Date Requested: February 24, 2015
Time Requested: 03:15 PM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
3277 Introduced HB2988
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 require the Auditor and other state, county, district, or municipal officers to certify to the Tax Commissioner the identity of payees prior to issuance of payments and authorize the Tax Commissioner to identify those payees who are not in good standing with the Tax Department and to require the Auditor or issuing officer to forward to the Tax Commissioner the lesser of the amount of tax interest and penalty owed or the remaining amount of payment. The bill requires the Auditor or issuing officer or agent to notify the vendor or contractor of the amount being withheld, and requires payment be withheld until the vendor or contractor is in good standing. State and local employees receiving only W-2 wages or salary are excluded from the definition of “vendor” or “contractor.”
    
    According to the provisions of the proposed bill, for all contracts made on behalf of the State or any political subdivision for which payment is made to the Auditor on and after January 1, 2016, the Auditor shall provide to the Tax Commissioner by electronic or other means, no less than three days prior to the first payment and upon all subsequent payments, a list showing the name and the social security number or federal tax identification number of all vendors and contractors who are payees, and such other information as the Tax Commissioner may require. From the certified list, the Tax Commissioner shall certify to the Auditor each delinquent payee and the amount of tax, interest, additions to tax or penalties due and payable. The Auditor would notify the vendor or contractor of the amount being withheld and forward to the Tax Commissioner the lesser of the entire payment or the amount certified, and pay any amount in excess of the certified amount to the vendor or contractor. When the vendor or contractor is not in good standing for reasons other than tax, interest or penalty being owed, the Tax Commissioner shall certify as such and the Auditor shall notify the contractor is not in good standing. The Auditor would then withhold payment until the contractor is in good standing. The terms “vendor” and “contractor” do not include employees of the state who for the taxable year receive wages or salary reported on federal form W-2 or who receive reimbursements for employment related purposes. Any employee who receives non-employee compensation, as determined for federal income tax purposes, from the State is still subject to the provisions of the proposed bill to the extent of that non-employee compensation. These same provisions also apply for all state, county, district and municipal officers and agents making contracts on behalf of the State or any political subdivision for which payment is not made to the Auditor on and after January 1, 2016.
    
    Based on limited feedback from other states with similar programs, we estimate that passage of this bill would result in a gain of between $0.6 million and $1.1 million in FY2016 and a increase of $1.2 million and $2.3 million per year to the General Revenue Fund in FY2017 and thereafter.
    
    Additional administrative cost incurred by the State Tax Department would be $30,000 in FY2016 and $15,000 in subsequent fiscal years. Both the State Auditor’s Office and local governments would also incur additional administrative costs to comply with this 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 30,000 15,000
Personal Services 0 15,000 15,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 15,000 0
2. Estimated Total Revenues 0 0 0


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


    According to the provisions of the proposed bill, for all contracts made on behalf of the State or any political subdivision for which payment is made to the Auditor on and after January 1, 2016, the Auditor shall provide to the Tax Commissioner by electronic or other means, no less than three days prior to the first payment and upon all subsequent payments, a list showing the name and the social security number or federal tax identification number of all vendors and contractors who are payees, and such other information as the Tax Commissioner may require. From the certified list, the Tax Commissioner shall certify to the Auditor each delinquent payee and the amount of tax, interest, additions to tax or penalties due and payable. The Auditor would notify the vendor or contractor of the amount being withheld and forward to the Tax Commissioner the lesser of the entire payment or the amount certified, and pay any amount in excess of the certified amount to the vendor or contractor. When the vendor or contractor is not in good standing for reasons other than tax, interest or penalty being owed, the Tax Commissioner shall certify as such and the Auditor shall notify the contractor is not in good standing. The Auditor would then withhold payment until the contractor is in good standing. The terms “vendor” and “contractor” do not include employees of the state who for the taxable year receive wages or salary reported on federal form W-2 or who receive reimbursements for employment related purposes. Any employee who receives non-employee compensation, as determined for federal income tax purposes, from the State is still subject to the provisions of the proposed bill to the extent of that non-employee compensation. These same provisions also apply for all state, county, district and municipal officers and agents making contracts on behalf of the State or any political subdivision for which payment is not made to the Auditor on and after January 1, 2016.
    
    Based on limited feedback from other states with similar programs, we estimate that passage of this bill would result in a gain of between $0.6 million and $1.1 million in FY2016 and a increase of $1.2 million and $2.3 million per year to the General Revenue Fund in FY2017 and thereafter.
    
    Additional administrative cost incurred by the State Tax Department would be $30,000 in FY2016 and $15,000 in subsequent fiscal years. Both the State Auditor’s Office and local governments would also incur additional administrative costs to comply with this bill.
    



Memorandum


    The stated purpose of this bill is to require the Auditor and other state, county, district, or municipal officers to certify to the Tax Commissioner the identity of payees prior to issuance of payments and authorize the Tax Commissioner to identify those payees who are not in good standing with the Tax Department and to require the Auditor or issuing officer to forward to the Tax Commissioner the lesser of the amount of tax interest and penalty owed or the remaining amount of payment. The bill requires the Auditor or issuing officer or agent to notify the vendor or contractor of the amount being withheld, and requires payment be withheld until the vendor or contractor is in good standing. State and local employees receiving only W-2 wages or salary are excluded from the definition of “vendor” or “contractor.”
    
    It appears that part of the process was omitted in the language of the bill. The phrase, “The Tax Commissioner shall certify such reason and”, needs to be inserted after “to tax or penalty being owed,” and before “the state, county, district...” found on page 5 at line 10. Otherwise a step in the process is left out.
    
    Though it is implied, it is clearer if the following sentence is inserted after the sentences ending on page 4, line 6 and page 5 at the end of line 8: “The Tax Commissioner shall apply the amount withheld to the certified amount owed and any applicable fees.” Without the above sentence, it is not clear to the contractor or vendor that the withheld payment is being applied to the tax and fee owed.
    
    
    



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