FISCAL NOTE
Date Requested: February 18, 2025
Time Requested: 04:39 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1469 |
Introduced |
HB2552 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
Summarize in a clear and concise manner what impact this measure will have on costs and revenues of state government.
The stated purpose of this bill is to provide a reduction of the business and occupation tax rate for companies who have 75 percent or more of their workforce as West Virginia residents.
According to our interpretation, this bill would reduce the overall business and occupation tax rate by 2.5 percent for companies that employ at least 75 percent of their workforce as West Virginia residents. Tax rates vary greatly among taxpayers subject to the Business and Occupation Tax with some tax rates expressed in percentage terms and some tax rates expressed in unit terms. Due to the lack of clarification relating the 2.5 percent rate reduction, we assumed that all taxes paid are reduced by 2.5 percent. The state business and occupation tax applies to electric power companies, public utilities, and natural gas storage companies. In FY2024, West Virginia collected $126,751,000 in B & O Tax. Under the assumption that all affected companies pass the 75 percent West Virginia resident workforce test, a reduction in the overall tax paid of 2.5 percent would result in a loss in revenue of at least $3.1 million per year.
Additional administrative costs incurred by the State Tax Division would be $16,500 in FY2025 and $11,000 in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2025
Increase/Decrease
(use"-") |
2026
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
16,500 |
11,000 |
11,000 |
| Personal Services |
0 |
11,000 |
11,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
16,500 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
-3,100,000 |
-3,100,000 |
Explanation of above estimates (including long-range effect):
Please explain increases and decreases in personal services, current expenses, repairs and alterations, assets, other costs and revenues, including assumptions and data sources and delineation between start-up and ongoing costs. Please also include a long-range schedule of costs and revenues if fiscal impact is expected to vary in future years.
According to our interpretation, this bill would reduce the overall business and occupation tax rate by 2.5 percent for companies that employ at least 75 percent of their workforce as West Virginia residents. Tax rates vary greatly among taxpayers subject to the Business and Occupation Tax with some tax rates expressed in percentage terms and some tax rates expressed in unit terms. Due to the lack of clarification relating the 2.5 percent rate reduction, we assumed that all taxes paid are reduced by 2.5 percent. The state business and occupation tax applies to electric power companies, public utilities, and natural gas storage companies. In FY2024, West Virginia collected $126,751,000 in B & O Tax. Under the assumption that all affected companies pass the 75 percent West Virginia resident workforce test, a reduction in the overall tax paid of 2.5 percent would result in a loss in revenue of at least $3.1 million per year.
Additional administrative costs incurred by the State Tax Division would be $16,500 in FY2025 and $11,000 in subsequent fiscal years.
Memorandum
Please identify any areas of vagueness, technical defects, reasons a bill would not have a fiscal impact, and/or any special issues not captured elsewhere on this form.
The stated purpose of this bill is to provide a reduction of the business and occupation tax rate for companies who have 75 percent or more of their workforce as West Virginia residents.
There are several issues with this bill. The threshold to receive the credit is vague. The term “at least 75 percent” does not include a timeframe. A company may have more or less than 75% of employees as in-state residents at any given time throughout the year. Is this threshold something that only needs to be met at one point in time, or does the employer need to prove an average of 75% employment of in-state residents? Further, businesses may have operations in West Virginia yet still be based in another state and have their employees in another state. Does the 75% threshold only apply to the workforce at facilities located in West Virginia, or does the threshold apply to the company’s worldwide workforce?
Additionally, subsection (b) states that companies shall be entitled to a “2.5 percent overall reduction” in their B & O tax rate. A definition of “overall reduction” is absent in this bill. The lack of definition as to what “overall” means will lead to administrative difficulties and may lead to litigation. If “overall” means a variance higher or lower than 2.5% is permitted, it should be stated in the bill.
The issue with subsection (c) is that the word “credit” is used. This bill does not provide a credit, it provides a rate reduction. On the other hand, if a “credit” (presumably a credit that reduces liability by 2.5%) is what is intended, then use of the “rate reduction” terminology is also confusing.
Business and Occupation taxes are also collected by local municipalities, and this bill does not address those taxes.
Person submitting Fiscal Note: Mark Muchow
Email Address: radfiscal@wv.gov