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 to provide a tax credit for ad valorem tax paid on Manufacturing Inventory, and other tangible personal property which will reduce either or both the amount of business franchise tax or corporate net income tax owed, effective the tax year beginning July 1, 2008. As written, this bill would create refundable tax credits. For new incoming foreign corporations, the refundable tax credit would be equal to the amount of ad valorem property tax paid on tangible personal property. And, for every foreign or domestic corporation, the refundable tax credit would be equal to the amount of ad valorem property taxes paid on personal property for any new equipment purchased over the previous taxable year. The tax credit would be applied against both Business Franchise Tax liability and Corporation Net Income Tax liability. According to our interpretation, there does not appear to be any restriction limiting the determination of the amount of the credit to ad valorem property tax paid in West Virginia. Additionally, it does not appear that a credit claim for ad valorem property tax applied against one of the taxes cited precludes a claim against the other tax. We are not able to accurately estimate the revenue impact of the credit, however, due to the potential for a very broad interpretation of the amount of possible credit the revenue reduction could be substantial. Assuming that all Business Franchise Tax returns or Corporation Net Income Tax returns claiming the new credit would be accepted as filed, additional administrative costs for the State Tax Department would be minimal. However, if the State Tax Department is required to verify the amount of eligible credit, additional administrative costs to the State Tax Department could be significant.

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	0

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

Passage of this bill would create refundable tax credits. For new incoming foreign corporations, the refundable tax credit would be equal to the amount of ad valorem property tax paid on tangible personal property. And, for every foreign or domestic corporation, the refundable tax credit would be equal to the amount of ad valorem property taxes paid on personal property for any new equipment purchased over the previous taxable year. The tax credit would be applied against both Business Franchise Tax liability and Corporation Net Income Tax liability. According to our interpretation, there does not appear to be any restriction limiting the determination of the amount of the credit to ad valorem property tax paid in West Virginia. Additionally, it does not appear that a credit claim for ad valorem property tax applied against one of the taxes cited precludes a claim against the other tax. We are not able to accurately estimate the revenue impact of the credit, however, due to the potential for a very broad interpretation of the amount of possible credit the revenue reduction could be substantial. Assuming that all Business Franchise Tax returns or Corporation Net Income Tax returns claiming the new credit would be accepted as filed, additional administrative costs for the State Tax Department would be minimal. However, if the State Tax Department is required to verify the amount of eligible credit, additional administrative costs to the State Tax Department could be significant.

Memorandum

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