FISCAL NOTE
Date Requested: January 31, 2024
Time Requested: 12:04 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3080 |
Introduced |
HB5024 |
|
|---|
| 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 generally relates to the personal income tax by exempting non-granter trusts administered in this state from personal income tax.
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, 2024.
Based on our interpretation, the proposed legislation would decrease General Revenue Fund collections by a minimal amount in FY2024, $9.9 million in FY2025, and by increasing amounts in subsequent fiscal years.
Additional administrative costs incurred by the State Tax Department would be $1,000 in FY2024.
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 |
-9,900,000 |
-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 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, 2024.
Based on our interpretation, the proposed legislation would decrease General Revenue Fund collections by a minimal amount in FY2024, $9.9 million in FY2025, and by increasing amounts in subsequent fiscal years.
Additional administrative costs incurred by the State Tax Department would be $1,000 in FY2024.
Memorandum
The stated purpose of this bill generally relates to the personal income tax by exempting non-granter trusts administered in this state from personal income tax.
The bill refers to “non-granter” trusts; however, the correct spelling of the term is “non-grantor.”
Article X, §1 of the West Virginia Constitution requires that taxation “be equal and uniform throughout the state…”. The proposed language of the bill may arguably violate Article III, §10 of the West Virginia Constitution, which is the state’s equal protection clause. The bill may also present a possible violation of the dormant Commerce Clause of the United States Constitution. 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 does not give the Tax Commissioner authority to prescribe appropriate forms on which individuals claiming the exemption can document their qualification for the exemption; nor is any rule-making authority given.
The bill’s amendments to W.Va. Code §11-21-3 state that the provisions of that section apply to taxable years beginning on and after January 1, 2024; but the amendments made to W.Va. Code §11-21-4g (which is titled “Rate of tax – Taxable years beginning on and after January 1, 2023”) may cause confusion regarding whether the retroactivity extends back to the 2023 tax year.
The amendments to W.Va. Code §11-21-51 essentially exempt non-grantor trusts from any duty to file a West Virginia income tax return; and amendments tot W.Va. Code §11-21-71a essentially exempt non-grantor trusts from any duty to withhold income tax.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov