Sources of Revenue:

General Fund,Other Fund State Road 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 for future repeal of provisions of the Motor Fuel Excise Tax; to increase the consumer sales and use tax to eight percent, dedicating the increased revenue from that tax to the Road Fund; to provide for aviation fuel tax, and to dedicate that revenue to runway repair and maintenance. As written, this bill cannot be implemented as its provisions are in conflict with other unamended sections of the code. The bill creates a new section (i.e., §11-14C-49) that repeals the Motor Fuel Excise Tax as of January 1, 2014, but preserves tax liabilities arising prior to January 1, 2014 and the State’s powers of assessment and collection on those liabilities. There is no mention of a future repeal of the motor carrier road tax or various other provisions associated with the imposition of Motor Fuel Excise Taxes. Also, the bill increases the amount of consumers sales and service tax and use tax to 8 percent, specifying that $.02 of “each eight cents” is to be deposited in the Road Fund for the purpose of construction and repair of highways and payment of principal and interest on state bonds issued for highway purposes. However, the provisions of the bill would continue imposing sales tax on gasoline and special fuel at the rate of five cents on each dollar of sales. This bill has a proposed new section relating to the taxation of aviation fuel (§11-15-35), retroactive to January 1, 2004, including a tax increase on such fuel of 20.5 cents per gallon. Currently, the motor fuel tax has a fixed rate of $.205 per invoiced gallon plus a variable component of sales tax at the rate of 5 percent of the average wholesale price of motor fuel. These taxes currently generate more than $400 million per year to the State Road Fund. For 2013, the average wholesale price per gallon is $2.831. At 5 percent, the variable rate is $.142 per gallon. The proposed aviation fuel tax is subject to an excise tax of a flat rate equal to $.205 per invoiced gallon plus a sales tax based upon an average wholesale price effective January 1, 2004. Presently, aviation fuel is per se exempt from the flat rate component of the motor fuel tax, but is taxable under the variable rate. The proposed bill does not state a point of taxation for aviation fuel. Under current law, the point of taxation for the Motor Fuel Excise Tax is the terminal “rack”. The proposed increase in the general sales tax rate from 6 percent to 8 percent would generate up to $400 million per year for the State Road Fund. On a prospective basis, the increase in the tax on aviation fuel would generate about $1.6 million per year for the State Aeronautical Commission. However, rules for collection of tax on aviation fuel are unclear along with rules for application of the gasoline sales tax and the basis for any taxation of motor carriers. In addition, the sales tax rate on mobile homes would remain at 6 percent rather than 8 percent, a violation of the provisions of the Streamlined Sales Tax Agreement. The overall net impact to the State Road Fund or the General Revenue Fund is unclear due to a number of unclarified provisions in the proposed bill. Additional administrative costs to the State Tax Department could be significant due to all the uncertainties in the proposed bill.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2013 Increase/Decrease (use"-")	2014 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):

As written, this bill cannot be implemented as its provisions are in conflict with other unamended sections of the code. The bill creates a new section (i.e., §11-14C-49) that repeals the Motor Fuel Excise Tax as of January 1, 2014, but preserves tax liabilities arising prior to January 1, 2014 and the State’s powers of assessment and collection on those liabilities. There is no mention of a future repeal of the motor carrier road tax or other provisions associated with the imposition of the Motor Fuel Excise Taxes. Also, the bill increases the amount of consumers sales and service tax and use tax to 8 percent, specifying that $.02 of “each eight cents” is to be deposited in the Road Fund for the purpose of construction and repair of highways and payment of principal and interest on state bonds issued for highway purposes. However, the provisions of the bill would continue imposing sales tax on gasoline and special fuel at the rate of five cents on each dollar of sales. This bill has a proposed new section relating to the taxation of aviation fuel (§11-15-35), retroactive to January 1, 2004, including a tax increase on such fuel of 20.5 cents per gallon. Currently, the motor fuel tax has a fixed rate of $.205 per invoiced gallon plus a variable component of sales tax at the rate of 5 percent of the average wholesale price of motor fuel. These taxes currently generate more than $400 million per year to the State Road Fund. For 2013, the average wholesale price per gallon is $2.831. At 5 percent, the variable rate is $.142 per gallon. The proposed aviation fuel tax is subject to an excise tax of a flat rate equal to $.205 per invoiced gallon plus a sales tax based upon an average wholesale price effective January 1, 2004. Presently, aviation fuel is per se exempt from the flat rate component of the motor fuel tax, but is taxable under the variable rate. The proposed bill does not state a point of taxation for aviation fuel. Under current law, the point of taxation for the Motor Fuel Excise Tax is the terminal “rack”. The proposed increase in the general sales tax rate from 6 percent to 8 percent would generate up to $400 million per year for the State Road Fund. On a prospective basis, the increase in the tax on aviation fuel would generate about $1.6 million per year for the State Aeronautical Commission. However, rules for collection of tax on aviation fuel are unclear along with rules for application of the gasoline sales tax and the basis for any taxation of motor carriers. In addition, the sales tax rate on mobile homes would remain at 6 percent rather than 8 percent, a violation of the provisions of the Streamlined Sales Tax Agreement. The overall net impact to the State Road Fund or the General Revenue Fund is unclear due to a number of unclarified provisions in the proposed bill. Additional administrative costs to the State Tax Department could be significant due to all the uncertainties in the proposed bill.

Memorandum

Person submitting Fiscal Note: Mark B. Muchow
Email Address: Roger.D.Cox@wv.gov