FISCAL NOTE
Date Requested: February 18, 2025
Time Requested: 04:59 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1543 |
Introduced |
SB518 |
|
|---|
| 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.
The stated purpose of this bill is to exempt from state personal income taxation Non-grantor Trusts which have a tax situs in West Virginia.
According to our interpretation, the bill would create a Personal Income Tax exemption for a non-grantor trust which is created under the laws of the State of West Virginia or has its situs in West Virginia and is administered by any West Virginia resident individual trustee or a corporate trustee with a principal place of business and a physical presence in this state. A non-grantor trust is defined as a trust other than a grantor trust as described in §671 of the Internal Revenue Code. The bill, if passed, would be effective for taxable years beginning on or after January 1, 2026.
Based on our interpretation, the proposed legislation would decrease General Revenue Fund collections by as much as $3.5 million in FY2026, up to $9.2 million in FY2027, and by potentially increasing amounts in subsequent fiscal years. In recent years, collections from Fiduciary returns have fluctuated significantly. It is assumed that these fluctuations were, for the most part, attributable to one-time events.
Additional administrative costs incurred by the State Tax Department would be $5,500 in FY2026.
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 |
5,500 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
5,500 |
0 |
| 2. Estimated Total Revenues |
0 |
-3,500,000 |
-9,200,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the bill would create a Personal Income Tax exemption for a non-grantor trust which is created under the laws of the State of West Virginia or has its situs in West Virginia and is administered by any West Virginia resident individual trustee or a corporate trustee with a principal place of business and a physical presence in this state. A non-grantor trust is defined as a trust other than a grantor trust as described in §671 of the Internal Revenue Code. The bill, if passed, would be effective for taxable years beginning on or after January 1, 2026.
Based on our interpretation, the proposed legislation would decrease General Revenue Fund collections by as much as $3.5 million in FY2026, up to $9.2 million in FY2027, and by potentially increasing amounts in subsequent fiscal years. In recent years, collections from Fiduciary returns have fluctuated significantly. It is assumed that these fluctuations were, for the most part, attributable to one-time events.
Additional administrative costs incurred by the State Tax Department would be $5,500 in FY2026.
Memorandum
The stated purpose of this bill is to exempt from state personal income taxation Non-grantor Trusts which have a tax situs in West Virginia.
The bill does not account for current code provisions.
The bill attempts to exempt from the personal income tax certain non-grantor trusts by amending multiple sections of the West Virginia Code. The bill adds the following definition of “non-grantor trust” to current W.Va. Code §11-21-3:
“(e) Non-grantor trusts. -- A non-grantor trust, meaning a trust other than a grantor trust as described in § 671 of the Internal Revenue Code of 1986, as from time to time amended, that is created under the laws of the state of West Virginia or has its situs in West Virginia and is administered by any West Virginia resident individual trustee or a corporate trustee, whether a state chartered banking institution, a federally chartered banking institution, or a private trust company as defined in §31l-1-3(16), with a principal place of business and a physical presence on a regular basis in this state, shall be exempt from tax under this article.”
The other sections amended by this bill are amended by making reference back to the definition of “non-grantor trust” in W.Va. Code §11-21-3(e) and including that term in a list of exceptions to the applicability of the several sections.
The bill’s flaw is that one of the amended sections that refers back to the proposed new definition is W.Va. Code §11-21-4g, which addresses the rate of tax for taxable years beginning on and after January 1, 2023. The problem is that the provisions of W.Va. Code §11-21-4g are superseded by the provisions of W.Va. Code §11-21-4i, which applies to “all taxable years beginning on and after January 1, 2025, and shall be in lieu of the rates of tax specified in §11-21-4h of this code and as those rates were modified by the application of §11-21-4h of this code in 2024.”
Unless the (unstated) intent of the bill is to exempt non-grantor trusts only for 2023 and 2024 tax years, the failure to amend W.Va. code §11-21-4i defeats the purpose.
Person submitting Fiscal Note: Mark Muchow
Email Address: RADfiscal@wv.gov