FISCAL NOTE



FUND(S):

General Revenue Fund and 7 more

Sources of Revenue:

General Fund,Other Fund 7 funds

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 raise the tax on tobacco and tobacco related products. According to our interpretation, passage of this bill would increase the tax on cigarettes from $0.55 per pack to $1.55 per pack and would increase the tax on other tobacco products from 7 percent of the wholesale price to 50 percent of the wholesale price. The bill also provides for the designation of the increase in revenues as “the first $90 million per year for ten years shall be designated to the Bureau for Medical Services or its successor agency; adding $6 million annually for tobacco control; $1 million per year for five years shall be designated to the West Virginia University School of Public Health. Any additional moneys in the fund are to be expended as follows: Thirty percent shall be designated for oral health improvement programming; thirty percent shall be designated for substance abuse prevention and treatment programming; twenty-four percent shall be designated for in-home elderly care services; and sixteen percent shall be designated to fund early childhood development programming.” Additionally, the provides that any fund or program receiving funds is to submit a report on the use of the funds to the Legislative Oversight Commission on Health and Human Resources Accountability every three years. The revenue consequences of this bill depend on how “the increase in revenues collected pursuant to this section” would be calculated. Under the assumption, that the proposed split between the General Revenue Fund and the new special revenue funds would be based on tax rates themselves and not an actual measurement of increase over a base year, then the State General Revenue Fund would lose an estimated $26.3 million per year by FY2016 and the new special revenue funds would collectively gain roughly $161.1 million. The net revenue gain from all of these tax changes is estimated to be roughly $134.8 million by FY2016. Alternatively, if the interpretation of “the increase in revenues collected pursuant to this section” is meant to hold the General Revenue Fund harmless, then only the net revenue gain of no more than $134.8 million would be available to the newly created special revenue funds. This alternative scenario assumes that a base year revenue collection level is established for tobacco products tax collections. For purposes of the remainder of this fiscal note, the Tax Department assumes that only revenues from the first 55 cents per pack out of the $1.55 excise tax and the first 7 percent out of 50 percent of wholesale price excise tax on other tobacco products remain with the General Revenue Fund following passage of this bill. Since the bill does not have an internal effective date for the change in tax rates, less than a full-year of revenue enhancement may be realized in Fiscal Year 2015 due to a lag in the timing of tax receipts. Higher than normal tax receipts would occur prior to the rate change and lower than usual activity would occur immediately after the rate change due to Taxpayer behavior shifting purchases to a period prior to the tax rate increases. The following revenue estimates reflect a full year revenue effect that might not fully be realized until Fiscal Year 2016 (the Net Gain amounts include the increase in revenue attribute to the change in the tax rate and the reduction in the Consumers Sales and Service Tax attributable to declines in consumption attributable to higher prices for the indicated commodities). Tax Type Net Gain Cigarettes $121.80 Million Other Tobacco $ 15.40 Million Sales Tax -$ 2.40 Million Net Change $134.80 Million The impact on the General Revenue Fund for the first full fiscal year of under the new tax rates is estimated as follows: Tax Type General Revenue Cigarettes - $19.90 Million Other Tobacco - $ 4.00 Million Sales Tax - $ 2.40 Million Net Change - $26.30 Million The dedication of the increased revenue changes over time. The estimated allocation for the first full fiscal year under the new tax rates is as follows: Bureau for Medical Services $ 90.00 Million Tobacco Control $ 6.00 Million WVU School of Public Health $ 1.00 Million Oral Health Improvement Programming $ 19.20 Million Substance Abuse Prevention and Treatment Programming $ 19.20 Million In-Home Elderly Care Services $ 15.40 Million Early Childhood Development Programming $ 10.30 Million Total $ 161.10 Million Additional administrative costs to the State Tax Department associated with passage of this bill would be roughly $10,000 per year. The entities receiving an allocation of the increased revenue would also incur additional administrative costs.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2014
Increase/Decrease
(use"-")
2015
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 10,000 10,000
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 10,000 10,000
2. Estimated Total Revenues 0 134,800,000 134,800,000


