Date Requested: February 13, 2015
Time Requested: 02:54 PM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
2948 Introduced SB480
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 exempt the first $20,000 of income received by retired public employees and retired teachers through their state retirement systems from personal income tax.
    
    The bill, as written, increases the decreasing modification from $2,000 to $20,000 for benefits received under PERS and the Teachers’ Retirement System. According to our interpretation, the provisions of this bill would be retroactive. Based upon the above interpretations, passage of this bill would reduce General Revenue Fund collections by roughly $73.1 million in Fiscal Year 2016 and by $20.2 million in FY2017. The large reduction in FY2016 collections would be mainly attributable to roughly $52.9 million in refunds attributable to refunds for amended tax years 2012, 2013 and 2014. The annual cost of this proposed tax exclusion will escalate over time as members of the baby-boom generation begin receiving Social Security benefits.
    
    Since passage of this bill would result in the processing of additional refunds in FY2016, additional costs attributable to the processing of these refunds would be significant. Also, additional litigation by less favored groups would result in a significant increase in administrative costs to the State Tax Department. In particular, additional preferential treatment for a large group of state and local government retirees relative to federal civil service retirees would conflict with the U.S. Supreme Court ruling in Davis v. Michigan.



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 -73,100,000 0


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


    The bill, as written, increases the decreasing modification from $2,000 to $20,000 for benefits received under PERS and the Teachers’ Retirement System. According to our interpretation, the provisions of this bill would be retroactive. Based upon the above interpretations, passage of this bill would reduce General Revenue Fund collections by roughly $73.1 million in Fiscal Year 2016 and by $20.2 million in FY2017. The large reduction in FY2016 collections would be mainly attributable to roughly $52.9 million in refunds attributable to refunds for amended tax years 2012, 2013 and 2014. The annual cost of this proposed tax exclusion will escalate over time as members of the baby-boom generation begin receiving Social Security benefits.
    
    Since passage of this bill would result in the processing of additional refunds in FY2016, additional costs attributable to the processing of these refunds would be significant. Also, additional litigation by less favored groups would result in a significant increase in administrative costs to the State Tax Department. In particular, additional preferential treatment for a large group of state and local government retirees relative to federal civil service retirees would conflict with the U.S. Supreme Court ruling in Davis v. Michigan.



Memorandum


    The stated purpose of this bill is to exempt the first $20,000 of income received by retired public employees and retired teachers through their state retirement systems from personal income tax.
    
    There is concern that additional preferential treatment for a large group of state and local government retirees relative to federal civil service retirees would conflict with the U.S. Supreme Court ruling in Davis v. Michigan.
    
    In addition, the bill authorizes amended returns for those claiming this modification.
    



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