Date Requested:February 14, 2005
Time Requested:03:06 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2005r20 intro sb167
CBD Subject: tax procedure & admin act
FUND(S)
General Revenue Fund, Small Business Tourism Development & General Tax Administration Fund
Sources of Revenue
General Fund,Other Fund
Legislation creates:
A New Program

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

    The purpose of this bill is to create a tax incentive for the creation, construction or enlargement of tourism attractions or amenities. The credit operates to allow the taxpayer to recover up to 25% (or, in the case of bed and breakfast facilities, 50%) of qualified investment in a tourism attraction or amenity by offsetting up to 80% of consumers sales and service tax collected by the taxpayer from customers over a period of either five or ten years at the election of the taxpayer.
    
    Passage of this bill would reduce General Revenue Fund collections by up to $1 million during FY2005-2006. The potential cost of this bill would gradually rise to not more than $3 million per year by the date of scheduled program termination in FY2006-2007. There would be a minimal increase in Special Revenue. Total tax credit certifications would be capped at $10 million per year. The credit allotment would be available on a first-come first-serve basis.
    
    The Tourism Act would provide eligible taxpayers with a tax credit equal to 25 percent (50 percent for bed and breakfast lodging) of “qualified investment” in a certified “tourism development” project. At the election of the taxpayer, the credit would be pro-rated over a period of either five years or ten years and could offset up to 80 percent of vendor sales tax collections in each of those years. A tourism development project would include new or expanded tourism attraction facilities and new or expanded lodging facilities. Expanded facilities would have to increase their capacity by at least 10 percent to qualify for the tax credit. If the credit is based upon investment in replacement property, then the investment would have to result in at least a 50 percent increase in capacity. The cost basis of qualified investment would be determined in the same manner as qualified investment for other existing investment-based tax credits. Projects that qualify for the Super Credit would not qualify for this tourism tax credit. Possible “tourism attraction” taxpayers would include those who invest in facilities related to: certified cultural or historical sites; recreation or entertainment attractions; areas of scenic beauty, natural phenomenon or scientific significance; a theme park; an amusement park; an indoor or outdoor theater for the exhibition of plays or live shows; botanical gardens; cultural or educational centers; whitewater rafting trips or other water tours; state parks; rail excursions; river boat tours; rails-to-trails tours; water sports; mountain biking areas; cycling areas, hunting areas; snow skiing and related recreation areas; fishing areas; golf courses; hiking areas; bird watching areas; camping areas; industrial tourism sites; sports arenas; and, automobile or motorcycle race tracks.
    
    To qualify for credit, the qualified tourism property would have to be located within a “qualified tourism development area.” A “qualified tourism development area” is any county with an unemployment rate at least one percentage point above the State average for the preceding year.
    
    Each qualified project would have to be certified by the Division of Tourism. The Commissioner of the Division of Tourism would receive applications for certification during the first and third quarters of the State fiscal year. Certification of proposed projects would be issued in the quarter following receipt of the application. All applications for certification would be public information.
    
    Additionally, the bill provides that the lesser of two percent of the remaining tax attributable to qualified investment after application of the credit or four tenths of one percent of total tax attributable to qualified investment be deposited into two Special Revenue Funds. It is estimated that deposits to the Small Tourism Business Development Fund and the Tax Department General Tax Administration Fund would be minimal.
    
    Additional administrative costs to the State Tax Department would be up to $20,000 per year. There would also be additional administrative costs for the Division of Tourism.
    

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 4,000 20,000
Personal Services 0 0 16,000
Current Expenses 0 4,000 4,000
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 -1,000,000 -3,000,000
3. Explanation of above estimates (including long-range effect):
    The Small Tourism Business Development Act would first become effective as of January 1, 2006. The first full year of effect does not occur until FY2007. The tax credit exposure is limited by an annual cap of $10 million in approved tax credits. Annual tax credit exposure is further limited by a 5 or 10-year proration requirement. If the $10 million cap is met during the first year, then the maximum annual credit exposure would be somewhere between $1 million (i.e., 10% of $10 million each year for 10 years) and $2 million (i.e., 20% of $10 million over 5 years). The other limitation is 80% of consumer sales tax collections. Many firms will elect the 10-year proration to minimize their annual credit forfeiture (i.e., any excess pro-rated credit remaining after the 80% consumer sales tax application is forfeited). Each year after FY2006, another layer of $10 million in credit benefits may be added to the first $10 million allotment until the end of FY2007. The maximum annual cost gradually rises over the five-year period to as much as $3 million by the third tax year. If the credit is not extended beyond that time frame, then annual costs will gradually decline toward $0 by FY2015-2016.
    
    This new tax credit would be available to numerous types of tourist-related businesses who locate or are located within high unemployment counties. Based upon unemployment data for 2003, approximately 26 out of the State’s 55 counties may qualify for the Small Tourism Business Development Act. At a minimum, at least three separate tourism businesses may qualify for credit in any single year (i.e., the maximum credit per taxpayer is capped at $4 million). However, it is impossible to accurately predict the level of taxpayer response to this type of program.
    
    Additionally, the bill provides that the lesser of two percent of the remaining tax attributable to qualified investment after application of the credit or four tenths of one percent of total tax attributable to qualified investment be deposited into both the Small Tourism Business Development Fund and the Tax Department General Tax Administration Fund. It is estimated that deposits to both of these funds would be minimal.
    
    The additional administrative costs for the State Tax Department are attributable to tax schedule form development, postage and tax form processing costs, including the tracking of credits for the Tax Credit Disclosure Report and audits.
    


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kpetry@tax.state.wv.us
    The stated purpose of this bill is to create a tax incentive for the creation, construction or enlargement of tourism attractions or amenities. The credit operates to allow the taxpayer to recover up to 25% (or, in the case of bed and breakfast facilities, 50%) of qualified investment in a tourism attraction or amenity by offsetting up to 80% of consumer sales and service tax collected by the taxpayer from customers over a period of either five or ten years at the election of the taxpayer.
    
    This bill, as written, creates a new article, W. Va. Code 11-13V et. al. However, Article 11-13V was created during the 2005 special session.
    
    This bill is nearly identical to bills introduced in 2001, 2003 and 2004. However, some of the dates used to define eligibility and credit expiration were not updated. Additionally, the bill has not been updated to reflect recent changes in West Virginia’s investment tax credits.
    
    There is some question about why the taxpayer should file an annual tax credit schedule with the personal income, corporate net income, or business franchise tax return when the credit may only apply against consumer sales tax. The annual credit schedule could easily be filed with the last consumer sales tax return for each year.