Date Requested: February 12, 2015
Time Requested: 10:33 AM
Agency: State Tax & Revenue Department
CBD Number: Version: Bill Number: Resolution Number:
2016 Introduced SB478
CBD Subject: Motor Vehicles


FUND(S):

State Road Fund, General Revenue Fund

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 generate and maintain funds for highway construction by raising taxes on motor fuels, raising the consumer sales tax and dedicating the additional proceeds to the State Road Fund, raise fees for motor vehicle registration and salvage, driver licenses, and document fees of the Division of Motor Vehicles, and to establish a state infrastructure bank and state infrastructure fund.
    
    The provisions of this bill would increase a number of fees administered by the Division of Motor Vehicles (DMV) and increase a number of taxes administered by the State Tax Department. This fiscal note only relates to provisions administered by the State Tax Department. A separate fiscal note on license fee increases should be prepared by DMV.
    
    According to our interpretation, the provisions of this bill would make the following changes:
     ·Increase the diesel fuel excise tax from $0.205 per gallon to $0.265 per gallon over a three year period at a rate increase of two cents per year beginning on January 1, 2016. Additional revenue from this proposed change would be $2.4 million in FY2016, $8.2 million in FY2017, $14.0 million in FY2018 and $17.4 million in FY2019 and each year thereafter.
     ·Increase the Wholesale Motor Fuel Sales Tax rate from 5% to 7% effective January 1, 2016. At the current wholesale price of $2.82 per gallon, additional revenue from this proposed change would be roughly $33.3 million in FY2016 and $80.0 million each year thereafter.
     o The new combined tax rate on gasoline would rise from 34.6 cents per gallon to 40.2 cents per gallon.
     o The new combined tax rate on diesel would rise from 34.6 cents per gallon to 46.2 cents per gallon by 2018
     ·Eliminates the 10% limitation on change in calculated wholesale price of fuel subject to the Wholesale Motor Fuel Sales Tax. The State Road Fund would benefit whenever prices increase by more than 10% in a single year at the price of increased revenue volatility. If prices fall by more than 10% in a given year, the State Road fund could suffer some revenue loss in comparison with current Law.
     .Transfers roughly $56 million per year in revenues from the State General Revenue Fund to the State Road Fund beginning 90 days from passage. The transfer roughly represents the amount of sales tax collected on sales of motor vehicle repair services and parts. It is assumed that the transfer would be based on an estimate rather than imposing a burdensome requirement for vendors to separately report such sales tax on tax returns.
     ·Increases the General State Sales and Use Tax rate from 6% to 7% effective 90 days from passage with all of the increased revenue dedicated to the State Road Fund. The additional tax dedicated to the State Road Fund would be nearly $220 million per year beginning in FY2016.
    
    The total net gain to the State Road Fund from the proposed tax changes administered by the Tax Department would be roughly $311.7 million in FY2016 and more than $390 million per year when fully implemented in FY2019. State General Revenue Fund collections would decrease by at least $56 million per year beginning in FY2016 due to the additional sales tax revenue transfer requirement.
    
    Additional costs to the Tax Department will be $75,000 in FY2016 and $60,000 in each subsequent year.



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 75,000 75,000
Personal Services 0 75,000 75,000
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):


    According to our interpretation, the provisions of this bill would make the following changes:
     ·Increase the diesel fuel excise tax from $0.205 per gallon to $0.265 per gallon over a three year period at a rate increase of two cents per year beginning on January 1, 2016. Additional revenue from this proposed change would be $2.4 million in FY2016, $8.2 million in FY2017, $14.0 million in FY2018 and $17.4 million in FY2019 and each year thereafter.
     ·Increase the Wholesale Motor Fuel Sales Tax rate from 5% to 7% effective January 1, 2016. At the current wholesale price of $2.82 per gallon, additional revenue from this proposed change would be roughly $33.3 million in FY2016 and $80.0 million each year thereafter.
     o The new combined tax rate on gasoline would rise from 34.6 cents per gallon to 40.2 cents per gallon.
     o The new combined tax rate on diesel would rise from 34.6 cents per gallon to 46.2 cents per gallon by 2018
     ·Eliminates the 10% limitation on change in calculated wholesale price of fuel subject to the Wholesale Motor Fuel Sales Tax. The State Road Fund would benefit whenever prices increase by more than 10% in a single year at the price of increased revenue volatility. If prices fall by more than 10% in a given year, the State Road fund could suffer some revenue loss in comparison with current Law.
     .Transfers roughly $56 million per year in revenues from the State General Revenue Fund to the State Road Fund beginning 90 days from passage. The transfer roughly represents the amount of sales tax collected on sales of motor vehicle repair services and parts. It is assumed that the transfer would be based on an estimate rather than imposing a burdensome requirement for vendors to separately report such sales tax on tax returns.
     ·Increases the General State Sales and Use Tax rate from 6% to 7% effective 90 days from passage with all of the increased revenue dedicated to the State Road Fund. The additional tax dedicated to the State Road Fund would be nearly $220 million per year beginning in FY2016.
    
    The total net gain to the State Road Fund from the proposed tax changes administered by the Tax Department would be roughly $311.7 million in FY2016 and more than $390 million per year when fully implemented in FY2019. State General Revenue Fund collections would decrease by at least $56 million per year beginning in FY2016 due to the additional sales tax revenue transfer requirement.
    
    Additional costs to the Tax Department will be $75,000 in FY2016 and $60,000 in each subsequent year.



Memorandum


    The stated purpose of this bill is to generate and maintain funds for highway construction by raising taxes on motor fuels, raising the consumer sales tax and dedicating the additional proceeds to the State Road Fund, raise fees for motor vehicle registration and salvage, driver licenses, and document fees of the Division of Motor Vehicles, and to establish a state infrastructure bank and state infrastructure fund.
    
    The bill creates the West Virginia Transportation Infrastructure Bank for the stated purpose of funding infrastructure facilities, which is undefined. Funding to the Bank includes many sources all without reference to statutory guidelines. The Department of Transportation provides the staff to assist the bank in administration. There is no provision for the administrative burden and cost to the Department of Transportation.
    
    The bill deletes the limitation on the variance of the wholesale price of motor fuel, leaving a confusing statement concerning no limitation in the variance of alternative fuel average wholesale price. The amendment to W. Va. Code §11-15-18b, "Tax on motor fuel," attempts to place an on-going effective date of January 1 of the year following the enactment of the amendment to "this section." First, the rate was not changed in this section, section 18a, but rather in section 3, so the effective date is vague or confusing. The amended language refers to changes in the tax rate or "calculated cost basis" rather than "determination of average wholesale price." Furthermore, the sales tax calculation for motor fuel was not changed in §11-14C-5, making the increase in rates more confusing. Consistent language is clearer and less open to differing interpretations. The bill does not make like changes to the use tax portion of the motor fuel excise tax under W. Va. Code §11-15A-13a.
    
    There is no effective date for the sales tax increase. A new section is added dedicating taxes from motor vehicle repairs, parts, and services, after refunds, to the State Road Fund.
    
    The change in the flat rate of motor fuel tax for diesel fuel has internal dates of January 1, 2016, 2017 and 2018. The proposed change to sales tax rate of the variable component is intended to be January 1, 2016. The change in sales tax is 90 days after passage.
    
    



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