FISCAL NOTE
Date Requested: February 12, 2025
Time Requested: 09:40 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1537 |
Introduced |
SB144 |
|
|---|
| CBD Subject: |
Military and Veterans |
|---|
|
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 rename the act the “Military Incentive Program” and extend the program to all veterans.
Based on our interpretation, the legislation would expand the existing Military Incentive Tax Credit to include additional “Eligible Veterans” and simplify the calculation of the tax credit. The program authorizes a tax credit for employers who employ “eligible veterans,” West Virginia National Guard members who are residents of West Virginia, and members of the Reserve Forces of the United States who are West Virginia residents. An “Eligible Veteran” is defined as a member of the United States armed forces who served on active duty for a period of more than 180 days and was discharged or released therefrom with other than a dishonorable discharge or was discharged or released from active duty because of a service-connected disability.
The Military Incentive Program was originally enacted in 1984 during a period of high unemployment with the objective of providing an incentive for employers to hire “economically disadvantaged and disabled veterans” who “traditionally suffer a disproportionately higher unemployment rate than that of nonveterans of similar age and skills.” The agency administering unemployment benefits, now called WorkForce West Virginia, runs the program. The employer tax credit for employment was in many cases a one-time event for any qualified employee unless such employee experienced a future period of unemployment beyond the year of qualification as a new employee.
The proposed changes to this program include an expansion of the definition of eligible employees to include both new employees and existing employees employed for more than one year. In the case of veterans, eligibility would also be expanded from certain disabled veterans to all veterans. Current law also provides tax credit for employing new hires who were either members of the National Guard or members of the Reserve Forces of the United States. The provisions of this bill seek to restrict tax credit eligibility to only those otherwise qualified military who are West Virginia residents. The creation of an annual tax credit for employment of eligible employees in place of a one-time credit for new hires greatly increases the scope and potential cost of this Tax Credit Program. However, the requirement that this expanded program be administered by WorkForce West Virginia may serve to effectively limit tax credit usage far below maximum capacity.
The tax credit can be applied against either the employer’s Personal Income Tax liability or Corporation Net Income Tax liability. The credit is not transferable nor refundable, and it must be used in the tax year in which it was earned. The credit would be available to the taxpayer for each qualifying employee for each tax year in which the employee was employed for a continuous period of one year. The maximum amount of credit that can be earned per employee per year is $1,500.
More than 35,000 veterans, National Guard members, and reservists are employed by private sector employers in West Virginia. Combined, these employees represent more than four percent of employment in West Virginia. In West Virginia, an average of 50 percent of businesses have no tax liability in any given tax year. In addition, business income and the resulting tax liability can significantly vary year to year based on economic conditions. For Tax Year 2023, a review of business tax liabilities indicated that as few as 25 percent of businesses would have had sufficient tax liability to offset even a single $1,500 credit. Workforce West Virginia is responsible for administering the program. If the paperwork required to claim the credit is burdensome, many smaller businesses may elect not to participate.
The bill does not give an effective date. Therefore, the legislation, is passed would first be effective for returns filed after December 31, 2025.
According to our interpretation, passage of this bill could reduce General Revenue Fund collections by up to $40.0 million in FY2027 and in subsequent fiscal years assuming maximum participation.
Additional administrative costs incurred by the State Tax Division would be $29,150 in FY2026 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 |
0 |
29,150 |
11,000 |
| Personal Services |
0 |
11,000 |
11,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
1,650 |
0 |
| Other |
0 |
16,500 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
-40,000,000 |
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.
Based on our interpretation, the legislation would expand the existing Military Incentive Tax Credit to include additional “Eligible Veterans” and simplify the calculation of the tax credit. The program authorizes a tax credit for employers who employ “eligible veterans,” West Virginia National Guard members who are residents of West Virginia, and members of the Reserve Forces of the United States who are West Virginia residents. An “Eligible Veteran” is defined as a member of the United States armed forces who served on active duty for a period of more than 180 days and was discharged or released therefrom with other than a dishonorable discharge or was discharged or released from active duty because of a service-connected disability.
The Military Incentive Program was originally enacted in 1984 during a period of high unemployment with the objective of providing an incentive for employers to hire “economically disadvantaged and disabled veterans” who “traditionally suffer a disproportionately higher unemployment rate than that of nonveterans of similar age and skills.” The agency administering unemployment benefits, now called WorkForce West Virginia, runs the program. The employer tax credit for employment was in many cases a one-time event for any qualified employee unless such employee experienced a future period of unemployment beyond the year of qualification as a new employee.
The proposed changes to this program include an expansion of the definition of eligible employees to include both new employees and existing employees employed for more than one year. In the case of veterans, eligibility would also be expanded from certain disabled veterans to all veterans. Current law also provides tax credit for employing new hires who were either members of the National Guard or members of the Reserve Forces of the United States. The provisions of this bill seek to restrict tax credit eligibility to only those otherwise qualified military who are West Virginia residents. The creation of an annual tax credit for employment of eligible employees in place of a one-time credit for new hires greatly increases the scope and potential cost of this Tax Credit Program. However, the requirement that this expanded program be administered by WorkForce West Virginia may serve to effectively limit tax credit usage far below maximum capacity.
The tax credit can be applied against either the employer’s Personal Income Tax liability or Corporation Net Income Tax liability. The credit is not transferable nor refundable, and it must be used in the tax year in which it was earned. The credit would be available to the taxpayer for each qualifying employee for each tax year in which the employee was employed for a continuous period of one year. The maximum amount of credit that can be earned per employee per year is $1,500.
More than 35,000 veterans, National Guard members, and reservists are employed by private sector employers in West Virginia. Combined, these employees represent more than four percent of employment in West Virginia. In West Virginia, an average of 50 percent of businesses have no tax liability in any given tax year. In addition, business income and the resulting tax liability can significantly vary year to year based on economic conditions. For Tax Year 2023, a review of business tax liabilities indicated that as few as 25 percent of businesses would have had sufficient tax liability to offset even a single $1,500 credit. Workforce West Virginia is responsible for administering the program. If the paperwork required to claim the credit is burdensome, many smaller businesses may elect not to participate.
The bill does not give an effective date. Therefore, the legislation, if passed would first be effective for returns filed after December 31, 2025.
According to our interpretation, passage of this bill could reduce General Revenue Fund collections by up to $40.0 million in FY2027 and in subsequent fiscal years assuming maximum participation.
Additional administrative costs incurred by the State Tax Division would be $29,150 in FY2026 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.
Person submitting Fiscal Note: Mark Muchow
Email Address: radfiscal@wv.gov