FISCAL NOTE
Date Requested: January 12, 2024
Time Requested: 01:46 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1684 |
Introduced |
SB209 |
|
|---|
| 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 certain irrevocable trusts created and administered in the State of West Virginia from the state income tax.
According to our interpretation, the bill would create a Personal Income Tax exemption for an Irrevocable Trust which is created under the laws of the State of West Virginia and administered by any West Virginia state chartered banking institution or a federally chartered banking institution with its corporate headquarters located in this state. The West Virginia Division of Financial Institutions currently lists thirty-eight banks headquartered in West Virginia and chartered by the West Virginia Division of Financial Institutions and eleven federally chartered banks with headquarters in West Virginia. According to the West Virginia Division of Financial Institutions, fourteen of the state-chartered banks are currently exercising Fiduciary powers. The bill, if passed, would be effective for taxable years beginning on or after January 1, 2025.
Based on our interpretation, the proposed legislation would decrease General Revenue Fund collections by as much as $3.9 million in FY2025, $10.8 million in FY2026, and by increasing amounts in subsequent fiscal years. Tax exemptions of this type have the potential to alter taxpayer behavior. It is possible that in future periods more trusts will be set up as Irrevocable Trusts in order to capture the tax benefits of the exemption.
Additional administrative costs incurred by the State Tax Department would be $1,000 in FY2025.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2024
Increase/Decrease
(use"-") |
2025
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
1,000 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
1,000 |
0 |
| 2. Estimated Total Revenues |
0 |
-3,900,000 |
-10,800,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the bill would create a Personal Income Tax exemption for an Irrevocable Trust which is created under the laws of the State of West Virginia and administered by any West Virginia state chartered banking institution or a federally chartered banking institution with its corporate headquarters located in this state. The West Virginia Division of Financial Institutions currently lists thirty-eight banks headquartered in West Virginia and chartered by the West Virginia Division of Financial Institutions and eleven federally chartered banks with headquarters in West Virginia. According to the West Virginia Division of Financial Institutions, fourteen of the state-chartered banks are currently exercising Fiduciary powers. The bill, if passed, would be effective for taxable years beginning on or after January 1, 2025.
Based on our interpretation, the proposed legislation would decrease General Revenue Fund collections by as much as $3.9 million in FY2025, $10.8 million in FY2026, and by increasing amounts in subsequent fiscal years. Tax exemptions of this type have the potential to alter taxpayer behavior. It is possible that in future periods more trusts will be set up as Irrevocable Trusts in order to capture the tax benefits of the exemption.
Additional administrative costs incurred by the State Tax Department would be $1,000 in FY2025.
Memorandum
The stated purpose of this bill is to exempt certain irrevocable trusts created and administered in the State of West Virginia from the state income tax.
Article X of the West Virginia Constitution requires that taxation “be equal and uniform throughout the state…”. The proposed language in the bill may arguably violate Section 10 of Article III of the West Virginia Constitution, which is the state’s equal protection clause. The state legislature “may make reasonable classifications in enacting statutes provided the classifications are based on some real and substantial relation to the objects sought to be accomplished by the legislation, and any person who assails any such classification has the burden of showing that it is essentially arbitrary and unreasonable.”
The bill also seems to present a possible violation of the dormant Commerce Clause. The dormant Commerce Clause precludes States from imposing a tax which discriminates against interstate commerce either by providing a direct commercial advantage to local business, or by subjecting interstate commerce to the burden of “multiple taxation.” The bill seems to present a prima facie constitutional violation of the dormant Commerce Clause by giving favorable tax treatment to trusts created and administered by West Virginia state chartered banks or by a federally chartered bank with its corporate headquarters in West Virginia.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov