FISCAL NOTE
Date Requested: January 15, 2016
Time Requested: 01:26 PM |
| Agency: |
Tax Department, State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1484 |
Introduced |
SB292 |
|
|---|
| 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 create income tax credits against personal income tax for educational expenses incurred by parents for a child under twenty-one years of age and for expenses incurred by teachers for the purchase of supplementary educational materials or professional development costs.
Our interpretation of the proposed legislation suggests taxpayers with dependent children currently enrolled in a public or private educational program—possibly at primary, secondary, or postsecondary level—may be eligible to claim this credit so long as that child resides in the State and is under twenty-one years of age. Thus, all educational levels are considered. Estimates reflect the maximum credit claimed for all eligible dependent children and teachers. It is reasonable that the full credit will likely not be claimed for every dependent child or eligible teacher should the proposed bill be enacted; however, determining partial participation if portions of available credits are not claimed is difficult.
With respect to educational expenses incurred by parents for a child under twenty-one years of age, the resulting revenue impact is estimated to be a loss of $55.9 million annually. With respect to expenses incurred by teachers for the purchase of supplementary educational materials or professional development costs, if all teachers at public and private primary and secondary institutions in the State were to claim the maximum credit, the estimate revenue impact would be a loss of approximately $27.5 million annually. Combined, revenue losses based on our interpretation of the proposed bill are estimated to be $83.4 million annually beginning in FY2017.
The State Tax Department would incur $24,000 in additional administrative costs in FY2017 and $5,000 per year in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2016
Increase/Decrease
(use"-") |
2017
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
24,000 |
5,000 |
| Personal Services |
0 |
5,000 |
5,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
19,000 |
0 |
| 2. Estimated Total Revenues |
0 |
-83,400,000 |
-83,400,000 |
Explanation of above estimates (including long-range effect):
Our interpretation of the proposed legislation suggests taxpayers with dependent children currently enrolled in a public or private educational program—possibly at primary, secondary, or postsecondary level—may be eligible to claim this credit so long as that child resides in the State and is under twenty-one years of age. Thus, all educational levels are considered. Estimates reflect the maximum credit claimed for all eligible dependent children and teachers. It is reasonable that the full credit will likely not be claimed for every dependent child or eligible teacher should the proposed bill be enacted; however, determining partial participation if portions of available credits are not claimed is difficult.
With respect to educational expenses incurred by parents for a child under twenty-one years of age, the resulting revenue impact is estimated to be a loss of $55.9 million annually. With respect to expenses incurred by teachers for the purchase of supplementary educational materials or professional development costs, if all teachers at public and private primary and secondary institutions in the State were to claim the maximum credit, the estimate revenue impact would be a loss of approximately $27.5 million annually. Combined, revenue losses based on our interpretation of the proposed bill are estimated to be $83.4 million annually beginning in FY2017. It is worth noting that public primary and secondary school enrollment is trending downward in recent years, with the population of primary and secondary-aged children projected to continue to decline. Although not likely to substantially influence revenue impacts year-to-year, the amount of credits claimed could be lessened in the future.
The State Tax Department would incur $24,000 in additional administrative costs in FY2017 and $5,000 per year in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to create income tax credits against personal income tax for educational expenses incurred by parents for a child under twenty-one years of age and for expenses incurred by teachers for the purchase of supplementary educational materials or professional development costs.
The wording of the bill allows for many interpretations as to who is eligible to receive the credit, what educational items are allowable and whether there is a restriction to educational level. It is unclear what is meant by “dependent child” (e.g., whether the child must be listed as a dependent on the taxpayer’s tax return), and further whether the taxpayer must be the child’s parent or guardian to claim the credit.
With respect to teachers, the term “classroom teachers” is ambiguous; it is unclear whether teachers aids, coaches, an instructor providing services to homebound students and college professors, for example, would or would not qualify, and no consideration is given to full- or part-time status of instructors. The bill further does not specify whether a teacher could claim both the credit for a dependent child (or children) in addition to the classroom expenses credit, or whether a household with two teachers would qualify for a dual credit or would be limited to $1,000.
The terms “supplemental educational materials” and “professional development costs” are undefined, while “qualifying educational expenses” are defined but that term is not used in the bill. Although the bill includes “costs associated with the education of a child through graduation from a high school program” in the definition of qualifying educational expenses in Subsection (c), it is unclear, given the age limit of a child under twenty-one years of age, whether college or higher education costs qualify as well. Further, while the bill does not permit the credit to carryback to prior taxable years, it does not clearly state whether the expenses incurred must be incurred in the tax year in which the credit is being claimed.
The bill also appears to raise state Constitutional concerns. For one, Article X of the West Virginia Constitution requires that taxation “be equal and uniform throughout the state,” yet the current structure of the proposed bill may be to the contrary. The bill also appears to be in deficit of a sound basis for allowing these credits. Section 10 of Article III of the West Virginia Constitution states the state legislature “may make reasonable classifications in enacting statutes provided the classifications are based on some real and substantial relation to the objects sought to be accomplished by the legislation.” The bill does not provide a basis for allowing classroom teachers to claim the credit while excluding other types of school employees, nor does it provide a basis for why the child be a resident of the State for the taxpayer to claim the credit.
It is important to note that changes to or clarification of language in the proposed bill may affect these estimates, in some cases substantially.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov