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 provide an earned income tax credit from the state personal income tax for taxpayers with qualifying children. The earned income tax credit is equal to twenty percent of the federal credit. As written, the bill proposes a new non-refundable credit that is equal to 20 percent of the earned income credit allowed under Section 32 of the federal Internal Revenue Code, and applicable to a qualifying Taxpayer’s Personal Income Tax liability, as reduced by other available tax credits. It is our interpretation that passage of this bill would reduce revenues by roughly $23 million per year beginning in FY2012. The bill also requires the State Tax Commissioner to make efforts every year to alert taxpayers who may be eligible to receive the credit and to prepare an annual written report containing statistical information regarding the credits. The State Tax Department will incur additional administrative costs associated with passage of this bill. One-time costs of roughly $200,000 would be incurred in FY2012 attributable to tax form revisions, computer program changes, and the required notification of potentially eligible Taxpayers. Annual administrative costs of roughly $50,000 will be incurred in subsequent years attributable to the notification of potentially eligible Taxpayers and the annual written report. If it is expected that claims of the credit are to be audited, additional administrative costs in FY2013 and beyond attributable to the establishment and operation of an audit program will be significant.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2011 Increase/Decrease (use"-")	2012 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	200,000	50,000
Personal Services	0	0	0
Current Expenses	0	40,000	40,000
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	160,000	10,000
2. Estimated Total Revenues	0	-23,000,000	-23,000,000

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

As written, this bill would create a new non-refundable credit that is equal to 20 percent of the earned income credit allowed under Section 32 of the federal Internal Revenue Code, and applicable to a qualifying Taxpayer’s Personal Income Tax liability, as reduced by other available tax credits. It is our interpretation that passage of this bill would reduce revenues by roughly $23 million per year beginning in FY2012.The bill also requires the State Tax Commissioner to make efforts every year to alert taxpayers who may be eligible to receive the credit and to prepare an annual written report containing statistical information regarding the credits. The State Tax Department will incur additional administrative costs associated with passage of this bill. One-time costs of roughly $200,000 would be incurred in FY2012 attributable to tax form revisions, computer program changes, and the required notification of potentially eligible Taxpayers. Annual administrative costs of roughly $50,000 will be incurred in subsequent years attributable to the notification of potentially eligible Taxpayers and the annual written report. If it is expected that claims of the credit are to be audited, additional administrative costs in FY2013 and beyond attributable to the establishment and operation of an audit program will be significant. Nearly 182,000 West Virginia taxpayers claimed more than $353 million in federal earned income tax credits in 2009. With recent enhancements, total federal earned income tax credits may rise to more than $380 million for tax year 2010.

Memorandum

Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov