Date Requested:February 16, 2005
Time Requested:01:17 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2005R389 Intro HB2237
CBD Subject: Personal Income Tax Exemption & Rate
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 exempt from the personal income tax the first fifty thousand dollars of income of a husband and wife filing a joint return and the first twenty-five thousand dollars of income of an individual filing an individual tax return. The bill also provides a four percent tax on all income above those levels.
    
    As written, the bill would provide a husband and wife filing a joint return with less than $50,000 of taxable income a complete exemption from the Personal Income Tax. However, a husband and wife filing a joint return with taxable income of $50,000 or more would pay a 4 percent tax on all of their taxable income. A husband and wife filing a joint return with taxable income of $49,999 would pay no tax, while a husband and wife filing a joint return with taxable income of $50,000 would pay tax of $2,000. Similarly, individuals, married individuals filing separate returns, heads of households and estates and trusts with less than $25,000 of taxable income would pay no tax, while individuals, married individuals filing separate returns, heads of households and estates and trusts with taxable income of $25,000 or more would pay a 4 percent tax on all of their taxable income. Individuals, married individuals filing separate returns, heads of households and estates and trusts with taxable income of $24,999 would pay no tax, while individuals, married individuals filing separate returns, heads of households and estates and trusts with taxable income of $25,000 would pay tax of $1,000.
    
    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 $652.9 million in Fiscal Year 2006 and $488.9 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 -652,900,000 -488,900,000
3. Explanation of above estimates (including long-range effect):
    The revised tax rates would apply to 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. The first full year effect would occur in Fiscal Year 2007.
    
    Over 500,000 taxpayers would pay less tax due to the provisions of this bill. However, over 48,000 taxpayers would pay more tax.
    
    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 exempt from the personal income tax the first fifty thousand dollars of income of a husband and wife filing a joint return and the first twenty-five thousand dollars of income of an individual filing an individual tax return. The bill also provides a four percent tax on all income above those levels.
    
    As written, the bill would provide a husband and wife filing a joint return with less than $50,000 of taxable income a complete exemption from the Personal Income Tax. However, a husband and wife filing a joint return with taxable income of $50,000 or more would pay a 4 percent tax on all of their taxable income. A husband and wife filing a joint return with taxable income of $49,999 would pay no tax, while a husband and wife filing a joint return with taxable income of $50,000 would pay tax of $2,000. Similarly, individuals, married individuals filing separate returns, heads of households and estates and trusts with less than $25,000 of taxable income would pay no tax, while individuals, married individuals filing separate returns, heads of households and estates and trusts with taxable income of $25,000 or more would pay a 4 percent tax on all of their taxable income. Individuals, married individuals filing separate returns, heads of households and estates and trusts with taxable income of $24,999 would pay no tax, while individuals, married individuals filing separate returns, heads of households and estates and trusts with taxable income of $25,000 would pay tax of $1,000.
    
    Although the heading for proposed West Virginia Code §11-21-4g indicates the rate is for taxable years beginning on or after January 1, 2005, Section §11-21-4g(c) provides that the rate change is applicable for taxable years beginning after December 31, 2005. The conflicting dates may cause some confusion.