Date Requested:January 26, 2011
Time Requested:01:25 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2011R1844 Introduced HB2862
CBD Subject: BUSINESS TAX DEDUCTION
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 allow a credit for all capital expenditures from the corporate net income tax.
    
    As written, this bill would create a tax credit equal to the amount a company expends to acquire or upgrade physical assets. The bill indicates that acquiring or upgrading physical assets such as property, industrial buildings or equipment includes but is not limited to repairing a roof, building a new factory or purchasing new computers. Since the bill apparently neither requires the capital expenditure to be made in West Virginia nor excludes the credit for capital expenditures if the capital expenditures are used for current investment credits, it is our interpretation that passage of the bill could result in tax planning practices that would generate tax credits offsetting nearly the entire Corporation Net Income Tax resulting in a reduction in the General Revenue Fund of $100 million to $200 million each year.
    
    Assuming that all Corporation Net Income Tax returns claiming the new credit would be accepted as filed, additional administrative costs for the State Tax Department would be minimal. However, if the State Tax Department is required to verify the amount of eligible credit, additional administrative costs to the State Tax Department could be significant.
    

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):
    As written, this bill would create a tax credit equal to the amount a company expends to acquire or upgrade physical assets. The bill indicates that acquiring or upgrading physical assets such as property, industrial buildings or equipment includes but is not limited to repairing a roof, building a new factory or purchasing new computers. Since the bill apparently neither requires the capital expenditure to be made in West Virginia nor excludes the credit for capital expenditures if the capital expenditures are used for current investment credits, it is our interpretation that passage of the bill could result in tax planning practices that would generate tax credits offsetting nearly the entire Corporation Net Income Tax resulting in a reduction in the General Revenue Fund of $100 million to $200 million each year.
    
    Assuming that all Corporation Net Income Tax returns claiming the new credit would be accepted as filed, additional administrative costs for the State Tax Department would be minimal. However, if the State Tax Department is required to verify the amount of eligible credit, additional administrative costs to the State Tax Department could be significant.
    


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kerri.r.petry@wv.gov
    The stated purpose of this bill is to allow a credit for all capital expenditures from the corporate net income tax.
    
    The bill indicates the proposed credit is determined by the amount spent on capital expenditures. While the bill provides some examples of capital expenditures, it does not provide a clear definition for the term. The lack of a definition could result in many different interpretations and lead to an increase in administrative and trial court activity.
    
    Since the bill does not preclude capital expenditures made outside of West Virginia from qualifying for the credit, the State of West Virginia could conceivably fund capital improvements in other states. In addition to the direct reduction in revenue for an out-of-state capital expenditure, the improvement may lead to a lower West Virginia apportionment calculation if the improvement (or additional payroll or sales) increases a corporation’s total property (or payroll or sales) values without increasing the respective West Virginia values.