Explanation of above estimates (including long-range effect):


Passage of this bill would increase the tax on cigarettes from $0.55 per pack to $1.55 per pack and would increase the tax on other tobacco products from 7 percent of the wholesale price to 50 percent of the wholesale price. The bill also provides for the designation of the increase in revenues as “the first $90 million per year for ten years shall be designated to the Bureau for Medical Services or its successor agency; adding $6 million annually for tobacco control; $1 million per year for five years shall be designated to the West Virginia University School of Public Health. Any additional moneys in the fund are to be expended as follows: Thirty percent shall be designated for oral health improvement programming; thirty percent shall be designated for substance abuse prevention and treatment programming; twenty-four percent shall be designated for in-home elderly care services; and sixteen percent shall be designated to fund early childhood development programming.” Additionally, the provides that any fund or program receiving funds is to submit a report on the use of the funds to the Legislative Oversight Commission on Health and Human Resources Accountability every three years. The revenue consequences of this bill depend on how “the increase in revenues collected pursuant to this section” would be calculated. Under the assumption, that the proposed split between the General Revenue Fund and the new special revenue funds would be based on tax rates themselves and not an actual measurement of increase over a base year, then the State General Revenue Fund would lose an estimated $26.3 million per year by FY2016 and the new special revenue funds would collectively gain roughly $161.1 million. The net revenue gain from all of these tax changes is estimated to be roughly $134.8 million by FY2016. Alternatively, if the interpretation of “the increase in revenues collected pursuant to this section” is meant to hold the General Revenue Fund harmless, then only the net revenue gain of no more than $134.8 million would be available to the newly created special revenue funds. This alternative scenario assumes that a base year revenue collection level is established for tobacco products tax collections. For purposes of the remainder of this fiscal note, the Tax Department assumes that only revenues from the first 55 cents per pack out of the $1.55 excise tax and the first 7 percent out of 50 percent of wholesale price excise tax on other tobacco products remain with the General Revenue Fund following passage of this bill. Since the bill does not have an internal effective date for the change in tax rates, less than a full-year of revenue enhancement may be realized in Fiscal Year 2015 due to a lag in the timing of tax receipts. Higher than normal tax receipts would occur prior to the rate change and lower than usual activity would occur immediately after the rate change due to Taxpayer behavior shifting purchases to a period prior to the tax rate increases. The following revenue estimates reflect a full year revenue effect that might not fully be realized until Fiscal Year 2016 (the Net Gain amounts include the increase in revenue attribute to the change in the tax rate and the reduction in the Consumers Sales and Service Tax attributable to declines in consumption attributable to higher prices for the indicated commodities). Tax Type Net Gain Cigarettes $121.80 Million Other Tobacco $ 15.40 Million Sales Tax -$ 2.40 Million Net Change $134.80 Million The impact on the General Revenue Fund for the first full fiscal year of under the new tax rates is estimated as follows: Tax Type General Revenue Cigarettes - $19.90 Million Other Tobacco - $ 4.00 Million Sales Tax - $ 2.40 Million Net Change - $26.30 Million The dedication of the increased revenue changes over time. The estimated allocation for the first full fiscal year under the new tax rates is as follows: Bureau for Medical Services $ 90.00 Million Tobacco Control $ 6.00 Million WVU School of Public Health $ 1.00 Million Oral Health Improvement Programming $ 19.20 Million Substance Abuse Prevention and Treatment Programming $ 19.20 Million In-Home Elderly Care Services $ 15.40 Million Early Childhood Development Programming $ 10.30 Million Total Additional administrative costs to the State Tax Department associated with passage of this bill would be roughly $10,000 per year. The entities receiving an allocation of the increased revenue would also incur additional administrative costs.



Memorandum


The stated purpose of this bill is to raise the tax on tobacco and tobacco related products As written, this bill proposes to allocate revenue attributable to the increase in the tax rates on cigarettes and other tobacco products to seven entities or purposes. It is not clear if funds have been set up for the accounting and administration of the revenue.



    Person submitting Fiscal Note: Mark B. Muchow
    Email Address: Roger.D.Cox@wv.gov