FISCAL NOTE
Date Requested: February 13, 2024
Time Requested: 04:25 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3248 |
Introduced |
HB5280 |
|
|---|
| 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 create the West Virginia Short Line Railroad Modernization Act and tax credit allowed and credit limitations for short line railroad companies in West Virginia.
The provisions of this bill would create a new tax credit for Class II or Class III railroads equal to 50 percent of the amount of their maintenance expenditures and capital improvements capped at $5,000 per track mile owned, leased, or operated in West Virginia. The provisions of this bill would also provide for an additional tax credit equal to 50 percent of qualified new rail expenditures up to a maximum of $2 million per project or $5 million annually for all such projects. These railroads already qualify for the federal qualified railroad track maintenance credit equal to 40 percent of qualified maintenance expenditures with a cap of $3,500 per rail mile. The federal credit may be claimed by the qualified railroad or assigned to other eligible taxpayers who utilize some portion of the qualified track mile for rail transport or furnish railroad property. To qualify for the proposed State tax credits within this bill, the Taxpayer would have to forgo entitlement to the similar federal tax credit.
The available federal tax credits are slightly lower than the proposed available state tax credits in a few ways. The qualified investment share is 40 percent for the federal tax credit and 50 percent for the proposed State tax credit. The maximum amount of available tax credit per rail mile is $3,500 for the federal tax credit and $5,000 for the proposed State tax credit. This bill also proposes an additional State tax credit for new additions. The biggest difference between the federal tax credit and the proposed State tax credits involves the potential uses of available tax credit. The federal tax credit may be used to reduce federal income tax liabilities for the qualified railroad or the qualified assigned Taxpayer. The proposed State tax credit may be either used to reduce State income tax liabilities and/or transferred to other Taxpayers with income tax liabilities. The ability to sell or assign tax credits to others makes the proposed State tax credit more lucrative than the alternative federal tax credit. In most cases, we would expect the Taxpayer to choose the proposed State tax credit subsidy over the alternative federal tax credit.
According to the West Virginia Department of Transportation, there are nine short line or regional railroads in the State, covering 512 miles of track. Given the caps placed on the credit, the total amount of tax credits available in a year would be approximately $2.56 million for the maintenance tax credit and an additional $5 million for new track improvements for a total of between $2.56 million and $7.56 million. The new tax credits should create additional incentives for Class I railroads to lease additional miles of their track to the short line railroads with additional state railroad maintenance tax credit exposure over time. There is no cap beyond the $5,000 per mile level on the amount of railroad maintenance state tax credits. Given that the bill contains no internal effective dates, the provisions of this bill would first take effect in the 2025 tax year with initial claims expected in FY2026.
Additional costs to the State Tax Division would be $30,000 in FY2024 and $10,000 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 |
10,000 |
10,000 |
| Personal Services |
0 |
10,000 |
10,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
30,000 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
-7,560,000 |
Explanation of above estimates (including long-range effect):
The provisions of this bill would create a new tax credit for Class II or Class III railroads equal to 50 percent of the amount of their maintenance expenditures and capital improvements capped at $5,000 per track mile owned, leased, or operated in West Virginia. The provisions of this bill would also provide for an additional tax credit equal to 50 percent of qualified new rail expenditures up to a maximum of $2 million per project or $5 million annually for all such projects. These railroads already qualify for the federal qualified railroad track maintenance credit equal to 40 percent of qualified maintenance expenditures with a cap of $3,500 per rail mile. The federal credit may be claimed by the qualified railroad or assigned to other eligible taxpayers who utilize some portion of the qualified track mile for rail transport or furnish railroad property. To qualify for the proposed State tax credits within this bill, the Taxpayer would have to forgo entitlement to the similar federal tax credit.
The available federal tax credits are slightly lower than the proposed available state tax credits in a few ways. The qualified investment share is 40 percent for the federal tax credit and 50 percent for the proposed State tax credit. The maximum amount of available tax credit per rail mile is $3,500 for the federal tax credit and $5,000 for the proposed State tax credit. This bill also proposes an additional State tax credit for new additions. The biggest difference between the federal tax credit and the proposed State tax credits involves the potential uses of available tax credit. The federal tax credit may be used to reduce federal income tax liabilities for the qualified railroad or the qualified assigned Taxpayer. The proposed State tax credit may be either used to reduce State income tax liabilities and/or transferred to other Taxpayers with income tax liabilities. The ability to sell or assign tax credits to others makes the proposed State tax credit more lucrative than the alternative federal tax credit. In most cases, we would expect the Taxpayer to choose the proposed State tax credit subsidy over the alternative federal tax credit.
According to the West Virginia Department of Transportation, there are nine short line or regional railroads in the State, covering 512 miles of track. Given the caps placed on the credit, the total amount of tax credits available in a year would be approximately $2.56 million for the maintenance tax credit and an additional $5 million for new track improvements for a total of between $2.56 million and $7.56 million. The new tax credits should create additional incentives for Class I railroads to lease additional miles of their track to the short line railroads with additional state railroad maintenance tax credit exposure over time. There is no cap beyond the $5,000 per mile level on the amount of railroad maintenance state tax credits. Given that the bill contains no internal effective dates, the provisions of this bill would first take effect in the 2025 tax year with initial claims expected in FY2026.
Additional costs to the State Tax Division would be $30,000 in FY2024 and $10,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to create the West Virginia Short Line Railroad Modernization Act and tax credit allowed and credit limitations for short line railroad companies in West Virginia.
W. Va. Code §11-13NN-2(b)(2) states that any expenditures “used to generate a federal tax credit” or “funded by a federal grant” would not be eligible for the tax credit to be created by the West Virginia Short Line Railroad Modernization Act. This creates administrability concerns regarding the ability to verify such exemptions from the credit.
The $5.0 million maximum credit allowance set forth in W. Va. Code §11-13NN-4(2) is written in an unclear manner. It could be read to mean that the maximum amount is per taxpayer or the total amount of the credit which may be issued for a given tax year.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov