FISCAL NOTE
Date Requested: March 13, 2017
Time Requested: 01:01 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3118 |
Introduced |
HB2964 |
|
|---|
| 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 implement several temporary tax increases to stabilize the state budget; including establishing a 3% food tax, increasing personal income tax rates; increasing tobacco taxes; and increasing the corporate net income tax rate; all to expire effective July 1, 2021.
According to our interpretation, the proposed bill would (1) reinstate the sales tax on food for home consumption at 3 percent; (2) raise the cigarette tax to $1.55 per pack of 20; (3) alter the Personal Income Tax brackets; and (4) raise the Corporation Net Income Tax rate to 7.5 percent. Each of these changes would be in effect July 1, 2017 and, with the exception of the cigarette tax increase, would sunset on July 1, 2021 absent certain balance requirements being met in the reserve funds that would reduce or remove these rates sooner. Given the uncertainty of the reserve funds balances at any given time, this analysis considers the revenue impacts should the rate increases expire on July 1, 2021.
Based on our understanding, the proposed changes could result in a net revenue gain of approximately $346.2 million in FY2018, comprised of collection increases resulting from the Personal Income Tax ($219.5 million), sales tax on food for home consumption ($73.3 million, reflecting a partial year of collections), cigarette tax ($35.2 million) and Corporation Net Income Tax ($18.2 million) rate increases. Estimated revenue gains in FY2019 could be roughly $360.8 million based on current conditions and available information. Absent reserve fund triggers reducing or eliminating these increases before the sunset date, the last full-year of revenue gains anticipated with the provisions of the proposed bill could be $385.1 million in FY2021.
We note that the proposed bill, as written, could result in some revenue impact for FY2022 beyond the continuation of the proposed cigarette tax increase. It is unclear how the mid-year rate changes for the income taxes would affect revenues. Given that Taxpayers will likely have been making estimated payments and Personal Income Tax withholdings will have likely occurred for the first half of TY2021 at the elevated rates, adjustments may be made in the second half to account for rate reductions. These revenue effects are not quantified in this analysis.
Additional administrative costs incurred by the State Tax Department would be $57,000 in FY2017 and $55,000 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 |
57,000 |
55,000 |
0 |
| Personal Services |
5,000 |
10,000 |
0 |
| Current Expenses |
0 |
30,000 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
52,000 |
15,000 |
0 |
| 2. Estimated Total Revenues |
0 |
346,200,000 |
385,100,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the proposed bill would (1) reinstate the sales tax on food for home consumption at 3 percent; (2) raise the cigarette tax to $1.55 per pack of 20; (3) alter the Personal Income Tax brackets; and (4) raise the Corporation Net Income Tax rate to 7.5 percent. Each of these changes would be in effect July 1, 2017 and, with the exception of the cigarette tax increase, would sunset on July 1, 2021 absent certain balance requirements being met in the reserve funds that would reduce or remove these rates sooner. Given the uncertainty of the reserve funds balances at any given time, this analysis considers the revenue impacts should the rate increases expire on July 1, 2021.
Based on our understanding, the proposed changes could result in a net revenue gain of approximately $346.2 million in FY2018, comprised of collection increases resulting from the Personal Income Tax ($219.5 million), sales tax on food for home consumption ($73.3 million, reflecting a partial year of collections), cigarette tax ($35.2 million) and Corporation Net Income Tax ($18.2 million) rate increases. Estimated revenue gains in FY2019 could be roughly $360.8 million based on current conditions and available information. Absent reserve fund triggers reducing or eliminating these increases before the sunset date, the last full-year of revenue gains anticipated with the provisions of the proposed bill could be $385.1 million in FY2021.
We note that the proposed bill, as written, could result in some revenue impact for FY2022 beyond the continuation of the proposed cigarette tax increase. It is unclear how the mid-year rate changes for the income taxes would affect revenues. Given that Taxpayers will likely have been making estimated payments and Personal Income Tax withholdings will have likely occurred for the first half of TY2021 at the elevated rates, adjustments may be made in the second half to account for rate reductions. These revenue effects are not quantified in this analysis.
Additional administrative costs incurred by the State Tax Department would be $57,000 in FY2017 and $55,000 in FY2018.
Memorandum
The stated purpose of this bill is to implement several temporary tax increases to stabilize the state budget; including establishing a 3% food tax, increasing personal income tax rates; increasing tobacco taxes; and increasing the corporate net income tax rate; all to expire effective July 1, 2021.
The proposed bill states that all provisions expire on July 1, 2021, but the increased rate on cigarettes does not expire. The bill also contains a technical defect in that it references West Virginia Code §11-14-3a, which does not currently exist in statute.
Timing of rate changes may make administration of the income taxes difficult, as many Taxpayers file on a calendar year, rather than fiscal year, basis, and may leave the Tax Department insufficient time to notify retailers of the change in sale tax base. With respect to the income taxes, expiration of rate increase on July 1, 2021 could introduce issue as Taxpayers would have made estimated payments. In the case of the Personal Income Tax, withholdings would have occurred at the higher rates for the first half of the tax year.
The language regarding the Governor’s budget may be a Constitutional concern per Section 51, Article VI of the West Virginia Constitution. The Personal Income Tax section contains some typographical errors, and the Corporation Net Income Tax section may contain a title defect as it does not specifically state that the bill provides effective or termination dates. It is noted, however, that the bill title does identify these tax increases as temporary.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov