Date Requested:February 10, 2005
Time Requested:01:12 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2005R383 Intro HB2086
CBD Subject: Food Tax Elimination
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 purposed of this bill is to reduce sales tax on food to 3% on July 1, 2005, and then by a penny a year for the next three years until the tax is finally eliminated. It also increases the sales tax on all other sales from 6% to 6½%.
    
    As stated, the passage of this bill would increase the Consumers Sales Tax (but not the companion Use Tax) on all nonfood items from 6 percent to 6½ percent. Also, this bill would reduce the Consumers Sales Tax on food over the next four years until there is no tax on food. However, the bill does not specifically define food. If the bill is meant to be narrow in scope, it may imply only sales of food intended for home consumption (e.g., certain food items sold at grocery stores). A more broad interpretation of this bill would imply that all sales of food would be exempt, including sales at grocery stores, restaurants and other eating and drinking establishments. Also, a broad interpretation of the bill may include food intended for both human and animal consumption. The following table provides estimates of the net effect of the passage of this bill to the General Revenue Fund for both the narrow interpretation and the broad interpretation of a food exemption. Fiscal Year 2007 represents the first full year increase of the Consumers Sales Tax on nonfood items while Fiscal Year 2010 represents the first full year of removal of the Consumers Sales Tax on food.
    
     Sales of Food
    
     Meant for Home All Food
    
     Consumption OnlySales
    
    FY2006 ($4.5 million) ($63.9 million)
    
    FY2007 ($25.6 million) ($107.3 million)
    
    FY2008 ($48.8 million) ($149.0 million)
    
    FY2009 ($72.3 million) ($191.3 million)
    
    FY2010 ($72.6 million) ($193.3 million)
    
    
    Additional administrative costs to the Tax Department would be about $24,000 per year until the tax on food is eliminated due to notifying taxpayers of the rate changes. Thereafter, there would be no additional administrative costs.

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2005
Increase/Decrease
(use"-")
2006
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 23,925 23,925 0
Personal Services 0 0 0
Current Expenses 23,925 23,925 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 -63,900,000 -193,300,000
3. Explanation of above estimates (including long-range effect):
    The bill does not specifically define food. A broad interpretation of this bill would imply that all sales of food would be exempt, including sales at grocery stores, restaurants and other eating and drinking establishments. Also, a broad interpretation of the bill may include food intended for both human and animal consumption. This worksheet reflects such an assumption. Fiscal Year 2007 represents the first full year increase of the Consumers Sales Tax on nonfood items while Fiscal Year 2010 represents the first full year of removal of the Consumers Sales Tax on food.
    
     Sales of All Food Net Loss to the
    
     Nonfood Items Sales General Revenue Fund
    
    FY2006 $56.6 million ($120.5 million) ($63.9 million)
    
    FY2007 $64.4 million ($171.7 million) ($107.3 million)
    
    FY2008 $66.5 million ($215.5 million) ($149.0 million)
    
    FY2009 $68.0 million ($259.3 million) ($191.3 million)
    
    FY2010 $69.7 million ($263.0 million) ($193.3 million)
    
    If the bill is meant to be narrow in scope, it may imply only sales of food intended for home consumption (e.g., certain food items sold at grocery stores). The chart below reflects such an assumption. Fiscal Year 2007 represents the first full year increase of the Consumers Sales Tax on nonfood items while Fiscal Year 2010 represents the first full year of removal of the Consumers Sales Tax on food.
    
     Sales of Food
    
     Sales of Meant for Home Net Loss to the
    
     Nonfood Items Consumption Only General Revenue Fund
    
    FY2006 $65.1 million ($69.6 million) ($4.5 million)
    
    FY2007 $73.6 million ($99.2 million) ($25.6 million)
    
    FY2008 $75.8 million ($124.6 million) ($48.8 million)
    
    FY2009 $77.5 million ($149.8 million) ($72.3 million)
    
    FY2010 $79.4 million ($152.0 million) ($72.6 million
    
    Additional administrative costs to the Tax Department would be about $24,000 per year until the tax on food is eliminated due to notifying taxpayers of the rate changes. Thereafter, there would be no additional administrative costs.


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kpetry@tax.state.wv.us
    The purpose of this bill is to reduce sales tax on food to 3% on July 1, 2005, and then by a penny a year for the next three years until the tax is finally eliminated. It also increases the sales tax on all other sales from 6% to 6½%.
    
    However, the bill fails to define food. Therefore, it is questionable as to what sales will be exempt. Also, there is a concern as to whether the phase-out is related to the sale of “food” by grocery stores or does it apply to sales at restaurants.