FISCAL NOTE

Date Requested: January 25, 2016
Time Requested: 03:17 PM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
2028 Introduced HB4242
CBD Subject: Education (K12)


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund,Other 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 $11.2 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 $6.9 million annually. It should be noted that current law allows a federal and state deduction of similar expenses, up to $250 for each year, for instructors in the State. There were 18,800 claims totaling nearly $4.8 million in TY2013, representing less than full participation from eligible instructors. The proposed bill keeps this deduction and adds an additional credit. The added incentive could likely increase participation, thus increasing the number of deduction claims each year. Combined, revenue losses are estimated to be up to $18.1 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 -18,100,000 -18,100,000


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 $11.2 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 $6.9 million annually. It should be noted that current law allows a federal and state deduction of similar expenses, up to $250 for each year, for instructors in the State. There were 18,800 claims totaling nearly $4.8 million in TY2013, representing less than full participation from eligible instructors. The proposed bill keeps this deduction and adds an additional credit. The added incentive could likely increase participation, thus increasing the number of deduction claims each year. Combined, revenue losses are estimated to be up to $18.1 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 proposed bill contains a possible title defect; the title specifies educational expenses incurred by parents, but the bill makes no mention of “parents” as taxpayers eligible for the credit. Further, the bill does not specify who must have incurred the expenses related to the education of the child in order to claim the tax credit. The term “student” may be more appropriate than “child” in the bill, as a “child” becomes an adult at the age of 18. The bill fails to define “supplementary education materials or professional development costs” and leaves open many possibilities as to what would constitute a qualifying expense. The proposed bill is unclear as to whether the credit is available for students who are residents of West Virginia, but who are educated out-of-state. Further, it is unclear whether students or instructors at postsecondary institutions qualify for 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