FISCAL NOTE



FUND(S):

General Revenue Fund

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 to reduce state income taxes for state and federal retirees by increasing the exemption on retirement income in calculating the federal gross income for state personal income tax purposes. The bill, as written, allows the $8,000 senior citizens modification in addition to a $20,000 decreasing modification for federal retirees and allows the $8,000 senior citizens modification in addition to $2,000 decreasing modification for retirees receiving benefits from PERS or the West Virginia Teachers Retirement System. Assuming that the bill is effective for taxable years beginning after December 31, 2008, General Revenue Fund collections by would be reduced by approximately $9.1 million in FY2010. The anticipated retirements of members of the baby-boom generation will result in additional escalation of costs over time. If the proposed changes are interpreted to change tax policy only prospectively, there would be no additional administrative costs for the State Tax Department as a result of passage of this bill with application to tax years beginning after December 31, 2008.



Fiscal Note Detail


Effect of Proposal Fiscal Year
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 0


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


Assuming that the bill is effective for taxable years beginning after December 31, 2008, General Revenue Fund collections by would be reduced by approximately $9.1 million in FY2010. The anticipated retirements of members of the baby-boom generation will result in additional escalation of costs over time. The bill, as written, increases the decreasing modification to $20,000 for just federal retirees. In addition, it removes retirement income from federal pensions, PERS and Teachers Retirement from the calculation of the $8,000 decreasing modification for senior citizens and persons who are totally and permanently disabled. If the proposed changes are interpreted to change tax policy only prospectively, there would be no additional administrative costs for the State Tax Department as a result of passage of this bill with application to tax years beginning after December 31, 2008.



Memorandum


The stated purpose of this bill is to reduce state income taxes for state and federal retirees by increasing the exemption on retirement income in calculating the federal gross income for state personal income tax purposes. There are various interpretations of what changes to various dates in the bill mean with regard to tax policy. Subsection (c)(5) changes the date for the taxable years from 1986 to 2006. This effectively means that the proviso immediately preceding the date would not be in effect for the twenty-year time frame. This could lead to numerous claims for refunds because the $2,000 limitation on the decreasing modification would be repealed. Proposed subsection (c)(5) also changes the year “1988” and replaces it with “2007”. If read in conjunction with the change from “1986 ” to “2006” discussed in the paragraph above, it would appear that for tax year 2007 there would be no limit to the total amount claimed as a decreasing modification. In addition to issues regarding various changes in effective dates, the proposed changes in this bill create additional significant disparity between a number of different groups of retirees based upon the source of pension income. Additional litigation by less favored groups may result.



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