FISCAL NOTE

Date Requested: February 09, 2017
Time Requested: 03:25 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1599 Introduced SB232
CBD Subject:


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 establish procedures concerning delinquent personal income taxes. According to our interpretation, the proposed bill would remove interest charges on delinquent Personal Income Taxes for the first year after payment is due and would change the rate of interest charged on such delinquent payments. Further, the proposed bill would require the Tax Department to compensate any Taxpayers who receive an erroneous delinquency notice $200. The changes to the interest charged on delinquent Personal Income Tax payments would substantially reduce the rate and result in a loss of approximately $15.5 million in General Revenue Fund collections for the first full year of imposition. As no effective date is specified in the bill, it is expected the bill would be in effect 90 days from passage. If such as date occurs on or around June 1, 2017, FY2017 General Revenue Fund collections could be reduced by up to $1.3 million. However, the actual amount collected for any given time period will heavily depend on timing of receipt for interest payments on outstanding Personal Income Tax debt. The revenue impact resulting from the penalty for erroneously sending delinquency notices is expected to be minimal. The federal five-year Treasury bill rate as of December 31, 2016, was 1.33 percent. Based on our interpretation, at this rate, West Virginia would have the lowest interest rate imposed on underpayments in the nation. By way of comparison, of the five surrounding states, interest rates on underpayments in 2016 ranged from 3 percent to 13 percent. As the proposed bill does not change the interest rate charged on Personal Income Tax overpayments, the State would still be subject to the 8 percent minimum interest rate as applicable, creating inconsistency in interest rates when the five-year Treasury bill rate is below this floor. Additional costs incurred by the Tax Department are expected to be $22,000 in FY2018.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2017
Increase/Decrease
(use"-")
2018
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 22,000 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 22,000 0
2. Estimated Total Revenues -1,300,000 -15,500,000 -15,500,000


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


According to our interpretation, the proposed bill would remove interest charges on delinquent Personal Income Taxes for the first year after payment is due and would change the rate of interest charged on such delinquent payments. Further, the proposed bill would require the Tax Department to compensate any Taxpayers who receive an erroneous delinquency notice $200. The changes to the interest charged on delinquent Personal Income Tax payments would substantially reduce the rate and result in a loss of approximately $15.5 million in General Revenue Fund collections for the first full year of imposition. As no effective date is specified in the bill, it is expected the bill would be in effect 90 days from passage. If such as date occurs on or around June 1, 2017, FY2017 General Revenue Fund collections could be reduced by up to $1.3 million. However, the actual amount collected for any given time period will heavily depend on timing of receipt for interest payments on outstanding Personal Income Tax debt. The revenue impact resulting from the penalty for erroneously sending delinquency notices is expected to be minimal. The federal five-year Treasury bill rate as of December 31, 2016, was 1.33 percent. Based on our interpretation, at this rate, West Virginia would have the lowest interest rate imposed on underpayments in the nation. By way of comparison, of the five surrounding states, interest rates on underpayments in 2016 ranged from 3 percent to 13 percent. As the proposed bill does not change the interest rate charged on Personal Income Tax overpayments, the State would still be subject to the 8 percent minimum interest rate as applicable, creating inconsistency in interest rates when the five-year Treasury bill rate is below this floor. Additional costs incurred by the Tax Department are expected to be $22,000 in FY2018.



Memorandum


The stated purpose of this bill is to establish procedures concerning delinquent personal income taxes. The proposed bill introduces administrative concerns for the Tax Department. As written, the bill does not specify a definite date on which the next year’s interest rate for delinquent Personal Income Taxes will be based. There can be notable differences in rates, including the federal five-year Treasury bill rate, within a matter of days. Further, in conjunction with the provisions of West Virginia Code §§11-10-17 and 11-10-17a, changing the interest rate on delinquent Personal Income Taxes but leaving the current interest rate in effect produces an imbalance between the rate being charged for Taxpayers who are one year or more past due and the rate charged to the State for reimbursement of overpayments. By not including a statutory lag time between the date on which the interest rate is established and the date on which it is effective, the Tax Department would not have sufficient time to notify Taxpayers of the rate change and make other necessary adjustments prior to the new rate going into effect. Currently, West Virginia Code §11-10-17a(c) provides one month from the determination of the interest rate to the effective date of that change. This can introduce a series of issues in administering the proposed interest rate on delinquent Personal Income Taxes, such as the possibility that payments may be received that incorrectly calculate the interest payment due, thus resulting in either a situation of potential additional underpayment for the Taxpayer (and subsequent imposition of interest) or a cumbersome additional refund process for the Tax Department to handle the overpayment. It could be argued that the language of the proposed bill prohibits the use of the monetary penalty provided in West Virginia Code §11-10-19 for making fraudulent claims for refund or credit. Such refunds or credits fraudulently attained after the filing due date would result in delinquent Personal Income Taxes being owed. Further, the maximum rate charged for delinquent taxes in the proposed bill is less than the current interest rate and is calculated in a different fashion and from a different federal rate. There appears to be an internal inconsistency between Subsections 1, 3, and 4. Subsection 1 limits financial punishment for delinquency to interest only, yet Subsections 3 and 4 imply that penalties may also apply. The proposed bill is vague in the language pertaining to compensation for erroneous receipt of delinquency. “Notice of delinquency” is not defined, which could be problematic as the Tax Department can advise Taxpayers of delinquency in multiple ways (e.g., statement of account, notice of assessment, notice of tax lien, etc.). These can all be considered “notices of delinquency” and yet differ in terms of the sequence in which they are sent to the delinquent Taxpayer. The intent of the statement “notice of delinquency that is in error” is also ambiguous. It is unclear what does (and does not) qualify as an error in this case. For example, notices may be delivered to the wrong address or to an individual who is not the intended Taxpayer, or may contain a misspelling of the Taxpayer’s name. Further, if the notice is sent to a couple, it is unclear whether each individual would be entitled to $200.



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