FISCAL NOTE
Date Requested: January 18, 2024
Time Requested: 04:37 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3044 |
Introduced |
HB4905 |
|
|---|
| CBD Subject: |
Economic Development |
|---|
|
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 the Tourism and Commercial Opportunity Zone Tax and Tax Credit Act in order to encourage investment in business development in this state and thereby increase employment and economic development, with concomitant increased aggregate tax revenue arising from economic growth.
The provisions of this bill define the creation of tourism and commercial opportunity zones to be designated by a selection panel of the Secretaries of Economic Development, Tourism and Commerce or their designees as geographical areas within each county measured by a formula of their population divided by 1,000 and then multiplied by a factor of 30. Projects within these zones as certified by the selection panel would qualify for tax benefits with a minimum investment of $250,000 maintained over a period of 10 years. The amount of sales tax collected would be allowed as a tax credit against the qualified investor’s income tax liability with maximum approved investment of $1 million per year per tourism and commercial zone investment company. The bill also provides that minimum investments of $250,000 or more within a qualified tourism and commercial opportunity zone would be taxed as Class II property. Any investment of an improvement amount over $250,000 for a period of 10 years or longer shall receive a tax credit equal to the difference between their annual real property taxes paid on the development site and the amount they would have paid if the development site had been taxed as Class II property. Due to lack of definitions and other conflicting language within this bill, we are unable to provide any additional analysis beyond noting that the maximum annual income tax credit per Taxpayer may not exceed $50,000 tied somehow to the amount of sales tax collections associated with a qualified investment.
Additional administrative costs incurred by the State Tax Division would be $39,000 in FY2025 and $22,500 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 |
0 |
39,000 |
22,500 |
| Personal Services |
0 |
22,500 |
22,500 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
1,500 |
0 |
| Other |
0 |
15,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
The provisions of this bill define the creation of tourism and commercial opportunity zones to be designated by a selection panel of the Secretaries of Economic Development, Tourism and Commerce or their designees as geographical areas within each county measured by a formula of their population divided by 1,000 and then multiplied by a factor of 30. Projects within these zones as certified by the selection panel would qualify for tax benefits with a minimum investment of $250,000 maintained over a period of 10 years. The amount of sales tax collected would be allowed as a tax credit against the qualified investor’s income tax liability with maximum approved investment of $1 million per year per tourism and commercial zone investment company. The bill also provides that minimum investments of $250,000 or more within a qualified tourism and commercial opportunity zone would be taxed as Class II property. Any investment of an improvement amount over $250,000 for a period of 10 years or longer shall receive a tax credit equal to the difference between their annual real property taxes paid on the development site and the amount they would have paid if the development site had been taxed as Class II property. Due to lack of definitions and other conflicting language within this bill, we are unable to provide any additional analysis beyond noting that the maximum annual income tax credit per Taxpayer may not exceed $50,000 tied somehow to the amount of sales tax collections associated with a qualified investment.
Additional administrative costs incurred by the State Tax Division would be $39,000 in FY2025 and $22,500 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to establish the Tourism and Commercial Opportunity Zone Tax and Tax Credit Act in order to encourage investment in business development in this state and thereby increase employment and economic development, with concomitant increased aggregate tax revenue arising from economic growth.
The bill purports to create the Tourism and Commercial Opportunity Zone Tax and Tax Credit. The supposed tax portion of the bill does not, in fact, impose any tax; rather, it reapplies an existing tax by declaring that certain property normally classified as Class III or Class IV for property tax purposes will be reclassified as “a separate species and class of property” subject to property tax as if it was Class II property. The bill provides a definition of “state tax rate” that merely refers to the classification system established by the W. Va. Constitution. The tax rate applicable for purposes of property tax in West Virginia is set by the county in which the property is located. There is no state-wide rate, and conflating the rate with the class is confusing.
The bill provides a “sales tax credit” which is described as “an offset tax credit from the state for the equivalent amount of income tax that the qualified investment establishment would have had to pay for that development, as designated to the Tax Division by the Secretary of Economic Development.” This language does not identify against what tax the credit can be taken. The language also does not explain how an “income tax” liability would arise from a “development” (an undefined term). The term “qualified investment establishment” is undefined, although it is probably meant to refer to the taxpayer seeking the credit. It is unclear how the Secretary of Economic Development would calculate how much income tax “the qualified investment establishment would have had to pay.” It is possible that this “sales tax credit” is a credit against the income tax, in the amount of the incremental increase of sales tax collected and remitted by the taxpayer over the amount collected and remitted prior to the qualified investment; but that possibility is not clearly stated in the bill.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov