FISCAL NOTE
Date Requested: January 17, 2024
Time Requested: 02:00 PM |
| Agency: |
Revenue, WV Department of |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1889 |
Introduced |
HB4828 |
|
|---|
| 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 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.
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, 2023.
Based on our interpretation and current filing trends, the proposed legislation would decrease General Revenue Fund collections by roughly $182.9 million in FY2024, $1.12 billion in FY2025, $955.6 million in FY2026, and by increasing amounts in subsequent fiscal years. Currently only a small portion of married taxpayers file separately. The decrease in collections will be significantly higher if a larger percentage of married taxpayers chose to file separately to take advantage of the potential tax advantage. If both spouses have at least $20,000 of taxable income, they would save $600 in tax each year by filing separately.
The changes for Tax Year 2024 will be retroactive to January 1, 2024. 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 FY2024 into FY2025. The estimate for FY2025 is inclusive of roughly $935.2 million in direct impact and $182.9 million due to the retroactive portion of the bill.
Additional administrative costs incurred by the State Tax Department would be $30,000 in FY2024, $93,000 in FY2025 and $90,000 in subsequent fiscal years.
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 |
30,000 |
93,000 |
90,000 |
| Personal Services |
0 |
90,000 |
90,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
3,000 |
0 |
| Other |
30,000 |
0 |
0 |
| 2. Estimated Total Revenues |
-182,900,000 |
-1,118,100,000 |
-955,600,000 |
Explanation of above estimates (including long-range effect):
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, 2023.
Based on our interpretation and current filing trends, the proposed legislation would decrease General Revenue Fund collections by roughly $182.9 million in FY2024, $1.12 billion in FY2025, $955.6 million in FY2026, and by increasing amounts in subsequent fiscal years. Currently only a small portion of married taxpayers file separately. The decrease in collections will be significantly higher if a larger percentage of married taxpayers chose to file separately to take advantage of the potential tax advantage. If both spouses have at least $20,000 of taxable income, they would save $600 in tax each year by filing separately.
The changes for Tax Year 2024 will be retroactive to January 1, 2024. 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 FY2024 into FY2025. The estimate for FY2025 is inclusive of roughly $935.2 million in direct impact and $182.9 million due to the retroactive portion of the bill.
Additional administrative costs incurred by the State Tax Department would be $30,000 in FY2024, $93,000 in FY2025 and $90,000 in subsequent fiscal years.
Memorandum
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 rates set forth in W.Va. Code §11-21-4e; but the rates set forth in section 4e have been replaced by the rates in section 4g for tax years beginning on and after January 1, 2023. 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 §11-21-4g and proposed §11-21-4i) apply different rates and different tiers to the same tax years.
The bill uses archaic “husband and wife” language when describing married couples filing either jointly or separately. After the decision of the United States Supreme Court in Obergefell v. Hodges, which requires the states to recognize same-sex marriages, differentiating between a same-sex couple and an opposite-sex couple could be a breach of equal protection.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov