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 exempt the retirement benefits of certain annuitants under the State Teacher Retirement System from state income tax. As written, this bill would provide an exemption from the Personal Income Tax for retirement benefits received from the State Teachers’ Retirement System by those annuitants that on or before March 6, 1972 elected to participate to the full extent of their salary in said retirement system. According to our interpretation, passage of this bill would reduce General Revenue Fund collections by roughly $10.0 million per year beginning in FY 2009. Additionally, the favored treatment of the potential beneficiaries in relation to other public employees may result in litigation where other retired federal and State employees will seek to be treated in the same manner. Absent any requirements for separate accounting of the proposed modification for State Teachers Retirement System benefits, there would no increase in administrative costs to the State Tax Department associated with passage of this bill.



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 -10,000,000 -10,000,000


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


Passage of this bill would provide an exemption from the Personal Income Tax for retirement benefits received from the State Teachers’ Retirement System by those annuitants that on or before March 6, 1972 elected to participate to the full extent of their salary in said retirement system. More than 20,000 retirees would likely qualify for the proposed exemption. According to our interpretation, passage of this bill would reduce General Revenue Fund collections by roughly $10.0 million per year beginning in FY 2009. The bill exempts all retirement benefits from the State Teachers’ Retirement System. The favored treatment of the potential beneficiaries in relation to other public employees may result in litigation where other retired federal and State employees will seek to be treated in the same manner. The bill, as written, also allows these retirees to take the full $8,000 senior citizen modification if they are age sixty-five or older. Absent any requirements for separate accounting of the proposed modification for State Teachers Retirement System benefits, there would no increase in administrative costs to the State Tax Department associated with passage of this bill.



Memorandum


The stated purpose of this bill is to exempt the retirement benefits of certain annuitants under the State Teacher Retirement System from state income tax. The bill, as written, provides for the favored treatment of the potential beneficiaries in relation to other public employees. In addition to providing a full exclusion to select public retirees, the bill favors the select retirees over the age of 65. The proposed exemption is written as a new subsection (i.e., West Virginia Code §11-21-12(h)). However, other retirement related exclusions are generally within West Virginia Code §11-21-12(c). The placement of the proposed change in a new subsection would permit taxpayers over the age of 65 to potentially apply an exclusion of up to $8,000 against income other than the targeted retirement benefits. The exclusion available to other public employee retirees over the age of 65 is limited to $8,000, or the dollar amount of the retirement income, not both. This favored status for the selected target group may result in litigation where retired federal and State employees and private sector employees will seek to be treated in the same manner.



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