FISCAL NOTE
Date Requested: February 09, 2024
Time Requested: 09:06 AM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3555 |
Introduced |
SB671 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund, Emergency Medical Fund
Sources of Revenue:
General Fund Emergency Medical Fund
Legislation creates:
Creates New Revenue, Decreases Existing Revenue, Creates New Fund: Emergency Medical Fund
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill generally relates to tobacco products. The bill defines terms. The bill increases the tax on tobacco products other than cigarettes. The bill allocates revenue to the West Virginia Division of Tobacco Prevention. The bill repeals the vape tax. The bill repeals the tax to be levied by municipalities or other governmental subdivisions. The bill repeals the tax for person affixing stamps and paying of tax. The bill levies the user fee on cigarettes to be directed to support EMS. Finally, the bill creates a special revenue fund to receive funds from the created user fee.
According to our interpretation, the proposed legislation would increase the tax on other tobacco products, update the definition of other tobacco products, repeal the code section which levied tax on e-cigarette liquid, eliminate the discount for wholesalers of cigarettes and other tobacco products, and allocate 10 percent of the revenue from the excise tax on cigarettes and other tobacco products to the West Virginia Division of Tobacco Prevention.
The bill adds a definition for “Electronic smoking device” and updates the definition of “other tobacco products” or “tobacco products other than cigarettes” to include electronic smoking devices and their components. The bill repeals the tax on e-cigarette liquid; however, these products would effectively be included under the expanded definition of other tobacco products. The current 12 percent excise tax on the wholesale price of other tobacco products is increased to 44 percent. The current 4 percent discount allowed on the purchase of cigarette stamps and the excise tax on other tobacco products is removed. The bill adds language which dedicates 10 percent of the revenue collected on cigarettes and other tobacco products to the West Virginia Division of Tobacco Prevention. The legislation, if passed, would be effective July 1, 2024.
The proposed legislation also adds two new sections to W. Va. Code §16-4C, “Emergency Medical Services Act”. The new sections create a special revenue fund “Emergency Medical Service Agency Fund” and a county user fee for eligible counties that provide emergency medical services. The user fee would be levied on the sale of cigarettes at a rate of $1.50 on each twenty cigarettes or in like ratio on any part thereof.
Assuming that all counties participate and impose the “user fee” on cigarettes, the average price of a pack of cigarettes in West Virginia would increase to $9.49. This price would be significantly higher than the average price in three neighboring states. The increase in the excise tax rate on other tobacco products, which includes electronic cigarettes, would cause the West Virginia excise tax rate on these products to be significantly higher than rates in most neighboring states. Currently, West Virginia Tobacco Products Tax collections benefit from an outflow of cigarettes, and some other products, to surrounding states with higher taxes. The increase in the cost of tobacco products in West Virginia would cause a decline in usage in the state, a decline in smuggling to higher tax states, and an increase in smuggling from lower tax states.
Based on our interpretation, passage of this bill would reduce General Revenue Fund collections by up to $10 million in FY2025, by up to $10.4 million in FY2026 and by decreasing amounts in subsequent fiscal years. The 10 percent dedication of Tobacco Product Tax collections to the West Virginia Division of Tobacco Prevention should generate up to $15 million in FY2025 for the division with decreasing amounts generated in subsequent fiscal years. Assuming that all counties participate and impose the “user fee” on cigarettes, the “user fee” should generate up to $128 million in FY2025 and up to $130 million in FY2026.
There is no direction on how county cigarette taxes or “user fees” are to be collected. We are aware of only one state with a local cigarette excise tax (i.e., Virginia). The local taxes in Virginia are collected from retailers by local governments complete with stramps indicating payment of the local tax. We are unable to readily quantify the additional administrative costs to county governments associated with the newly proposed local user fee.
Additional administrative costs incurred by the State Tax Department would be $35,000 in FY2024 and $55,000 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 |
35,000 |
55,000 |
55,000 |
| Personal Services |
0 |
45,000 |
45,000 |
| Current Expenses |
0 |
10,000 |
10,000 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
35,000 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the proposed legislation would increase the tax on other tobacco products, update the definition of other tobacco products, repeal the code section which levied tax on e-cigarette liquid, eliminate the discount for wholesalers of cigarettes and other tobacco products, and allocate 10 percent of the revenue from the excise tax on cigarettes and other tobacco products to the West Virginia Division of Tobacco Prevention.
The bill adds a definition for “Electronic smoking device” and updates the definition of “other tobacco products” or “tobacco products other than cigarettes” to include electronic smoking devices and their components. The bill repeals the tax on e-cigarette liquid; however, these products would effectively be included under the expanded definition of other tobacco products. The current 12 percent excise tax on the wholesale price of other tobacco products is increased to 44 percent. The current 4 percent discount allowed on the purchase of cigarette stamps and the excise tax on other tobacco products is removed. The bill adds language which dedicates 10 percent of the revenue collected on cigarettes and other tobacco products to the West Virginia Division of Tobacco Prevention. The legislation, if passed, would be effective July 1, 2024.
