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 abolish the food tax, increase the tax on nonintoxicating beer per barrel from $5.50 to $6.35, increase the tax on cigarettes to $1.35, increase the tax on noncigarette tobacco products from seven to fourteen percent, and to dedicate the first $5 million of revenue to the Department of Agriculture’s crop transition program. As stated, the passage of this bill would eliminate the Consumers Sales Tax on food for home consumption beginning on July 1, 2009. Also, this bill would raise the tax rate on beer from the current rate of $5.50 per barrel to $6.35 per barrel, increase the tax on cigarettes from the current rate of 55 cents per pack to $1.35 per pack, and raise the tax rate on other tobacco products (OTP) from the current rate of 7% to 14% of the wholesale price. The following table provides estimates of revenue consequences associated with the passage of this bill. The estimates for the rate increases in the Beer Barrel Tax and the Tobacco Products Excise Tax include consumption declines due to response to price increases associated with changes in tax rates. Sales of Food Meant for Home Consumption Only FY2010 -$ 75.0 million FY2011 -$ 81.9 million Net Effect of Beer Barrel Tax & Tobacco Products Excise Tax Rate Increases FY2010 $114.1 million FY2011 $114.1 million Total Net Effect FY2010 $39.1 million FY2011 $32.2 million The bill dedicates the first $5 million in Tobacco Products Excise Tax revenue during the first year of effect to the Department of Agriculture for crop transition programs. The net gain to the State General Revenue Fund would be roughly $34.1 million in FY2010 and $32.2 million in FY 2011. Additional administrative costs to the Tax Department would be $20,537 in the current fiscal year and $12,876 next fiscal year due to notifying taxpayers of the rate changes, revising forms and assessing floor stock on cigarette stamps. Thereafter, there would be no additional administrative costs.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2009 Increase/Decrease (use"-")	2010 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	20,537	12,876	0
Personal Services	12,048	12,048	0
Current Expenses	8,389	828	0
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	100	0	0
2. Estimated Total Revenues	0	39,100,000	32,200,000

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

As stated, the passage of this bill would eliminate the Consumers Sales Tax on food for home consumption beginning on July 1, 2009. Also, this bill would raise the tax rate on beer from the current rate of $5.50 per barrel to $6.35 per barrel, increase the tax on cigarettes from the current rate of 55 cents per pack to $1.35 per pack, and raise the tax rate on other tobacco products (OTP) from the current rate of 7% to 14% of the wholesale price. The following table provides estimates of revenue consequences associated with the passage of this bill. The estimates for the rate increases in the Beer Barrel Tax and the Tobacco Products Excise Tax include consumption declines due to response to price increases associated with changes in tax rates. Sales of Food Meant for Home Consumption Only FY2010 -$ 75.0 million FY2011 -$ 81.9 million Net Effect of Beer Barrel Tax & Tobacco Products Excise Tax Rate Increases FY2010 $114.1 million FY2011 $114.1 million Total Net Effect FY2010 $39.1 million FY2011 $32.2 million The bill dedicates the first $5 million in Tobacco Products Excise Tax revenue during the first year of effect to the Department of Agriculture for crop transition programs. The net gain to the State General Revenue Fund would be roughly $34.1 million in FY2010 and $32.2 million in FY 2011. Additional administrative costs to the Tax Department would be $20,537 in the current fiscal year and $12,876 next fiscal year due to notifying taxpayers of the rate changes, revising forms and assessing floor stock on cigarette stamps. Thereafter, there would be no additional administrative costs.

Memorandum

The stated purpose of this bill is to abolish the food tax, increase the tax on nonintoxicating beer per barrel from $5.50 to $6.35, increase the tax on cigarettes to $1.35, increase the tax on noncigarette tobacco products from seven to fourteen percent, and to dedicate the first $5 million of revenue to the Department of Agriculture’s crop transition program. This bill proposes to raise the tax rate on nonintoxicating beer per barrel from $5.50 to $6.35 by striking the original monetary amounts and replacing them with the new amounts, and by calling for an effective date for the changes of July 1, 2009 (see proposed §11-16-13). By changing the monetary amounts within the text of the bill in this manner, the current tax rate may not be in effect. This could result in numerous problems of administration and claims for refunds. Instead, the bill could insert a proviso detailing the new rates and effective dates, leaving the current rates and date intact. A similar problem exists in the proposed §11-17-3, which proposes to strike the current rate of tax on cigarettes and OTP. The bill strikes the current monetary amounts, leaves intact the effective date of January 1, 2002 for OTP in subsection (b), and strikes the effective date for changes made to subsection (c) from May 1, 2003 to July 1, 2009. As a result, the current rates of tax and effective dates are in limbo, with similar problems of administration. However, in this case, it would be taxpayers potentially becoming liable for more money due the State, rather than claims for refunds from taxpayers.

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