Date Requested:January 16, 2012
Time Requested:05:22 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2011R2331 Carry Over HB2920
CBD Subject: INTEREST PAID ON STUDENT LOANS
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 incentives to attract and retain young talent to the State of West Virginia. The bill establishes a tax credit for graduates of a higher education institution for a portion of the interest paid on student loans. The bill requires the Joint Committee on Government and Finance to review the effectiveness of the tax credit. The bill establishes a modification reducing federal adjusted gross income for recent graduates of higher education institutions. The bill also provides for rule-making authority.
    
    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 and would be applicable for tax years beginning on or after January 1, 2011. 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. The tax credit proposal authorizes the State Tax Commissioner to promulgate rules, as necessary, to carry out the purposes of the tax credit law. Additionally, the proposal requires the State Tax Commissioner to provide the Joint Committee of Government and Finance all information regarding the use of the credit.
    
    The second tax incentive would create a Personal Income Tax decreasing modification for taxpayers who are graduates of a higher education institution, who have obtained the qualifying degree not more than two 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 $25,000 to offset income received from any source after December 31, 2011. 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 $18 million to $20 million per year and passage of the proposed decreasing modification would reduce revenue by roughly $4 million to $6 million per year. Since the tax credit is applicable to tax years beginning on or after January 1, 2011 and most tax returns for the 2011 tax year will be filed before the enactment of the bill, claimants of the credit for tax year 2011 will have to file amended returns and receive a refund in the amount of the credit. Thus, for FY2013 the estimated reduction in annual revenue would be roughly $40 million to $46 million (due to application of credit for tax years 2011 and 2012 and application of the decreasing modification for tax year 2012). In subsequent years, the combined annual revenue reduction resulting from passage of the two tax incentives would be roughly $22 million to $26 million per year.
    
    Due to the likelihood of additional refunds attributable to the retroactive effective date of the proposed tax credit, the State Tax department will incur significant administrative costs in Fiscal Year 2013. For 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.
    

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2012
Increase/Decrease
(use"-")
2013
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 and would be applicable for tax years beginning on or after January 1, 2011. 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. The tax credit proposal authorizes the State Tax Commissioner to promulgate rules, as necessary, to carry out the purposes of the tax credit law. Additionally, the proposal requires the State Tax Commissioner to provide the Joint Committee of Government and Finance all information regarding the use of the credit.
    
    The second tax incentive would create a Personal Income Tax decreasing modification for taxpayers who are graduates of a higher education institution, who have obtained the qualifying degree not more than two 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 $25,000 to offset income received from any source after December 31, 2011. 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 $18 million to $20 million per year and passage of the proposed decreasing modification would reduce revenue by roughly $4 million to $6 million per year. Since the tax credit is applicable to tax years beginning on or after January 1, 2011 and most tax returns for the 2011 tax year will be filed before the enactment of the bill, claimants of the credit for tax year 2011 will have to file amended returns and receive a refund in the amount of the credit. Thus, for FY2013 the estimated reduction in annual revenue would be roughly $40 million to $46 million (due to application of credit for tax years 2011 and 2012 and application of the decreasing modification for tax year 2012). In subsequent years, the combined annual revenue reduction resulting from passage of the two tax incentives would be roughly $22 million to $26 million per year.
    
    Due to the likelihood of additional refunds attributable to the retroactive effective date of the proposed tax credit, the State Tax department will incur significant administrative costs in Fiscal Year 2013. For 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 incentives to attract and retain young talent to the State of West Virginia. The bill establishes a tax credit for graduates of a higher education institution for a portion of the interest paid on student loans. The bill requires the Joint Committee on Government and Finance to review the effectiveness of the tax credit. The bill establishes a modification reducing federal adjusted gross income for recent graduates of higher education institutions. The bill also provides for rule-making authority.
    
    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 that in combination could exceed the interest cost for some taxpayers.