Sources of Revenue:

General Fund

Legislation creates:

Neither Program nor Fund

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

The stated purpose of this bill is specify that gambling and lottery winnings are taxable and that gambling and lottery losses are tax deductible. The bill also requires the taxpayer to keep detailed records showing losses. According to our interpretation, passage of this bill would reduce General Revenue Fund collections by roughly $13.2 million per year beginning in Fiscal Year 2010. The legislation creates a decreasing modification for gambling and lottery losses. Due to the lack of an internal effective date, this proposed modification would first become effective for tax years beginning on or after January 1, 2009. If all returns with decreasing modifications for gambling losses are accepted as filed, there would be no additional administrative costs to the State Tax Department.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2008 Increase/Decrease (use"-")	2009 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	0	0
Personal Services	0	0	0
Current Expenses	0	0	0
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	0	0
2. Estimated Total Revenues	0	0	-13,200,000

Explanation of above estimates (including long-range effect):

According to our interpretation, passage of this bill would create a decreasing modification to federal adjusted gross income for gambling and lottery losses. The total value of gambling losses and lottery expenditures by West Virginia residents in West Virginia is estimated to be $330 million. At an average tax rate of 4%, the decreasing modification results in a reduction in General Revenue Fund collections of roughly $13 million per year beginning in Fiscal Year 2010. Due to the lack of an internal effective date, this proposed modification would first become effective for tax years beginning on or after January 1, 2009. If all returns with decreasing modifications for gambling losses are accepted as filed, there would be no additional administrative costs to the State Tax Department. Substantial administrative costs could be incurred if any attempts were made to audit claimed modifications.

Memorandum

While the legislation specifies that gambling and lottery winnings are taxable, these sources of revenue are already taxable under the Personal Income Tax. Therefore, no additional revenue would be generated by passage of the bill. The federal deduction for gambling losses, only available when itemizing deductions, is limited to the extent of reported gambling winnings. This essentially limits gambling activity to a neutral or positive effect on federal adjusted gross income. The proposed legislation makes no reference to federal statute and does not impose a similar limitation. The title and language of the bill indicate the creation of a deduction for gambling and lottery losses. West Virginia Code §11-21-12 lists current allowable modifications to Federal adjusted gross income when determining West Virginia adjusted gross income. It is assumed that the intent of the legislation is to create a decreasing modification in the case of “gambling and lottery losses”, rather than create a new method of calculating West Virginia adjusted gross income. The phrases “gambling and lottery winnings”, “gambling and lottery losses”, “gains arising from gambling and lotteries”, and “costs and expenses incurred in connection with the gambling and lottery activity” are not defined and do not reference other Code sections.

Person submitting Fiscal Note: Mark Muchow
Email Address: kpetry@tax.state.wv.us