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 increase the consumer sale and use taxes by one cent (from six percent to seven percent), with certain exceptions. The tax increase authorized by this bill sunsets July 1, 2018.
According to our interpretation, passage of this bill would increase the Consumers Sales and Service Tax (and complementary Use Tax) rate from six percent to seven percent for a period and then the tax rate would revert to six percent on July 1, 2018. The tax rate increase proposed in this bill would also apply to the Special District Excise Tax levied in economic opportunity development districts. Due to the lack of an internal effective date, the effective date may default to 90 days from passage. However, West Virginia is a participant in the Streamlined Sales Tax Project and under terms of the agreement the effective date of any change in the tax rate must occur on the first day of a calendar quarter. The revenue estimates herein are based upon a rate change occurring July 1, 2014. Since there is usually a one month lag between taxable activity and the remittance of the sales and tax on that activity, less than a full year of revenue would be collected in the initial 12-month period following implementation of the tax rate change. According to our interpretation, passage of this bill would result in an increase in General Revenue Fund as follows:
FY2015 $195.6 million (11 months of collections at higher tax rate)
FY2016 $215.0 million
FY2017 $219.9 million
FY2018 $227.0 million
However, it should be noted if the tax rate change is effective on a date other than the first day of a calendar quarter, the potential revenue increase attributable to the increase in the tax rate may be reduced.
The provisions of this bill would also increase the Special District Excise Tax dedicated to three existing Economic Opportunity Development Districts by an aggregate amount of roughly $3 million or more per year. The additional funds may be used to accelerate the payment of bond indebtedness in those districts with some excess funds eventually transferred back to the General Revenue Fund.
The increase in the State general sales tax rate will also result in a small decrease in yield for municipal sales taxes of generally less than 0.4 percent.
Additional administrative costs to the State Tax Department associated with passage of this bill with an effective date beginning on the first day of a calendar quarter would be roughly $41,000 in the initial year and roughly $35,000 per year each year thereafter. An effective date other than the first day of a calendar quarter would result in significantly higher administrative costs for the State Tax Department. Also, retailers and service providers would incur greater administrative costs for a tax rate change that does not occur on the beginning of a month. Thereafter, there would be no additional 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 |
41,000 |
35,000 |
| Personal Services |
0 |
35,000 |
35,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
6,000 |
0 |
| 2. Estimated Total Revenues |
0 |
195,600,000 |
227,200,000 |
Explanation of above estimates (including long-range effect):
Passage of this bill would increase the Consumers Sales and Service Tax (and complementary Use Tax) rate from six percent to seven percent for a period and then the tax rate would revert to six percent on July 1, 2018.
According to our interpretation, passage of this bill would increase the Consumers Sales and Service Tax (and complementary Use Tax) rate from six percent to seven percent for a period and then the tax rate would revert to six percent on July 1, 2018. The tax rate increase proposed in this bill would also apply to the Special District Excise Tax levied in economic opportunity development districts. Due to the lack of an internal effective date, the effective date may default to 90 days from passage. However, West Virginia is a participant in the Streamlined Sales Tax Project and under terms of the agreement the effective date of any change in the tax rate must occur on the first day of a calendar quarter. The revenue estimates herein are based upon a rate change occurring July 1, 2014. Since there is usually a one month lag between taxable activity and the remittance of the sales and tax on that activity, less than a full year of revenue would be collected in the initial 12-month period following implementation of the tax rate change. According to our interpretation, passage of this bill would result in an increase in General Revenue Fund as follows:
FY2015 $195.6 million (11 months of collections at higher tax rate)
FY2016 $215.0 million
FY2017 $219.9 million
FY2018 $227.0 million
However, it should be noted if the tax rate change is effective on a date other than the first day of a calendar quarter, the potential revenue increase attributable to the increase in the tax rate may be reduced.
The provisions of this bill would also increase the Special District Excise Tax dedicated to three existing Economic Opportunity Development Districts by an aggregate amount of roughly $3 million or more per year. The additional funds may be used to accelerate the payment of bond indebtedness in those districts with some excess funds eventually transferred back to the General Revenue Fund.
The increase in the State general sales tax rate will also result in a small decrease in yield for municipal sales taxes of generally less than 0.4 percent.
Additional administrative costs to the State Tax Department associated with passage of this bill with an effective date beginning on the first day of a calendar quarter would be roughly $41,000 in the initial year and roughly $35,000 per year each year thereafter. An effective date other than the first day of a calendar quarter would result in significantly higher administrative costs for the State Tax Department. Also, retailers and service providers would incur greater administrative costs for a tax rate change that does not occur on the beginning of a month. Thereafter, there would be no additional costs.
Memorandum
The purpose of this bill is to increase the consumer sale and use taxes by one cent (from six percent to seven percent), with certain exceptions. The tax increase authorized by this bill sunsets July 1, 2018.
Due to the lack of an internal effective date, the effective date may default to 90 days from passage. However, West Virginia is a participant in the Streamlined Sales Tax Project and under terms of the agreement the effective date of any change in the tax rate must occur on the first day of a calendar quarter. An effective date for the tax rate change other than the first day of a quarter may jeopardize West Virginia's participation in the Streamlined Sales Tax Project.
Person submitting Fiscal Note: Mark B. Muchow
Email Address: Roger.D.Cox@wv.gov