FISCAL NOTE
Date Requested: February 21, 2024
Time Requested: 03:10 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3080 |
Comm. Sub. |
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 purpose of this bill is to exempt licensed private trust companies from personal income tax.
The provisions of this bill would exempt the income of licensed private trust companies from West Virginia state income taxes. A private trust is a legal entity that offers fiduciary and trustee services to a single-family group. Statutory changes enacted last year allow for licensed private trusts in West Virginia. Available research suggests that these types of trusts generally involve assets of at least $50 million or more due to the associated costs of setting them up and maintaining them. Such trusts already exist in Alaska, Delaware, Nevada, New Hampshire, South Dakota, Tennessee, and Wyoming. The only one of these states with a broad-based income tax is Delaware. Delaware taxes income distributions to residents but exempts distributions to non-residents. To the best of our knowledge, West Virginia would become the first state with a broad-based income tax to fully exempt all income distributions from tax. We lack sufficient information to be able to measure any potential revenue loss associated with the passage of this bill. The provisions of this bill will result in some migration of taxable income producing assets to such tax-exempt trusts over time. This revenue loss would have to be balanced against any tax related gains associated with the establishment of high asset private trusts in West Virginia.
Additional administrative costs incurred by the State Tax Department would be $1,000 in FY2025.
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 |
0 |
0 |
Explanation of above estimates (including long-range effect):
The provisions of this bill would exempt the income of licensed private trust companies from West Virginia state income taxes. A private trust is a legal entity that offers fiduciary and trustee services to a single-family group. Statutory changes enacted last year allow for licensed private trusts in West Virginia. Available research suggests that these types of trusts generally involve assets of at least $50 million or more due to the associated costs of setting them up and maintaining them. Such trusts already exist in Alaska, Delaware, Nevada, New Hampshire, South Dakota, Tennessee, and Wyoming. The only one of these states with a broad-based income tax is Delaware. Delaware taxes income distributions to residents but exempts distributions to non-residents. To the best of our knowledge, West Virginia would become the first state with a broad-based income tax to fully exempt all income distributions from tax. We lack sufficient information to be able to measure any potential revenue loss associated with the passage of this bill. The provisions of this bill will result in some migration of taxable income producing assets to such tax-exempt trusts over time. This revenue loss would have to be balanced against any tax related gains associated with the establishment of high asset private trusts in West Virginia.
Additional administrative costs incurred by the State Tax Department would be $1,000 in FY2025.
Memorandum
The purpose of this bill is to exempt licensed private trust companies from personal income tax.
The bill’s title refers to exempting non-grantor trusts administered in this state, but the bill focuses on licensed private trust companies created pursuant to the provisions of W. Va. Code §31I-1-1 et. seq.
The proviso added to W. Va. Code §11-21-3(a) states:
Provided, That for tax years beginning on or after January 1, 2024, the income of a licensed private trust company created pursuant to the provisions of §31I-1-1 et seq. of this code.
The space between the word “code” and the period should be filled with something substantive. It is assumed that the missing substance will state that income earned by a licensed private trust company created pursuant to the provisions of W. Va. Code §31I-1-1 et seq. is exempt from personal income tax. The new subsection (c) of W. Va. Code §11-21-4g states as much:
(c) Rate of tax on licensed private trust companies. – In the case of licensed private trust companies created pursuant to §31I-1-1 et seq. of this code, there is no tax imposed by §11-21-3 of this code.
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.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov