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 provide a tax credit to corporations of up to fifty percent of their primary tax liability for contributing to scholarship funds. As written, this bill would allow Corporation Net Income Tax filers to reduce their tax liability with a dollar for dollar tax credit for contributions to scholarship funds. The credit would be limited to a maximum of fifty percent of the taxpayers’ net tax liability, computed before application of the credit. The proposed bill would effectively create a mechanism for the State to fund donations for educational purposes and may result in an increase in scholarship donations. Other charitable organizations, such as religion, the arts, environment, etc., may see a drop in donations because scholarship donations would become more tax-preferred. According to our reading, the phrase “scholarship funds” may be subject to a very broad interpretation. In addition, many taxpayers would be able to qualify for the tax credit by making contributions to programs to outside the State. Although we are unable to accurately estimate the revenue impact of this proposal, we believe the revenue reduction attributable to passage of this bill would be significant. Assuming that all 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
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 allow Corporation Net Income Tax filers to reduce their tax liability with a dollar for dollar tax credit for contributions to scholarship funds. The credit would be limited to a maximum of fifty percent of the taxpayers’ net tax liability, computed before application of the credit. The proposed bill would effectively create a mechanism for the State to fund donations for educational purposes and may result in an increase in scholarship donations. Other charitable organizations, such as religion, the arts, environment, etc., may see a drop in donations because scholarship donations would become more tax-preferred. According to our reading, the phrase “scholarship funds” may be subject to a very broad interpretation. In addition, many taxpayers would be able to qualify for the tax credit by making contributions to programs to outside the State. Although we are unable to accurately estimate the revenue impact of this proposal, we believe the revenue reduction attributable to passage of this bill would be significant. Assuming that all 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


The stated purpose of this bill is to provide a tax credit to corporations of up to fifty percent of their primary tax liability for contributing to scholarship funds. As written, this bill provides a tax credit for application against the Corporation Net Income Tax liability for any taxpayers “who contribute to scholarship funds.” Since the bill does not define “scholarship fund”, or restrict the term in any way (e.g., accredited institutions, West Virginia based programs, etc.), the potential utilization of the credit may be much greater than intended.



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