FISCAL NOTE



FUND(S):

General Revenue Fund, West Virginia Medical Services Fund

Sources of Revenue:

General Fund,Other Fund West Virginia Medical Ser

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 increase the cigarette tobacco tax. The revenue is to be deposited into the West Virginia Medical Services Fund for the next two fiscal years. 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 increased tax rates would be effective July 1, 2014. For fiscal years 2015 and 2016, the bill provides that revenues attributable to the tax on cigarettes of $0.55 pack (i.e., the current tax rate) and revenues attributable to the other tobacco products tax of seven percent (i.e., the current tax rate) are to be deposited to the General Revenue Fund with the remainder of revenue attributable to the increased rates to be deposited to the West Virginia Medical Services Fund. For succeeding years, all of the revenue from the two taxes is to be deposited into the General Revenue Fund. According to our interpretation, the imposition of the higher tax rates will influence Taxpayer behavior and shift some purchases to a period prior to the tax rate increases. Additionally, due to the lag between taxable activity and the remittance of tax attributable to that activity and the proposed effective date of July 1, 2014 less than a full year’s worth of tax attributable to the tax increases will be realized in FY2015. Assuming Taxpayers would shift roughly two weeks of purchases to the lower tax rate period and that tax remittances will lag the taxable activity period by one month, passage of this bill would result in changes in the General Revenue Fund as follows: an increase of roughly $4.1 million in FY2014, a decrease of roughly $27.4 million in FY2015, a decrease of roughly $26.3 million in FY2016, and an increase of roughly $137.2 million in FY2017 and following periods. The increase in the tax rates would result in increases in the West Virginia Medical Services Fund of roughly $119.8 million in FY2015 and roughly $137.2 million in FY2016. Additional administrative costs to the State Tax Department associated with passage of this bill would be roughly $10,000 in FY2014. The West Virginia Medical Services Fund may also incur additional administrative costs attributable to passage of this bill.



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 10,000 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 10,000 0 0
2. Estimated Total Revenues 4,100,000 92,400,000 110,900,000


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 increased tax rates would be effective July 1, 2014. For fiscal years 2015 and 2016, the bill provides that revenues attributable to the tax on cigarettes of $0.55 pack (i.e., the current tax rate) and revenues attributable to the other tobacco products tax of seven percent (i.e., the current tax rate) are to be deposited to the General Revenue Fund with the remainder of revenue attributable to the increased rates to be deposited to the West Virginia Medical Services Fund. For succeeding years, all of the revenue from the two taxes is to be deposited into the General Revenue Fund. According to our interpretation, the imposition of the higher tax rates will influence Taxpayer behavior and shift some purchases to a period prior to the tax rate increases. Additionally, due to the lag between taxable activity and the remittance of tax attributable to that activity and the proposed effective date of July 1, 2014 less than a full year’s worth of tax attributable to the tax increases will be realized in FY2015. Assuming Taxpayers would shift roughly two weeks of purchases to the lower tax rate period and that tax remittances will lag the taxable activity period by one month, passage of this bill would result in changes in the General Revenue Fund as follows: an increase of roughly $4.1 million in FY2014, a decrease of roughly $27.4 million in FY2015, a decrease of roughly $26.3 million in FY2016, and an increase of roughly $137.2 million in FY2017 and following periods. The increase in the tax rates would result in increases in the West Virginia Medical Services Fund of roughly $119.8 million in FY2015 and roughly $137.2 million in FY2016. Additional administrative costs to the State Tax Department associated with passage of this bill would be roughly $10,000 in FY2014. The West Virginia Medical Services Fund may also incur additional administrative costs attributable to passage of this bill.



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 the West Virginia Medical Services Fund for two years. The West Virginia Financial Information Management System (FIMS) does not show a fund with the name “West Virginia Medical Services Fund” nor does the bill specifically create the fund.



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