tourism development area.” A “qualified tourism development area” is any county with an unemployment rate at least one percentage point above the State average for the preceding year.
    
    Each qualified project would have to be certified by the Division of Tourism. The Commissioner of the Division of Tourism would receive applications for certification during the first and third quarters of the State fiscal year. Certification of proposed projects would be issued in the quarter following receipt of the application. All applications for certification would be public information.
    
    Additionally, the bill provides that the lesser of two percent of the remaining tax attributable to qualified investment after application of the credit or four tenths of one percent of total tax attributable to qualified investment be deposited into two Special Revenue Funds. It is estimated that deposits to the Small Tourism Business Development Fund and the Tax Department General Tax Administration Fund would be minimal.
    
    Additional administrative costs to the State Tax Department would be up to $21,000 per year. There would also be additional administrative costs for the Division of Tourism.
    
    

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2009
Increase/Decrease
(use"-")
2010
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 5,000 21,000
Personal Services 0 0 16,000
Current Expenses 0 5,000 5,000
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 -10,000,000 -1,000,000
3. Explanation of above estimates (including long-range effect):
    Passage of this bill would create the Small Tourism Business Development Act including tax credits. The tax credit exposure is limited by an annual cap of $10 million in approved tax credits. Annual tax credit exposure is further limited by a 5 or 10-year proration requirement. If the $10 million cap is met during the first year, then the maximum annual credit exposure would be somewhere between $1 million (i.e., 10% of $10 million each year for 10 years) and $2 million (i.e., 20% of $10 million over 5 years). The other limitation is 80% of consumer sales tax collections. Many firms will elect the 10-year proration to minimize their annual credit forfeiture (i.e., any excess pro-rated credit remaining after the 80% consumer sales tax application is forfeited). Each year after FY2010, another layer of $10 million in credit benefits may be added to the first $10 million allotment until program termination. The maximum annual cost gradually rises over the five-year period to as much as $3 million by the third tax year. If the credit is not extended beyond that time frame, then annual costs will gradually decline toward $0 by FY2019-2020.
    
    This new tax credit would be available to numerous types of tourist-related businesses who locate or are located within high unemployment counties. At a minimum, at least three separate tourism businesses may qualify for credit in any single year (i.e., the maximum credit per taxpayer is capped at $4 million). However, it is impossible to accurately predict the level of taxpayer response to this type of program.
    
    Additionally, the bill provides that the lesser of two percent of the remaining tax attributable to qualified investment after application of the credit or four tenths of one percent of total tax attributable to qualified investment be deposited into both the Small Tourism Business Development Fund and the Tax Department General Tax Administration Fund. It is estimated that deposits to both of these funds would be minimal.
    
    The additional administrative costs for the State Tax Department are attributable to tax schedule form development, postage and tax form processing costs, including the tracking of credits for the Tax Credit Disclosure Report and audits.
    
    


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kpetry@tax.state.wv.us
    The purpose of this bill is to create a tax incentive for the creation, construction or enlargement of tourism attractions or amenities. The credit operates to allow the taxpayer to recover up to twenty-five percent or, in the case of bed and breakfast facilities, fifty percent, of qualified eighty percent investment in a tourism attraction or amenity by offsetting up to eighty percent of consumers sales and service tax collected by the taxpayer from customers over a period of either five or ten years at the election of the taxpayer.
    
    This bill is nearly identical to bills introduced in 2001, 2003, 2004, 2005, 2006, 2007, and 2008. However, some of the dates used to define eligibility and credit expiration were not updated. Additionally, the bill has not been updated to reflect recent changes in West Virginia’s investment tax credits. The calculation of “tax attributable to qualified” investment as in proposed W. Va. Code §11-13Z-4(a) is written such that a Taxpayer would qualify for the credit only if the sales tax they collect from their patrons following the investment is less than the sales tax collected before the investment.
    
    There is some question about why the taxpayer should file an annual tax credit schedule with the personal income, corporate net income, or business franchise tax return when the credit may only apply against consumer sales tax. The annual credit schedule could easily be filed with the last consumers sales tax return for each year.
    
    Although this bill is very similar to bills that have been introduced in prior years, the conversion of percentages in the stated purpose from numeric values to word phrases appears to have inserted an additional “eighty percent” in the second sentence between the terms “qualified” and “investment.”