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 low-income workers with a refundable state tax credit based on the federal Earned Income Tax Credits. Current law provides for a nonrefundable tax credit. As written, this bill would create a tax credit equal to 20 percent of the federal earned income tax credit that can be used against the Personal Income Tax. The bill provides that the credit, effective for tax years beginning on or after January 1, 2010, is allowed to offset the Personal Income Tax. Also, the bill provides that any credit in excess of tax owed, is to be paid to the taxpayer. According to our interpretation of this bill and based upon new federal earned income tax credit parameters as recently enacted in the American Recovery and Reinvestment Act of 2009 and the assumption that the proposed credit is in addition to the Family Tax Credit provided by W. Va. Code §11-21-22(a), (b) and (c), passage of this bill would result in a reduction in the General Revenue Fund of roughly $64 million to $68 million per year beginning in Fiscal Year 2011. The bill also requires the State Tax Commissioner to make efforts every year to alert taxpayers who may be eligible for the credit. Additional administrative costs to the State Tax Department associated with this bill would be roughly $50,000 per year.

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	0	0	50,000
Personal Services	0	0	0
Current Expenses	0	0	50,000
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	0	0
2. Estimated Total Revenues	0	0	-68,000,000

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

As written, this bill would create a tax credit equal to 20 percent of the federal earned income tax credit that can be used against the Personal Income Tax. The bill provides that the credit, effective for tax years beginning on or after January 1, 2010, is allowed to offset the Personal Income Tax. Also, the bill provides that any credit in excess of tax owed, is to be paid to the taxpayer. According to our interpretation of this bill and based upon new federal earned income tax credit parameters as recently enacted in the American Recovery and Reinvestment Act of 2009 and the assumption that the proposed credit is in addition to the Family Tax Credit provided by W. Va. Code §11-21-22(a), (b) and (c), passage of this bill would result in a reduction in the General Revenue Fund of roughly $64 million to $68 million per year beginning in Fiscal Year 2011. The bill also requires the State Tax Commissioner to make efforts every year to alert taxpayers who may be eligible for the credit. In addition to the estimated 96,000 taxpayers eligible for the existing Family Tax Credit, passage of the bill would provide additional tax relief benefits to roughly another 60,000 taxpayers. Additional administrative costs to the State Tax Department associated with this bill would be roughly $50,000 per year. The additional costs would be printing information and securing advertising to meet the requirement that the State Tax Commissioner make an effort to alert potential beneficiaries of the credit.

Memorandum

The stated purpose of this bill is to provide low-income workers with a refundable state tax credit based on the federal Earned Income Tax Credits. Current law provides for a nonrefundable tax credit. Our interpretation of the changes proposed by this bill is that the credit in proposed W. Va. Code §11-21-22(d) is in addition to the Family Tax Credit provided by W. Va. Code §11-21-22(a), (b) and ( c). If the proposal was intended to replace the existing credit, language to that effect may be necessary.

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