Date Requested:February 11, 2005
Time Requested:02:56 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2005r884 intro hb2234
CBD Subject: personal income tax 5% reduction
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 provide that all state income tax taxpayers receive a reduction of five percent across the board in their income tax rates. It includes legislative findings that support these tax rate reductions and call for commensurate reduction on the state budget to accompany any such tax reduction.
    
    According to our interpretation of this bill and based upon available data, it is estimated that passage of this bill would result in a reduction in the State General Revenue fund of approximately $85.4 million in Fiscal Year 2006 and $64.0 million in Fiscal Year 2007 and each year after that. The revenue loss is greater in Fiscal Year 2006 because the tax rate changes would be retroactive to January 1, 2005.
    
    Due to a retroactive effective date, additional administrative costs to the Tax Department associated with this bill would be approximately $30,000 in Fiscal Year 2005 and approximately $30,000 in Fiscal Year 2006.

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 30,000 30,000 0
Personal Services 0 0 0
Current Expenses 30,000 30,000 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 -85,400,000 -64,000,000
3. Explanation of above estimates (including long-range effect):
    This bill reduces the Personal Income Tax marginal rates by 5% for tax years beginning on or after January 1, 2005. Assuming that new withholding tax tables would be distributed by June 1, 2005, the reduction in revenue for the next fiscal year (i.e., FY 2006) includes a reduction in withholding and estimated tax payments attributable to the January to May 2005 period made in the July 2005 - December 2005 period and a reduction in withholding and estimated tax payments for the June 2005 - May 2006 period made in the July 2005 - June 2006 period.
    
    Additional administrative costs to the State Tax Department include the printing and distribution of two separate Employer’s Withholding Instructions and Tax Tables. The first set of tables would make the adjustment for the proposed reduction for all of tax year 2005 over the seven-month period from June 2005 to December 2005. The second set of tables would adjust the withholding tax tables for the proposed reduction over a twelve-month period and would be for tax year 2006 and years thereafter.


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kpetry@tax.state.wv.us
    The stated purpose of this bill is to provide that all state income tax taxpayers receive a reduction of five percent across the board in their income tax rates. It includes legislative findings that support these tax rate reductions and call for commensurate reduction on the state budget to accompany any such tax reduction.
    
    In proposed West Virginia Code §11-21-4h(b), the tax for taxpayers with West Virginia taxable income of “over $5,000 but not over $12,500" is “$142.5 plus 3.8% of excess over $10,000.” The tax for this group of taxpayers should be “$142.50 plus 3.8% of excess over $5,000.”
    
    The bill, as written, references three different tax periods which may lead to some confusion. Proposed West Virginia Code §11-21-4g refers to taxable years ending on and after January 1, 2005, the heading of proposed West Virginia Code §11-21-4h refers to taxable years beginning on and after January 1, 2005, while proposed West Virginia Code §11-21-4h(c) refers to taxable years beginning after January 1, 2005.