The proposed legislation also adds two new sections to W. Va. Code §16-4C, “Emergency Medical Services Act”. The new sections create a special revenue fund “Emergency Medical Service Agency Fund” and a county user fee for eligible counties that provide emergency medical services. The user fee would be levied on the sale of cigarettes at a rate of $1.50 on each twenty cigarettes or in like ratio on any part thereof.
Assuming that all counties participate and impose the “user fee” on cigarettes, the average price of a pack of cigarettes in West Virginia would increase to $9.49. This price would be significantly higher than the average price in three neighboring states. The increase in the excise tax rate on other tobacco products, which includes electronic cigarettes, would cause the West Virginia excise tax rate on these products to be significantly higher than rates in most neighboring states. Currently, West Virginia Tobacco Products Tax collections benefit from an outflow of cigarettes, and some other products, to surrounding states with higher taxes. The increase in the cost of tobacco products in West Virginia would cause a decline in usage in the state, a decline in smuggling to higher tax states, and an increase in smuggling from lower tax states.
Based on our interpretation, passage of this bill would reduce General Revenue Fund collections by up to $10 million in FY2025, by up to $10.4 million in FY2026 and by decreasing amounts in subsequent fiscal years. The 10 percent dedication of Tobacco Product Tax collections to the West Virginia Division of Tobacco Prevention should generate up to $15 million in FY2025 for the division with decreasing amounts generated in subsequent fiscal years. Assuming that all counties participate and impose the “user fee” on cigarettes, the “user fee” should generate up to $128 million in FY2025 and up to $130 million in FY2026.
There is no direction on how county cigarette taxes or “user fees” are to be collected. We are aware of only one state with a local cigarette excise tax (i.e., Virginia). The local taxes in Virginia are collected from retailers by local governments complete with stramps indicating payment of the local tax. We are unable to readily quantify the additional administrative costs to county governments associated with the newly proposed local user fee.
Additional administrative costs incurred by the State Tax Department would be $35,000 in FY2024 and $55,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill generally relates to tobacco products. The bill defines terms. The bill increases the tax on tobacco products other than cigarettes. The bill allocates revenue to the West Virginia Division of Tobacco Prevention. The bill repeals the vape tax. The bill repeals the tax to be levied by municipalities or other governmental subdivisions. The bill repeals the tax for person affixing stamps and paying of tax. The bill levies the user fee on cigarettes to be directed to support EMS. Finally, the bill creates a special revenue fund to receive funds from the created user fee.
The bill amends the Tobacco Excise Tax Act. The bill’s amendment to W.Va. Code §11-17-3 increases the tax rate on sales or use of “tobacco products other than cigarettes” from 12 percent to 44 percent. However, that rate is currently included in a proviso effective “on and after July 1, 2016,”and the bill does not change that date, potentially causing uncertainty as to when the 44 percent rate applies. It is not until the new subsection (e) that the bill states that the amendments passed in 2024 become effective “on and after July 1, 2024.”
The bill adds two new sections to the Emergency Medical Services Act. The first section, W. Va. Code §16-4C-26, provides for a county user fee to be used to fund county emergency medical services. The user fee levied and imposed on the sale of cigarettes is $1.50 on each twenty cigarettes or in like ratio on any part thereof.
This proposed section has several problems that render it incapable of administration. The first sentence of subsection (a) purports to impose a “user fee” on sales of cigarettes, but it does not define cigarettes or refer to a definition of cigarettes. It also does not explain how a “user fee” can relate to sales. The first proviso implies that a county will have the authority to impose the “user fee;” but there is no explicit grant of such authority. If a county is the entity with the authority to impose such a “user fee,” then the entity responsible for administration and enforcement of the “user fee” should also be identified. The second proviso in subsection (b) requires that “funds collected pursuant to this article shall only be used to fund emergency medical services in the county.” “This article” is article 4C of Chapter 16, which is the Emergency Medical Services Act, and which does not provide for collection of any funds except through the “user fee” created by the proposed section 26. This section does not provide for the collected “user fee” to be deposited into any particular fund or direct any particular entity to make such a deposit.
The second section, W. Va. Code §16-4C-27, creates a special revenue fund designated as the “Emergency Medical Service Agency Fund”. The fund is established to support the provision of emergency medical services in the state. The proposed new section purports to create a special revenue fund in the State Treasury but is unclear about whether it is funded by legislative appropriation or by the “user fee” imposed by this bill. There is no provision indicating that the created fund will consist of separate county funds, and so there is the possibility of commingling county funds into a single fund. There is no provision for distribution of funds to counties on any basis that would proportionally reflect county deposits into the fund. The only provision that even vaguely implies that the funds will be ultimately distributed to the counties is a reference to the preceding section 26 and that section’s directive that “funds collected pursuant to this article shall only be used to fund emergency medical services in the county.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov