FISCAL NOTE
Date Requested: February 12, 2025
Time Requested: 08:30 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1902 |
Introduced |
HB2168 |
|
|---|
| 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.
According to our interpretation, the bill would reduce the personal income tax rate to a flat three percent on taxable income over $20,000. The number of graduated personal income tax brackets would be reduced from five to two with taxable income at or below $20,000 subject to a 0 percent tax rate and taxable income over $20,000 subject to a 3 percent tax rate. Currently, tax brackets are adjusted by one-half for married individuals filing separate returns. This bill would apply the same brackets to all taxpayers creating a tax preference for most married taxpayers filing separately. The legislation would be effective for all taxable years beginning after December 31, 2024.
Based on our interpretation, current filing trends and previously enacted Personal Income Tax changes, the proposed legislation would decrease General Revenue Fund collections by up to an additional $165.0 million in FY2025, $1.01 billion in FY2026, $845.0 million in FY2027, and by increasing amounts in subsequent fiscal years. Currently only a small portion of married taxpayers file separately. If both spouses have at least $20,000 of taxable income, they would save $600 in tax each year by filing separately. If the majority of taxpayers who currently file joint returns elect to file separately to take advantage of the tax savings, the decline in General Revenue collections could increase by as much as $120 million.
The changes for Tax Year 2025 will be retroactive to January 1, 2025. Due to the retroactive aspect of the bill, current higher tax rates would be used to calculate withholding and estimated taxes prior to enactment of the reduced rates. The delayed implementation of revised tax tables will move a significant portion of the impact which should have occurred in FY2025 into FY2026. The estimate for FY2026 is inclusive of roughly $845.0 million in direct impact and $165.0 million due to the retroactive nature of the bill.
Additional administrative costs incurred by the State Tax Department would be $33,000 in FY2025, $102,300 in FY2026 and $99,000 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 |
33,000 |
102,300 |
99,000 |
| Personal Services |
0 |
99,000 |
99,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
3,300 |
0 |
| Other |
33,000 |
0 |
0 |
| 2. Estimated Total Revenues |
-165,000,000 |
-1,010,000,000 |
-845,000,000 |
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.
According to our interpretation, the bill would reduce the personal income tax rate to a flat three percent on taxable income over $20,000. The number of graduated personal income tax brackets would be reduced from five to two with taxable income at or below $20,000 subject to a 0 percent tax rate and taxable income over $20,000 subject to a 3 percent tax rate. Currently, tax brackets are adjusted by one-half for married individuals filing separate returns. This bill would apply the same brackets to all taxpayers creating a tax preference for most married taxpayers filing separately. The legislation would be effective for all taxable years beginning after December 31, 2024.
Based on our interpretation, current filing trends and previously enacted Personal Income Tax changes, the proposed legislation would decrease General Revenue Fund collections by up to an additional $165.0 million in FY2025, $1.01 billion in FY2026, $845.0 million in FY2027, and by increasing amounts in subsequent fiscal years. Currently only a small portion of married taxpayers file separately. If both spouses have at least $20,000 of taxable income, they would save $600 in tax each year by filing separately. If the majority of taxpayers who currently file joint returns elect to file separately to take advantage of the tax savings, the decline in General Revenue collections could increase by as much as $120 million.
The changes for Tax Year 2025 will be retroactive to January 1, 2025. Due to the retroactive aspect of the bill, current higher tax rates would be used to calculate withholding and estimated taxes prior to enactment of the reduced rates. The delayed implementation of revised tax tables will move a significant portion of the impact which should have occurred in FY2025 into FY2026. The estimate for FY2026 is inclusive of roughly $845.0 million in direct impact and $165.0 million due to the retroactive nature of the bill.
Additional administrative costs incurred by the State Tax Department would be $33,000 in FY2025, $102,300 in FY2026 and $99,000 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 establish that first $20,000 of taxable income not subject to personal income tax but income in excess of that amount be subject to a fixed three percent.
The bill purports to set new rates in lieu of the rates set forth in W.Va. Code §11-21-4e; but the rates set forth in section 4e have been replaced by the rates currently set forth in section 4i for tax years beginning on and after January 1, 2025. Thus, the bill attempts to replace a section of the code that is already obsolete and fails to address current code. Conceivably, this allows for a scenario where two sections of code (current §11-21-4i and proposed §11-21-4j) apply different rates and different tiers to the same tax years.
Person submitting Fiscal Note: Mark Muchow
Email Address: radfiscal@wv.gov