Date Requested: January 16, 2015
Time Requested: 11:21 AM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
2033 Introduced HB2127
CBD Subject: Tax


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 allow manufacturers of medical devices a tax credit against Corporation Net Income Tax in the amount of federal medical device tax paid.
    
    According to the provisions of the bill, for taxable years beginning on or after January 1, 2015, a credit shall be allowed against the Corporation Net Income Tax equal to the amount of a taxpayer’s federal medical device tax liability. The federal medical device tax is a 2.3 percent sales tax imposed on manufacturers of certain non-retail medical device supplies. This federal medical device tax applies to a range of products including pacemakers, artificial joints, surgical gloves, and dental instruments. It does not apply to eyeglasses, contact lenses, hearing aids, wheelchairs, or any other device that the public generally purchases for individual use. Further, the federal medical device tax is applied to both imported and domestically produced devices, and devices produced in the U.S. for export are tax-exempt.
    
    According to our interpretation of the provisions of this bill, the State General Revenue Fund might possibly pay some portion of the federal excise tax by way of offering a tax credit for such tax paid against the Corporation Net Income Tax. However, it is impossible to accurately measure the fiscal impact for any year as credit use might vary from $0 to something more substantial depending on income taxes paid by a small group of Taxpayers. Potential credit cost greatly depends on the amount of pre-credit income tax payable to West Virginia by a Taxpayer with some exposure to the federal excise tax. It is our interpretation that the provisions of the bill would generally provide a nonrefundable tax credit with no carryover of excess tax paid to other tax years. The federal medical devise tax is an excise tax based on price and the corporation net income tax is an unrelated profits tax based on apportioned net income of multi-state corporations plus income of in-state corporations. A very small percentage of the U.S. medical device industry currently resides in West Virginia. However, the tax credit is not specifically limited to tax directly incurred by business operations in West Virginia.
    
    The State Tax Department would incur approximately $15,000 in administrative costs in FY2016 and $10,000 in subsequent years.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2015
Increase/Decrease
(use"-")
2016
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 15,000 10,000
Personal Services 0 10,000 10,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 5,000 0
2. Estimated Total Revenues 0 0 0


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


    According to the provisions of the bill, for taxable years beginning on or after January 1, 2015, a credit shall be allowed against the Corporation Net Income Tax equal to the amount of a taxpayer’s federal medical device tax liability. The federal medical device tax is a 2.3 percent sales tax imposed on manufacturers of certain non-retail medical device supplies. This federal medical device tax applies to a range of products including pacemakers, artificial joints, surgical gloves, and dental instruments. It does not apply to eyeglasses, contact lenses, hearing aids, wheelchairs, or any other device that the public generally purchases for individual use. Further, the federal medical device tax is applied to both imported and domestically produced devices, and devices produced in the U.S. for export are tax-exempt.
    
    According to our interpretation of the provisions of this bill, the State General Revenue Fund might possibly pay some portion of the federal excise tax by way of offering a tax credit for such tax paid against the Corporation Net Income Tax. However, it is impossible to accurately measure the fiscal impact for any year as credit use might vary from $0 to something more substantial depending on income taxes paid by a small group of Taxpayers. Potential credit cost greatly depends on the amount of pre-credit income tax payable to West Virginia by a Taxpayer with some exposure to the federal excise tax. It is our interpretation that the provisions of the bill would generally provide a nonrefundable tax credit with no carryover of excess tax paid to other tax years. The federal medical devise tax is an excise tax based on price and the corporation net income tax is an unrelated profits tax based on apportioned net income of multi-state corporations plus income of in-state corporations. A very small percentage of the U.S. medical device industry currently resides in West Virginia. However, the tax credit is not specifically limited to tax directly incurred by business operations in West Virginia.
    
    The State Tax Department would incur approximately $15,000 in administrative costs in FY2016 and $10,000 in subsequent years.
    
    



Memorandum


    



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