FISCAL NOTE
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
A New Program
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to create the "West Virginia Job Creation Zones Act of 2005" which provides certain tax exemptions to qualified new businesses, and exempts from taxation interest earned on loans to qualified new businesses and gains from the sale of stock in a qualified new business. The qualified new business must be in one of the twelve counties in the state with the highest unemployment rate.
According to our interpretation, passage of this bill would result in some unquantifiable decrease in General Revenue Fund collections over the next twenty-seven years. The bill provides twenty-year tax exemptions to qualified new businesses over a ten-year period beginning with tax years ending after the effective date of this bill and ending as of December 31, 2012.
The bill provides a twenty-year exemption from Business Franchise Tax and Corporation Net Income Tax or Personal Income Tax liabilities attributable to the business activity of a qualified new business within eligible counties. Qualified new businesses would not include activities involving agriculture, natural resource production and pulp processing. An eligible county must have an unemployment rate among the twelve highest in the State. The twelve eligible counties may change from year to year based on changes in unemployment rate rankings. The bill also provides a deduction for interest income received from loans to the qualified new businesses. In addition, capital gain realizations attributable to the sale of stock in a qualified business would also be exempt from State taxes.
New businesses in high unemployment counties must present their cases for a twenty-year tax exemption to their county commissions. County commissions must then make judgements regarding the validity of the request.
Passage of this bill may result in significant administrative costs to the Tax Department and to county commissions. However, the actual size of this cost would depend upon the level of scrutiny afforded businesses who apply for the twenty-year State business tax exemptions.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2005
Increase/Decrease
(use"-") |
2006
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):
The West Virginia Job Creation Zones Act of 2005 provides twenty-year tax exemptions for most new businesses who locate within a qualified high unemployment county. County Commissions generally determine whether a new business is eligible for State tax relief. The degree or type of taxpayer response to such twenty-year tax exemptions is unknown. Therefore, we are unable to accurately project either the number of qualified new businesses or their level of tax benefit under this bill. Current statistics indicate an average of more than 1,000 new business registrations each year within the 12 counties with the highest unemployment rates.
Additional administrative costs for the Tax Department would be attributable to tax schedule form development, postage and tax form processing costs, including the tracking of qualified tax exempt businesses.
Memorandum
The stated purpose of this bill is to create the "West Virginia Job Creation Zones Act of 2005" which provides certain tax exemptions to qualified new businesses, and exempts from taxation interest earned on loans to qualified new businesses and gains from the sale of stock in a qualified new business. The qualified new business must be in one of the twelve counties in the state with the highest unemployment rate.
Although the stated purpose of this bill is to provide ceratin tax exemptions to qualified new businesses, the bill, as written, may provide exemptions to businesses other than those defined as qualified new businesses.
Additionally, proposed W. Va. Code §5B-4-5(b) indicates that the exemptions “are first allowed for taxable years ending after the effective date of this article.” However, other provisions of the W. Va. Code relating to the effective date of legislation may make the proposed exemptions available to some taxpayers whose tax year begins before January 1, 2005.
Person submitting Fiscal Note: Mark Muchow
Email Address: kpetry@tax.state.wv.us