FISCAL NOTE
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 authorize the creation of a new tax credit for eligible expenditures incurred in placing in service residential or nonresidential energy efficient building property. The bill’s incentive will encourage the construction of energy efficient buildings, thereby reducing the total amount of energy consumed in the state. The bill requires the Tax Commissioner to provide to the Joint Committee on Government and Finance annual reports beginning in 2015.
According to our interpretation, this bill would create the Energy Efficient Building Property Tax Credit, a tax credit available to Taxpayers who are the owners of a residential or commercial building which the US Environmental Protection Agency has awarded the ENERGY STAR® label, or Taxpayers owning building plans which have earned the Designed to Earn the ENERGY STAR® label. The proposed bill requires Taxpayers claiming the credit based upon ownership of eligible building plans to complete construction of the eligible building and obtain ENERGY STAR® certification within four years from the time the credit was initially taken. The tax credit, calculated as the greater of 1.5 percent of eligible expenditures or $1 per square foot of the eligible building as constructed or as designed and portrayed on the building plan, may be used to offset Business Franchise Tax, Corporation Net Income Tax, or Personal Income Tax. The new tax credit would be effective for tax years beginning on or after January 1, 2013, but with eligible expenditures occurring on or after July 1, 2013. The tax credit is allowed on a first come, first served basis. The bill provides that the total amount of Energy Efficient Building Property Tax Credits for all taxpayers may not exceed $1,000,000 each calendar year.
Due to the current low market penetration (i.e., less than 3 percent for West Virginia) of qualifying homes as reported via the Qualified New Homes Market Indices for States for 2011 (an index comparing the number of ENERGY STAR® qualified new homes built to the number of privately owned housing units permitted) as posted on the ENERGY STAR® web site, the potential exists for rapid escalation of qualifying homes. The acceleration of qualifying homes will rapidly increase the potential costs of the tax credit. The State Tax Department does not have sufficient data to estimate the potential revenue impact of this proposed tax credit. However, according to the provisions of the bill, there is a limit of no more than $1 million of tax credits per calendar year. Therefore, passage of this bill could possibly reduce General Revenue Fund collections by up to $1 million per year.
As written, the bill requires the State Tax Department to develop application forms, to review and approve applications for the credit, to provide for the sale or transfer of unused credit, and to prepare an annual report on the credit. Additional administrative costs to the State Tax Department associated with passage of this bill would be at least $50,000 per year.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2013
Increase/Decrease
(use"-") |
2014
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
50,000 |
50,000 |
| 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 |
-1,000,000 |
-1,000,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, this bill would create the Energy Efficient Building Property Tax Credit, a tax credit available to Taxpayers who are the owners of a residential or commercial building which the US Environmental Protection Agency has awarded the ENERGY STAR® label, or Taxpayers owning building plans which have earned the Designed to Earn the ENERGY STAR® label. The proposed bill requires Taxpayers claiming the credit based upon ownership of eligible building plans to complete construction of the eligible building and obtain ENERGY STAR® certification within four years from the time the credit was initially taken. The tax credit, calculated as the greater of 1.5 percent of eligible expenditures or $1 per square foot of the eligible building as constructed or as designed and portrayed on the building plan, may be used to offset Business Franchise Tax, Corporation Net Income Tax, or Personal Income Tax. The new tax credit would be effective for tax years beginning on or after January 1, 2013, but with eligible expenditures occurring on or after July 1, 2013. The tax credit is allowed on a first come, first served basis. The bill provides that the total amount of Energy Efficient Building Property Tax Credits for all taxpayers may not exceed $1,000,000 each calendar year.
Design projects that receive a rating of 75 or higher are eligible for designation as Designed to Earn the ENERGY STAR®, and projects that achieve 50 percent or better than an average building meet Architecture 2030 and AIA goals. All eligible designs must be at least 95 percent complete with construction documents. Buildings that have generated utility bills are not eligible for Designed to Earn the ENERGY STAR ®. To earn the ENERGY STAR®, a home must meet guidelines for energy efficiency set by the U.S. Environmental Protection Agency. These homes are at least 15% more energy efficient than homes built to the 2004 International Residential Code (IRC), and include additional energy-saving features that typically make them 20–30% more efficient than standard homes.
Due to the current low market penetration (i.e., less than 3 percent for West Virginia) of qualifying homes as reported via the Qualified New Homes Market Indices for States for 2011 (an index comparing the number of ENERGY STAR® qualified new homes built to the number of privately owned housing units permitted) as posted on the ENERGY STAR® web site, the potential exists for rapid escalation of qualifying homes. The acceleration of qualifying homes will rapidly increase the potential costs of the tax credit. The State Tax Department does not have sufficient data to estimate the potential revenue impact of this proposed tax credit. However, according to the provisions of the bill, there is a limit of no more than $1 million of tax credits per calendar year. Therefore, passage of this bill could possibly reduce General Revenue Fund collections by up to $1 million per year.
As written, the bill requires the State Tax Department to develop application forms, to review and approve applications for the credit, to provide for the sale or transfer of unused credit, and to prepare an annual report on the credit. Additional administrative costs to the State Tax Department associated with passage of this bill would be at least $50,000 per year.
Memorandum
The stated purpose of this bill is to authorize the creation of a new tax credit for eligible expenditures incurred in placing in service residential or nonresidential energy efficient building property. The bill’s incentive will encourage the construction of energy efficient buildings, thereby reducing the total amount of energy consumed in the state. The bill requires the Tax Commissioner to provide to the Joint Committee on Government and Finance annual reports beginning in 2015.
Although the bill contains language requiring the Taxpayer to make written application to the State Tax Commissioner prior to applying the proposed the Energy Efficient Building Property Tax Credit, the bill does not contain language requiring the actual approval of the State Tax Commissioner prior to taking the credit. Since the bill provides that the total amount of Energy Efficient Building Property Tax Credits for all Taxpayers may not exceed $1,000,000 each calendar year, it is possible that without the prior approval of the State Tax Commissioner that claims of the tax credit could exceed the $1 million limit. Required conformity to the annual limit on the tax credit after it has been claimed on a return will significantly increase administrative costs for the State Tax Department and Taxpayers. Additionally, Taxpayers whose claim of the Energy Efficient Building Property Tax Credit is deemed to be in excess of the annual limit could be subject to penalties and interest on the tax unpaid due to their disallowed tax credit. Also, the bill does not specify whether the annual $1 million limit on the Energy Efficient Building Property Tax Credit is on the tax credit approved or the tax credit used.
Person submitting Fiscal Note: Mark B. Muchow
Email Address: Roger.D.Cox@wv.gov