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 establish incentives to attract and retain young talent to the State of West Virginia. As written, this bill proposes two new tax incentives. The first tax incentive would create a tax credit in an amount equal to the amount of money paid as interest on a qualified student loan, up to a maximum of $500 per taxpayer per year. The tax credit would be available to any taxpayer who has paid interest on a qualified student loan, but is under age 40 as of the end of December of the tax year. A qualified student loan is defined as a loan made to a student for the purpose of paying the tuition, books, fees or any other educational expense or living expenses of a student pursuing a two-year degree, four-year degree, or advanced degree from a higher education institution. If the tax credit allowed in any tax year exceeds the taxpayer’s Personal Income Tax liability for the tax year, the excess may be applied in succeeding years until the full amount of the excess credit is used or the taxpayer reaches age forty. The tax credit proposal authorizes the State Tax Commissioner to promulgate rules, as necessary, to carry out the purposes of the tax credit law. The second tax incentive would create a Personal Income Tax decreasing modification for taxpayers who are graduates of a higher education institution, who are under age 40 as of the end of December of the tax year, and who have obtained the qualifying degree not more than two years prior to the tax year in which the modification is to be claimed. Qualifying taxpayers would be permitted a decreasing modification in the amount of $25,000. The decreasing modification proposal requires the State Tax Commissioner to promulgate Legislative rules, as necessary, regarding the documentation necessary to claim the modification. According to our interpretation and based upon available information, passage of the proposed tax credit would reduce revenue by roughly $17 million to $20 million per year beginning in Fiscal Year 2011and passage of the proposed decreasing modification would reduce revenue by roughly $4 million to $6 million per year beginning in Fiscal Year 2011. The combined annual revenue reduction resulting from passage of the two tax incentives would be roughly $21 million to $26 million per year. If all Personal Income Tax returns claiming the proposed tax credit and proposed modification would be accepted as filed, additional administrative costs for the State Tax Department would be minimal. However, the bill as written, requires the State Tax Commissioner to promulgate Legislative rules, as necessary, regarding the documentation necessary to claim the proposed modification. If the intent of the required rules is to ensure complete review of the use of the proposed modification, additional administrative costs to the State Tax Department would be substantial.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2010 Increase/Decrease (use"-")	2011 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 two new tax incentives. The first tax incentive would create a tax credit in an amount equal to the amount of money paid as interest on a qualified student loan, up to a maximum of $500 per taxpayer per year. The tax credit would be available to any taxpayer who has paid interest on a qualified student loan, but is under age 40 as of the end of December of the tax year. A qualified student loan is defined as a loan made to a student for the purpose of paying the tuition, books, fees or any other educational expense or living expenses of a student pursuing a two-year degree, four-year degree, or advanced degree from a higher education institution. If the tax credit allowed in any tax year exceeds the taxpayer’s Personal Income Tax liability for the tax year, the excess may be applied in succeeding years until the full amount of the excess credit is used or the taxpayer reaches age forty. The tax credit proposal authorizes the State Tax Commissioner to promulgate rules, as necessary, to carry out the purposes of the tax credit law. The second tax incentive would create a Personal Income Tax decreasing modification for taxpayers who are graduates of a higher education institution, who are under age 40 as of the end of December of the tax year, and who has obtained the qualifying degree not more than two years prior to the tax year in which the modification is to be claimed. Qualifying taxpayers would be permitted a decreasing modification in the amount of $25,000. The decreasing modification proposal requires the State Tax Commissioner to promulgate Legislative rules, as necessary, regarding the documentation necessary to claim the modification. According to our interpretation and based upon available information, passage of the proposed tax credit would reduce revenue by roughly $17 million to $20 million per year beginning in Fiscal Year 2011and passage of the proposed decreasing modification would reduce revenue by roughly $4 million to $6 million per year beginning in Fiscal Year 2011. The combined annual revenue reduction resulting from passage of the two tax incentives would be roughly $21 million to $26 million per year. Roughly 15,000 to 20,000 taxpayers would be eligible to claim the proposed tax credit and roughly 6,000 to 8,000 taxpayers would be eligible to reduce their tax liability via the proposed decreasing modification. If all Personal Income Tax returns claiming the proposed tax credit and proposed modification would be accepted as filed, additional administrative costs for the State Tax Department would be minimal. However, the bill as written, requires the State Tax Commissioner to promulgate Legislative rules, as necessary, regarding the documentation necessary to claim the proposed modification. If the intent of the required rules is to ensure complete review of the use of the proposed modification, additional administrative costs to the State Tax Department would be substantial.

Memorandum

The stated purpose of this bill is to establish incentives to attract and retain young talent to the State of West Virginia. One of the tax incentives proposed by this bill is a tax credit for student loan interest paid during the tax year. Since the West Virginia Personal Income Tax begins with federal adjusted gross income and federal adjusted gross income includes a deduction for student loan interest, the proposed tax credit provides a multiple benefit. In many cases, tax credits are designed to offset tax liability incurred by participating in a desirable activity (e.g., increased investment in manufacturing machinery and equipment). This proposed credit would offset tax liability from activities unrelated to the target item since student loan interest is already removed from a taxpayer’s taxable income.

Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov