Date Requested: January 21, 2015
Time Requested: 10:42 AM
Agency: State Tax & Revenue Department
CBD Number: Version: Bill Number: Resolution Number:
2379 Introduced SB258
CBD Subject: Counties


FUND(S):

State Road Fund, Tax Department Sales & Use Tax Operations Fund

Sources of Revenue:

Special Fund,Other Fund State Road Fund

Legislation creates:

A New Fund



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


    The stated purpose of this bill is to give each county commission authority to submit road and bridge construction projects to the Commissioner of Highways. The bill authorizes county commissions to impose a county transportation sales and service tax and a county use tax, at a rate not to exceed one percent, to finance the construction, in whole or in part, thereby accelerating the time for completion of those projects. The bill states that the taxes would be collected by the Tax Commissioner, at same time and in the same manner as the state consumers sales and service tax and use taxes are collected. The bill permits the net county transportation sales and use taxes would be deposited in the County Road Improvement Account, a new account that would be created in the State Road Fund, to the credit of the county’s subaccount in that account. The bill states that the funds in the subaccounts could be used to fund road and bridge construction projects on a cash basis and the Division of Highways would be authorized to issue special revenue bonds to finance construction secured by the county’s subaccount. The bill provides criminal penalties.
    
    As written, this bill proposes the potential creation of a subaccount within an account within the State Road Fund. The bill seeks to let counties generate revenue specifically toward road and bridge construction projects by imposing a sales tax on sales in the county. It is estimated that all sales and use taxes will generate about $1.3 billion in FY2015 and in FY2016. According to the bill, and assuming all 55 counties participate in the County Road Improvement Account at the maximum allowable rate of 1 percent, the Transportation Sales and Use Taxes could potentially generate an additional $220.0 million statewide. We cannot readily determine the amount of local sales tax collections for any single future year absent information on which counties will participate and the timing of their initial participation. Up to 1 percent of total collections are to be deposited by the State Tax Department in the Tax Department Sales and Use Tax Operations Fund. The remainder of the funds would be deposited in the account designated in the State Road Fund and allocated to the Counties in their subaccounts. The formula by which the funds are to be allocated is assumed to be per the individual sales within the county.
    
    Absent the establishment of a temporary holding account for local tax collections pending proper audits of tax return data to determine proper allocation of funds, the provisions of this bill would penalize General Revenue Fund collections and other special revenue fund sales tax collections for any errant deposits made directly to one or more county subaccounts. The proposed language would require the proration of error correction over a six-moth time frame. Taxpayers routinely make reporting errors with greater frequency as the number of local option tax lines increases on the sales tax return.
    
    Additional administrative costs to the State Tax Department would be significant, especially given the proposed administrative procedure authorized in this bill, with actual costs contingent on both the number of participating counties and the relative size of these participating counties. The administrative costs could exceed the proposed compensation for administration proposed in the bill.
    
    



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 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 proposes the potential creation of a subaccount within an account within the State Road Fund. The bill seeks to let counties generate revenue specifically toward road and bridge construction projects by imposing a sales tax on sales in the county. It is estimated that all sales and use taxes will generate about $1.3 billion in FY2015 and in FY2016. According to the bill, and assuming all 55 counties participate in the County Road Improvement Account at the maximum allowable rate of 1 percent, the Transportation Sales and Use Taxes could potentially generate an additional $220.0 million statewide. We cannot readily determine the amount of local sales tax collections for any single future year absent information on which counties will participate and the timing of their initial participation. Up to 1 percent of total collections are to be deposited by the State Tax Department in the Tax Department Sales and Use Tax Operations Fund. The remainder of the funds would be deposited in the account designated in the State Road Fund and allocated to the Counties in their subaccounts. The formula by which the funds are to be allocated is assumed to be per the individual sales within the county.
    
    Absent the establishment of a temporary holding account for local tax collections pending proper audits of tax return data to determine proper allocation of funds, the provisions of this bill would penalize General Revenue Fund collections and other special revenue fund sales tax collections for any errant deposits made directly to one or more county subaccounts. The proposed language would require the proration of error correction over a six-moth time frame. Taxpayers routinely make reporting errors with greater frequency as the number of local option tax lines increases on the sales tax return.
    
    Additional administrative costs to the State Tax Department would be significant, especially given the proposed administrative procedure authorized in this bill, with actual costs contingent on both the number of participating counties and the relative size of these participating counties. The administrative costs could exceed the proposed compensation for administration proposed in the bill.
    
    



Memorandum


    The stated purpose of this bill is to give each county commission authority to submit road and bridge construction projects to the Commissioner of Highways. The bill authorizes county commissions to impose a county transportation sales and service tax and a county use tax, at a rate not to exceed one percent, to finance the construction, in whole or in part, thereby accelerating the time for completion of those projects. The bill states that the taxes would be collected by the Tax Commissioner, at same time and in the same manner as the state consumers sales and service tax and use taxes are collected. The bill permits the net county transportation sales and use taxes would be deposited in the County Road Improvement Account, a new account that would be created in the State Road Fund, to the credit of the county’s subaccount in that account. The bill states that the funds in the subaccounts could be used to fund road and bridge construction projects on a cash basis and the Division of Highways would be authorized to issue special revenue bonds to finance construction secured by the county’s subaccount. The bill provides criminal penalties.
    
    As currently written, there are significant administrative challenges with the provisions of this bill. The provisions calling for direct deposit of local taxes into special revenue subaccounts without necessary error corrections would be a significant deviation from current tax administration practices among states responsible for collecting additional locally imposed sales taxes. Taxpayers make reporting errors with significant frequency. State General Revenues would be at risk every time an error results in an over-deposit of funds into one or more of the local subaccounts. Administrative costs would be very high given the proposed remedies for errant transactions offered in the bill. In other jurisdictions with local option sales taxes collected by the State, initial collections accrue in a clearing account and are distributed out at a later time period following a sufficient time for data error corrections. Such a process is currently in place for collection of local municipal sales taxes. Additional information reporting requirements, including information on the names and addresses of all taxpayers and tax collectors within a taxing jurisdiction, also add significant administrative cost to this process for requirements generally not found in other States with responsibility for the collections of a local option tax.
    
    Another concern with the bill is that the fees to be collected by the State Tax Department for administration of the accounts are not created in the bill. The administrative fees are to be deposited in a fund called the Tax Department Sales and Use Tax Operations Fund, yet no such fund currently exists, nor is provided for in the bill. The Tax Commissioner cannot create a fund not specified in the West Virginia Code.
    



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