Date Requested:February 11, 2005
Time Requested:02:52 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2005r799 intro hb2275
CBD Subject: first year exempt from income tax
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 provide a state income tax exemption for first year businesses with at least one employee that have net income of less than fifty thousand dollars.
    
    The bill provides an exemption from Personal Income Tax for new businesses in their first full taxable year. Eligible businesses would have at least one employee and have net profit of less than $50,000 in the first full taxable year. Due to the lack of available data on Personal Income Tax attributable to such businesses, we are unable to accurately estimate the loss to the General Revenue Fund. The provisions of this bill would first become effective for tax years beginning on or after January 1, 2006 due to the lack of an internal effective date.
    
    Additional administrative costs to the Tax Department, attributable to the collection and processing of information necessary for this tax exemption program, would total $35,000.
    

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 0 35,000 27,000
Personal Services 0 27,000 27,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 8,000 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0
3. Explanation of above estimates (including long-range effect):
    The bill would provide a state income tax exemption for first year businesses with at least one employee that have net profit of less than fifty thousand dollars. Due to the lack of available data on Personal Income Tax attributable to such businesses, we are unable to accurately estimate the loss to the General Revenue Fund. The provisions of this bill would first become effective for tax years beginning on or after January 1, 2006 due to the lack of an internal effective date.
    
    Additional administrative costs to the Tax Department, attributable to the collection and processing of information necessary for this exemption, would total $35,000 in FY2005-2006, and $27,000 in each year thereafter. The additional administrative costs include the hiring of one employee to review the application and supporting documentation required for the exemption.
    


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kpetry@tax.state.wv.us
    The stated purpose of this bill is to provide a state income tax exemption for first year businesses with at least one employee that have net income of less than fifty thousand dollars.
    
    As written, the bill provides that a new business in the first full taxable year that employs at least one employee and has a net profit in that first full year of less than $50,000 is exempt from Personal Income Tax. The normal method for exempting income from the Personal Income Tax is by including the income as a reducing modification in Section 11-21-12. As the income would be reported for federal income tax purposes, it would be best for this to be treated the same as other Personal Income tax exemptions, as a modification reducing federal adjusted gross income.
    
    Additionally, the bill does not provide a definition of “new business”. Although the stated purpose refers to “net income”, the proposed statutory language refers to “net profit”.
    
    The bill contains no internal effective date for this new exemption from Personal Income Tax.