Date Requested:January 24, 2011
Time Requested:04:47 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2011R1583 Introduced HB2771
CBD Subject: STAY HOME IN WV
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 establish the “Stay Home and Work Income Tax Incentive Act”; providing a tax credit for graduates of a higher education institution for a portion of the interest paid on student loans; establishing a one-time modification reducing federal adjusted gross income for recent graduates of higher education institutions up to the first $30,000 with a five year eligibility for such modification; providing that such modification be revoked if the eligible taxpayer establishes residency outside of West Virginia.
    
    As written, this bill proposes two new tax incentives. The first tax incentive would create a tax credit in an amount equal to the amount of money paid as interest on a qualified student loan, up to a maximum of $500 per taxpayer per year. The tax credit would be available to any taxpayer who has paid interest on a qualified student loan, but is under age 40 as of the end of December of the tax year. A qualified student loan is defined as a loan made to a student for the purpose of paying the tuition, books, fees or any other educational expense or living expenses of a student pursuing a two-year degree, four-year degree, or advanced degree from a higher education institution. If the tax credit allowed in any tax year exceeds the taxpayer’s Personal Income Tax liability for the tax year, the excess may be applied in succeeding years until the full amount of the excess credit is used or the taxpayer reaches age forty. The tax credit proposal authorizes the State Tax Commissioner to promulgate rules, as necessary, to carry out the purposes of the tax credit law.
    
    The second tax incentive would create a Personal Income Tax decreasing modification for taxpayers who are graduates of a higher education institution, who are under age 40 as of the end of December of the tax year, and who have obtained the qualifying degree not more than five years prior to the tax year in which the modification is to be claimed. Qualifying taxpayers would be permitted a decreasing modification in the amount of $30,000, but taxpayers can only claim the modification one time. The decreasing modification proposal requires the State Tax Commissioner to promulgate Legislative rules, as necessary, regarding the documentation necessary to claim the modification.
    
    According to our interpretation and based upon available information, passage of the proposed tax credit would reduce revenue by roughly $17 million to $20 million per year beginning in Fiscal Year 2012 and passage of the proposed decreasing modification would reduce revenue by roughly $11 million to $14 million in the initial year and by roughly $2 million to $4 million per year thereafter. The larger revenue reduction in the initial year assumes that all taxpayers who had received a degree within the previous five years would claim it in the initial year. The combined revenue reduction resulting from passage of the two tax incentives would be roughly $28 million to $34 million in Fiscal Year 2012 and roughly $19 million to $24 million each year thereafter.
    
    If all Personal Income Tax returns claiming the proposed tax credit and proposed modification would be accepted as filed, additional administrative costs for the State Tax Department would be minimal. However, the bill as written, requires the State Tax Commissioner to promulgate Legislative rules, as necessary, regarding the documentation necessary to claim the proposed modification. If the intent of the required rules is to ensure complete review of the use of the proposed modification, additional administrative costs to the State Tax Department would be substantial.
    

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2011
Increase/Decrease
(use"-")
2012
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
3. Explanation of above estimates (including long-range effect):
    Passage of this bill would create two new tax incentives. The first tax incentive would create a tax credit in an amount equal to the amount of money paid as interest on a qualified student loan, up to a maximum of $500 per taxpayer per year. The tax credit would be available to any taxpayer who has paid interest on a qualified student loan, but is under age 40 as of the end of December of the tax year. A qualified student loan is defined as a loan made to a student for the purpose of paying the tuition, books, fees or any other educational expense or living expenses of a student pursuing a two-year degree, four-year degree, or advanced degree from a higher education institution. If the tax credit allowed in any tax year exceeds the taxpayer’s Personal Income Tax liability for the tax year, the excess may be applied in succeeding years until the full amount of the excess credit is used or the taxpayer reaches age forty. The tax credit proposal authorizes the State Tax Commissioner to promulgate rules, as necessary, to carry out the purposes of the tax credit law.
    
    The second tax incentive would create a Personal Income Tax decreasing modification for taxpayers who are graduates of a higher education institution, who are under age 40 as of the end of December of the tax year, and who have obtained the qualifying degree not more than five years prior to the tax year in which the modification is to be claimed. Qualifying taxpayers would be permitted a decreasing modification in the amount of $30,000, but taxpayers can only claim the modification one time. The decreasing modification proposal requires the State Tax Commissioner to promulgate Legislative rules, as necessary, regarding the documentation necessary to claim the modification.
    
    According to our interpretation and based upon available information, passage of the proposed tax credit would reduce revenue by roughly $17 million to $20 million per year beginning in Fiscal Year 2012 and passage of the proposed decreasing modification would reduce revenue by roughly $11 million to $14 million in the initial year and by roughly $2 million to $4 million per year thereafter. The larger revenue reduction in the initial year assumes that all taxpayers who had received a degree within the previous five years would claim it in the initial year. The combined revenue reduction resulting from passage of the two tax incentives would be roughly $28 million to $34 million in Fiscal Year 2012 and roughly $19 million to $24 million each year thereafter. Roughly 45,000 to 50,000 taxpayers would be eligible to claim the proposed tax credit and roughly 15,000 to 17,000 taxpayers would be eligible to reduce their tax liability via the proposed decreasing modification in the initial year of availability while roughly 2,000 to 4,000 taxpayers would be eligible to claim the decreasing modification in subsequent years.
    
    If all Personal Income Tax returns claiming the proposed tax credit and proposed modification would be accepted as filed, additional administrative costs for the State Tax Department would be minimal. However, the bill as written, requires the State Tax Commissioner to promulgate Legislative rules, as necessary, regarding the documentation necessary to claim the proposed modification. If the intent of the required rules is to ensure complete review of the use of the proposed modification, additional administrative costs to the State Tax Department would be substantial.
    


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kerri.r.petry@wv.gov
    The stated purpose of this bill is to establish the “Stay Home and Work Income Tax Incentive Act”; providing a tax credit for graduates of a higher education institution for a portion of the interest paid on student loans; establishing a one-time modification reducing federal adjusted gross income for recent graduates of higher education institutions up to the first $30,000 with a five year eligibility for such modification; providing that such modification be revoked if the eligible taxpayer establishes residency outside of West Virginia.
    
    One of the tax incentives proposed by this bill is a tax credit for student loan interest paid during the tax year. Since the West Virginia Personal Income Tax begins with federal adjusted gross income and federal adjusted gross income includes a deduction for student loan interest, the proposed tax credit provides a multiple benefit. In some cases, the total tax benefits may exceed the amount of interest paid.