FISCAL NOTE



FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund

Legislation creates:

A New Program



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 West Virginia Voluntary Employee Retirement Accounts Program, a voluntary tax-deferred retirement plan for nongovernmental employers and employees in the State of West Virginia who are without a retirement plan. Participation by employers and employees is voluntary. All federal requirements must be met before operations begin. A trust and an administration account are established. The bill provides for initial start-up and operations funding of $3 million appropriated from the Unclaimed Property Trust Fund, and provides for repayment of the amount. The treasurer is authorized to collect fees from accounts for operations. The bill specifically provides that the state and the treasurer are not liable for any losses or change in value, and that the Legislature is under no obligation to appropriate funds except as provided in the bill. Information of a personal nature gathered for participation in the program is confidential and not subject to a Freedom of Information Act request. As written, this bill would provide that contributions to the retirement fund created by this bill would not be subject to federal, State, or municipal income tax. However, determination as to whether or not the program is approved for the favored tax deferral status may rest with the federal government. The potential State revenue impact of this proposal hinges on its acceptance as a qualified tax deferral program. If the program is qualified for the tax deferral program, the contributor’s federal adjusted gross income for federal tax purposes would not include the contribution and since the starting point for calculation of West Virginia Personal Income Tax begins with federal adjusted gross income there would be no additional income offset on the State return. However, if the program is not approved for tax deferred status the participation level by potential contributors would likely be greatly diminished since the State tax benefit would be small compared to a combined State and federal tax benefit. Additionally, the voluntary participation of employers in a State only benefit program would likely be greatly diminished since the employer would have to maintain one employee income calculation for purposes of federal income taxation and another income calculation for purposes of the State Personal Income Tax. According to our interpretation, the potential revenue impact of the proposed program, with or without approval of tax deferred status for federal income tax purposes, would be minimal. The bill also contains a number of other provisions concerning the establishment and administration of the program that are beyond the purview of the State Tax Department. Additional administrative costs to the State Tax Department associated with this bill would be minimal, if the proposed program qualifies for tax deferred status for purposes of the federal income tax. However, additional administrative costs to the State Tax Department for a program that only provides tax deferral of income for purposes of the West Virginia Personal Income Tax could be significant. Additionally, under a State only program employers may incur significant additional administrative costs. Other agencies involved with the program may incur administrative costs.



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 0 0


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


As written, this bill would provide that contributions to the retirement fund created by this bill would not be subject to federal, State, or municipal income tax. However, determination as to whether or not the program is approved for the favored tax deferral status may rest with the federal government. The potential State revenue impact of this proposal hinges on its acceptance as a qualified tax deferral program. If the program is qualified for the tax deferral program, the contributor’s federal adjusted gross income for federal tax purposes would not include the contribution and since the starting point for calculation of West Virginia Personal Income Tax begins with federal adjusted gross income there would be no additional income offset on the State return. However, if the program is not approved for tax deferred status the participation level by potential contributors would likely be greatly diminished since the State tax benefit would be small compared to a combined State and federal tax benefit. Additionally, the voluntary participation of employers in a State only benefit program would likely be greatly diminished since the employer would have to maintain one employee income calculation for purposes of federal income taxation and another income calculation for purposes of the State Personal Income Tax. According to our interpretation, the potential revenue impact of the proposed program, with or without approval of tax deferred status for federal income tax purposes, would be minimal. The bill also contains a number of other provisions concerning the establishment and administration of the program that are beyond the purview of the State Tax Department. Additional administrative costs to the State Tax Department associated with this bill would be minimal, if the proposed program qualifies for tax deferred status for purposes of the federal income tax. However, additional administrative costs to the State Tax Department for a program that only provides tax deferral of income for purposes of the West Virginia Personal Income Tax could be significant. Additionally, under a State only program employers may incur significant additional administrative costs. Other agencies involved with the program may incur administrative costs.



Memorandum


The stated purpose of this bill is to create the West Virginia Voluntary Employee Retirement Accounts Program, a voluntary tax-deferred retirement plan for nongovernmental employers and employees in the State of West Virginia who are without a retirement plan. Participation by employers and employees is voluntary. All federal requirements must be met before operations begin. A trust and an administration account are established. The bill provides for initial start-up and operations funding of $3 million appropriated from the Unclaimed Property Trust Fund, and provides for repayment of the amount. The treasurer is authorized to collect fees from accounts for operations. The bill specifically provides that the state and the treasurer are not liable for any losses or change in value, and that the Legislature is under no obligation to appropriate funds except as provided in the bill. Information of a personal nature gathered for participation in the program is confidential and not subject to a Freedom of Information Act request. Proposed W. Va. Code §5-10E-8 states “any compensation deferred under the plan is not subject to federal, state or municipal income tax . . .” Federal statutes and regulations may actually determine whether or not the deferred compensation is subject to federal tax.



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