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.


As written, the Committee Substitute would extend the West Virginia Tourism Development Act by permitting the Development Office to accept project applications through December 31, 2019 and the Committee Substitute would expand the program to include both a sales tax credit and a refundable business income tax credit. Qualified investment may only qualify for one of the these two tax credits. The Committee Substitute expands the program to include qualified professional services facilities. The Committee Substitute defines qualified professional services facilities as a facility with a minimum qualified investment of $80 million that is located in West Virginia and is adjacent or complementary to a historic resort hotel. The Committee Substitute also makes revisions to other parts of the West Virginia Tourism Development Act including the removal of the limit on the amount of tourism development expansion project credit that can be approved each year and amending the criteria for the approval of projects. There are no limits on the sales tax credit and no Taxpayer or group of Taxpayers may gain entitlement to aggregate refundable business income credit in excess of $37.5 million. The Committee Substitute also provides for a non-refundable application fee of $10,000 to be paid to the Development Office when any Tourism Development Project application is filed. All qualified tourism development projects must be pre-approved by the West Virginia Development Office. According to our interpretation, qualified tourism businesses with a minimum investment of $1 million may recover up to 25 percent to 35 percent of their investment costs by retaining increased sales tax collections for a period of up to 10 to 13 years. The State Tax Department does not possess information on the number of tourism development projects that may qualify under the revised sales tax credit provisions. The current tax expenditure amount in FY2015 for the prior program is estimated to be $1.5 million related to five projects approved by the Development Office under the prior Program and in CY2013, the total sales tax credit was valued at slightly less than $0.9 million. Due to the economic impact of the Great Recession, no project applications were approved during the last four years. There are some key provisions in the sales tax credit program designed to help limit expenditure costs. A minimum $1 million investment is required for participation in this Program. All projects must be preapproved by the West Virginia Development Office Director. The project must attract at least 25 percent of its visitors from other states outside of West Virginia and must be open to the public at least 100 days each year. In theory, these projects might not happen absent the State subsidy equal to some portion of the increased sales tax attributable to the qualified capital investment. The Development Office may not always possess the information necessary to prove the accuracy of the theory. According to our interpretation, passage of the Committee Substitute for HB4184 may also provide a qualified professional services facility with an aggregate business tax refundable credit ranging from $20 million (25 percent of the minimum required investment) to $37.5 million (the limit in the bill). The tax credit that may be applied each year may not exceed $2.5 million. The provisions of the bill require the qualified tourism investment to result in an increase in the number of full-time permanent jobs by at least 125 with a median salary of at least $37,000. The bill also requires the facility to generate a minimum of $10,000,000 in taxable health care receipts subject to the State Health Care Provider Tax within the first thirty-six months. This tax credit would reduce State business income tax collections by between $2 million and $2.5 million per year for a period of 10 to 15 years beginning as early as Fiscal Year 2016. Based on the additional qualifying criteria, the project should generate additional personal income tax revenues attributable to the new jobs and some additional health care provider tax revenues. In addition, an investment of at least $80 million should generate a significant increase in local property tax revenues. The State would receive some indirect benefit from the increase in local tax revenues through the State aid formula. The net fiscal impact of this tax credit program cannot be quantified absent both more details concerning the proposed project development and the actual results of such development. Additional administrative costs, attributable to passage of this bill, would be incurred by the Development Office and the State Tax Department. The Development Office would incur additional costs based upon the number of applications received and the State Tax Department would incur additional costs based upon the number of approved applications. The $10,000 application fee should cover these increased 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 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


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


As written, the Committee Substitute would extend the West Virginia Tourism Development Act by permitting the Development Office to accept project applications through December 31, 2019 and the Committee Substitute would expand the program to include both a sales tax credit and a refundable business income tax credit. Qualified investment may only qualify for one of the these two tax credits. The Committee Substitute expands the program to include qualified professional services facilities. The Committee Substitute defines qualified professional services facilities as a facility with a minimum qualified investment of $80 million that is located in West Virginia and is adjacent or complementary to a historic resort hotel. The Committee Substitute also makes revisions to other parts of the West Virginia Tourism Development Act including the removal of the limit on the amount of tourism development expansion project credit that can be approved each year and amending the criteria for the approval of projects. There are no limits on the sales tax credit and no Taxpayer or group of Taxpayers may gain entitlement to aggregate refundable business income credit in excess of $37.5 million. The Committee Substitute also provides for a non-refundable application fee of $10,000 to be paid to the Development Office when any Tourism Development Project application is filed. All qualified tourism development projects must be pre-approved by the West Virginia Development Office. According to our interpretation, qualified tourism businesses with a minimum investment of $1 million may recover up to 25 percent to 35 percent of their investment costs by retaining increased sales tax collections for a period of up to 10 to 13 years. The State Tax Department does not possess information on the number of tourism development projects that may qualify under the revised sales tax credit provisions. The current tax expenditure amount in FY2015 for the prior program is estimated to be $1.5 million related to five projects approved by the Development Office under the prior Program and in CY2013, the total sales tax credit was valued at slightly less than $0.9 million. Due to the economic impact of the Great Recession, no project applications were approved during the last four years. There are some key provisions in the sales tax credit program designed to help limit expenditure costs. A minimum $1 million investment is required for participation in this Program. All projects must be preapproved by the West Virginia Development Office Director. The project must attract at least 25 percent of its visitors from other states outside of West Virginia and must be open to the public at least 100 days each year. In theory, these projects might not happen absent the State subsidy equal to some portion of the increased sales tax attributable to the qualified capital investment. The Development Office may not always possess the information necessary to prove the accuracy of the theory. According to our interpretation, passage of the Committee Substitute for HB4184 may also provide a qualified professional services facility with an aggregate business tax refundable credit ranging from $20 million (25 percent of the minimum required investment) to $37.5 million (the limit in the bill). The tax credit that may be applied each year may not exceed $2.5 million. The provisions of the bill require the qualified tourism investment to result in an increase in the number of full-time permanent jobs by at least 125 with a median salary of at least $37,000. The bill also requires the facility to generate a minimum of $10,000,000 in taxable health care receipts subject to the State Health Care Provider Tax within the first thirty-six months. This tax credit would reduce State business income tax collections by between $2 million and $2.5 million per year for a period of 10 to 15 years beginning as early as Fiscal Year 2016. Based on the additional qualifying criteria, the project should generate additional personal income tax revenues attributable to the new jobs and some additional health care provider tax revenues. In addition, an investment of at least $80 million should generate a significant increase in local property tax revenues. The State would receive some indirect benefit from the increase in local tax revenues through the State aid formula. The net fiscal impact of this tax credit program cannot be quantified absent both more details concerning the proposed project development and the actual results of such development. Additional administrative costs, attributable to passage of this bill, would be incurred by the Development Office and the State Tax Department. The Development Office would incur additional costs based upon the number of applications received and the State Tax Department would incur additional costs based upon the number of approved applications. The $10,000 application fee should cover these increased administrative costs.



Memorandum






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