Date Requested:January 25, 2011
Time Requested:02:26 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2011R2078 Introduced SB249
CBD Subject: WV Manufacturing Competitiveness and Growth Act
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 provide a phased-in credit against corporation net income tax and personal income tax for ad valorem property taxes paid in this state with respect to industrial tangible personal property consisting of machinery and equipment, and to provide a transitional credit against the portion of a taxpayer’s corporation net income tax resulting from its use of combined reporting, the amount of the credit being measured by the lesser of the amount of ad valorem property taxes paid in the tax year by the taxpayer in this state with respect to industrial tangible personal property consisting of machinery and equipment or the amount of increased corporation net income tax paid due to combined reporting.
    
    As written, this bill would create two tax credits. The first tax credit, a transitional credit, would be equal to the lesser of (1) the amount of West Virginia Property Tax paid in the tax year on tangible personal property consisting of machinery and equipments that is classified as industrial property, and (2) a portion of the taxpayer’s combined reporting increase for the tax year. The second part of the credit calculation is determined by multiplying the taxpayer’s combined reporting increase by 100 percent, 70 percent, or 30 percent, respectively for tax years beginning on and after January 1, 2012, January 1, 2013, and January 1, 2014. The credit, for manufacturers only, would be applied to offset Corporation Net Income Tax liability. Any unused credit would be carried forward and applied in subsequent years until exhausted, however, no credit would be applied to reduce the Corporation Net Income Tax liability for any tax year beginning after December 31, 2014. The second tax credit would be equal to amount of West Virginia Property Tax paid on manufacturing machinery and equipment, reduced by the amount of any transitional credit applied, multiplied by the applicable credit percentage and multiplied by the applicable phase-in percentage. The applicable credit percentage begins at 100 percent for taxpayers whose income tax liability is less than $50,000, at 60 percent for taxpayers whose income tax liability is less than $100,000, and at 40 percent for all others. Beginning with tax years beginning in 2015, and each subsequent year, the applicable percentages increase by 20 percentage points each year until all taxpayers are at the 100 percent level. The phase-in percentage begins at 25 percent and increases by 25 percentage points each year until reaching 100 percent. The credit, effective for tax years beginning on or after January 1, 2012, may be used to reduce Corporation Net Income Tax and Personal Income Tax liabilities, with any unused credit carried forward to subsequent tax years until exhausted. According to our interpretation and based upon available data, the transitional credit would result in a reduction in the General Revenue Fund of roughly $7 million per year and the second credit would result in a reduction in the General Revenue Fund of roughly $6 million in Fiscal Year 2016 and increasing to roughly $16 million or more by Fiscal Year 2017.
    
    Additional administrative costs to the State Tax Department associated with this bill would be roughly $80,000 in Fiscal Year 2010 and roughly $45,000 per year for each year thereafter.
    

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 80,000 45,000
Personal Services 0 45,000 45,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 35,000 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0
3. Explanation of above estimates (including long-range effect):
    As written, this bill would create two tax credits. The first tax credit, a transitional credit, would be equal to the lesser of (1) the amount of West Virginia Property Tax paid in the tax year on tangible personal property consisting of machinery and equipments that is classified as industrial property, and (2) a portion of the taxpayer’s combined reporting increase for the tax year. The second part of the credit calculation is determined by multiplying the taxpayer’s combined reporting increase by 100 percent, 70 percent, or 30 percent, respectively for tax years beginning on and after January 1, 2012, January 1, 2013, and January 1, 2014. The credit, for manufacturers only, would be applied to offset Corporation Net Income Tax liability. Any unused credit would be carried forward and applied in subsequent years until exhausted, however, no credit would be applied to reduce the Corporation Net Income Tax liability for any tax year beginning after December 31, 2014. The second tax credit would be equal to amount of West Virginia Property Tax paid on manufacturing machinery and equipment, reduced by the amount of any transitional credit applied, multiplied by the applicable credit percentage and multiplied by the applicable phase-in percentage. The applicable credit percentage begins at 100 percent for taxpayers whose income tax liability is less than $50,000, at 60 percent for taxpayers whose income tax liability is less than $100,000, and at 40 percent for all others. Beginning with tax years beginning in 2015, and each subsequent year, the applicable percentages increase by 20 percentage points each year until all taxpayers are at the 100 percent level. The phase-in percentage begins at 25 percent and increases by 25 percentage points each year until reaching 100 percent. The credit, effective for tax years beginning on or after January 1, 2012, may be used to reduce Corporation Net Income Tax and Personal Income Tax liabilities, with any unused credit carried forward to subsequent tax years until exhausted. According to our interpretation and based upon available data, the transitional credit would result in a reduction in the General Revenue Fund of roughly $7 million per year and the second credit would result in a reduction in the General Revenue Fund of roughly $6 million in Fiscal Year 2016 and increasing to roughly $16 million or more by Fiscal Year 2017.
    
    Additional administrative costs to the State Tax Department associated with this bill would be roughly $80,000 in Fiscal Year 2010 and roughly $45,000 per year for each year thereafter. Due to the complexity of the proposed tax credits additional personnel would be required to review returns claiming the tax credit.
    


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