Date Requested:August 04, 2011
Time Requested:10:38 AM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
Comm. Sub. SB1001
CBD Subject: REDUCTION ON SALES TAX ON FOOD
FUND(S)
General Revenue Fund, Revenue Shortfall Reserve Fund
Sources of Revenue
General Fund,Other Fund Revenue Shortfall Reserve
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: 1) To reduce the Consumers Sales and Service Tax on food and food ingredients to 1.5%, beginning on January 1, 2012, (2) To reduce the Consumers Sales and Service Tax on food and food ingredients to 1%, beginning on January 1, 2013, contingent on specified levels of funding in the Revenue Shortfall Reserve Fund, 3) To terminate the Consumers Sales and Service Tax on food and food ingredients beginning January 1, 2014, contingent on specified levels of funding in the Revenue Shortfall Reserve Fund, and (4) To increase the cap on the amount of money that may be deposited in the Revenue Shortfall Reserve Fund from 10% to 15% of the total appropriations from the General Revenue, for the preceding fiscal year.
    
    As written, this bill would lower the Consumers Sales and Service Tax rate on food and food ingredients for home consumption. According to our interpretation, passage of this bill would establish the tax rate on food and food ingredients for home consumption at 1.5 percent, effective January 1, 2012 with contingent tax rates of 1.0 percent effective January 1, 2013 and 0 percent effective January 1, 2014. Additionally, the bill would increase from 10 percent to 15 percent of the State General Revenue Fund the obligation of the Department of Revenue to apply half of any surplus revenues to the Revenue Shortfall Reserve Fund.
    
    The proposed 1.5 percent tax rate and subsequent contingent rate reductions represent a reduction from the current tax rate of 3 percent and a reduction from the 2 percent tax rate that was previously enacted for implementation January 1, 2012 and included in the Governor's official revenue estimates for FY2012. The following schedule assumes that the fiscal year ending balance in the Revenue Shortfall Reserve Fund will be sufficient to allow the contingent tax rate reductions to occur at the earliest possible dates as specified in the bill. However, there are no guarantees that the fiscal year ending balance in the Revenue Shortfall Reserve Fund will meet the target specified in the bill.
    
     Estimated
     Rate Reduction
     From 3% Rate
     Fiscal Year Revenue Impact
     2012 $16.5 million
     2013 $44.4 million
     2014 $62.8 million
     2015+ $78.0 million
    
     Rate Reduction
     3% to 2%
     Fiscal Year Revenue Impact
     2012 $11.0 million
     2013 $26.0 million
     2014 $26.0 million
     2015+ $26.0 million
    
     This Bill
     Fiscal Year Net Impact
     2012 $ 5.5 million
     2013 $18.4 million
     2014 $36.8 million
     2015+ $52.0 million
    
    The State Tax Department had previously estimated that the tax rate reduction from 3 percent to 2 percent would increase administrative costs by roughly $74,000 in FY2012 due to notifying taxpayers of the rate change and for programming changes. While the proposed rate reduction to 1.5 percent on January 1, 2012 would result in only minimal additional administrative costs above that for the scheduled reduction to 2 percent, the additional rate reductions would require new taxpayer notifications and programming changes. Additional administrative costs for the contingent rate reductions would be roughly $74,000 for each rate change.
    

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 74,000
Personal Services 0 0 0
Current Expenses 0 0 48,000
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 26,000
2. Estimated Total Revenues 0 -5,500,000 -52,000,000
3. Explanation of above estimates (including long-range effect):
    The stated purpose of this bill is: 1) To reduce the Consumers Sales and Service Tax on food and food ingredients to 1.5%, beginning on January 1, 2012, (2) To reduce the Consumers Sales and Service Tax on food and food ingredients to 1%, beginning on January 1, 2013, contingent on specified levels of funding in the Revenue Shortfall Reserve Fund, 3) To terminate the Consumers Sales and Service Tax on food and food ingredients beginning January 1, 2014, contingent on specified levels of funding in the Revenue Shortfall Reserve Fund, and (4) To increase the cap on the amount of money that may be deposited in the Revenue Shortfall Reserve Fund from 10% to 15% of the total appropriations from the General Revenue, for the preceding fiscal year.
    
    As written, this bill would lower the Consumers Sales and Service Tax rate on food and food ingredients for home consumption. According to our interpretation, passage of this bill would establish the tax rate on food and food ingredients for home consumption at 1.5 percent, effective January 1, 2012 with contingent tax rates of 1.0 percent effective January 1, 2013 and 0 percent effective January 1, 2014. Additionally, the bill would increase from 10 percent to 15 percent of the State General Revenue Fund the obligation of the Department of Revenue to apply half of any surplus revenues to the Revenue Shortfall Reserve Fund.
    
    The proposed 1.5 percent tax rate and subsequent contingent rate reductions represent a reduction from the current tax rate of 3 percent and a reduction from the 2 percent tax rate that was previously enacted for implementation January 1, 2012 and included in the Governor's official revenue estimates for FY2012. The following schedule assumes that the fiscal year ending balance in the Revenue Shortfall Reserve Fund will be sufficient to allow the contingent tax rate reductions to occur at the earliest possible dates as specified in the bill. However, there are no guarantees that the fiscal year ending balance in the Revenue Shortfall Reserve Fund will meet the target specified in the bill.
    
     Estimated
     Rate Reduction
     From 3% Rate
     Fiscal Year Revenue Impact
     2012 $16.5 million
     2013 $44.4 million
     2014 $62.8 million
     2015+ $78.0 million
    
     Rate Reduction
     3% to 2%
     Fiscal Year Revenue Impact
     2012 $11.0 million
     2013 $26.0 million
     2014 $26.0 million
     2015+ $26.0 million
    
     This Bill
     Fiscal Year Net Impact
     2012 $ 5.5 million
     2013 $18.4 million
     2014 $36.8 million
     2015+ $52.0 million
    
    The State Tax Department had previously estimated that the tax rate reduction from 3 percent to 2 percent would increase administrative costs by roughly $74,000 in FY2012 due to notifying taxpayers of the rate change and for programming changes. While the proposed rate reduction to 1.5 percent on January 1, 2012 would result in only minimal additional administrative costs above that for the scheduled reduction to 2 percent, the additional rate reductions would require new taxpayer notifications and programming changes. Additional administrative costs for the contingent rate reductions would be roughly $74,000 for each rate change.
    


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