FISCAL NOTE
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 eliminate the consumer sales tax on food by a six-year phase out.
As stated, the passage of this bill would reduce the Consumers Sales Tax on food by 1 percent each year until there is no tax on food. However, the bill does not specifically define food. If the bill is meant to be narrow in scope, it may imply only sales of food intended for home consumption (e.g., certain food items sold at grocery stores) would be exempt. A more broad interpretation of this bill would imply that all sales of food would be exempt, including sales at grocery stores, restaurants and other eating and drinking establishments. Also, a broad interpretation of the bill may include food intended for both human and animal consumption. The following table provides estimates of possible revenue loss to the General Revenue Fund for both the narrow interpretation and the broad interpretation of a food exemption. Fiscal Year 2012 represents the first full year of removal of the Consumers Sales Tax on food.
Sales of Food
Meant for Home All Food
Consumption Only Sales
FY2006 $23.2 million $40.2 million
FY2007 $48.6 million $84.0 million
FY2008 $73.9 million $127.8 million
FY2009 $99.2 million $171.7 million
FY2010 $124.6 million $215.5 million
FY2011 $149.9 million $259.3 million
FY2012 $152.0 million $263.0 million
Also, the bill states that the graduated elimination schedule only applies if the State’s excess gross revenue exceeds $30 million. However, the bill fails to define excess gross revenue or state when such excess must occur. Therefore, the above estimates only provide the revenue loss associated with the graduated reduction in the Consumers Sales Tax on food. We were unable to tie the estimates to any type of excess revenue.
Additional administrative costs to the Tax Department would be approximately $24,000 during the current fiscal year for notifying taxpayers, key encoding for new forms, and any associated programming costs. There would be no additional administrative costs thereafter.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2005
Increase/Decrease
(use"-") |
2006
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
23,925 |
0 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
23,925 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
-40,200,000 |
-263,000,000 |
Explanation of above estimates (including long-range effect):
As stated, the passage of this bill would reduce the Consumers Sales Tax on food by 1 percent each year until there is no tax on food. However, the bill does not specifically define food. If the bill is meant to be narrow in scope, it may imply only sales of food intended for home consumption (e.g., certain food items sold at grocery stores) would be exempt. A more broad interpretation of this bill would imply that all sales of food would be exempt, including sales at grocery stores, restaurants and other eating and drinking establishments. Also, a broad interpretation of the bill may include food intended for both human and animal consumption. The above estimates of revenue loss reflect such an assumption.
Also, the bill states that the graduated elimination schedule only applies if the State’s excess gross revenue exceeds $30 million. However, the bill fails to define excess gross revenue or state when such excess must occur. Therefore, the above estimates only provide the revenue loss associated with the graduated reduction in the Consumers Sales Tax on food. We were unable to tie the estimates to any type of excess revenue.
Additional administrative costs to the Tax Department would be $23,925 during the current fiscal year for notifying taxpayers, key encoding for new forms, and any associated programming costs. There would be no additional administrative costs thereafter.
Memorandum
The purpose of this bill is to eliminate the consumer sales tax on food by a six-year phase out. However, the phase out is dependent upon the State having a gross excess revenue of $30 million. The bill fails to define “gross excess revenue” or when this excess revenue must exist. Also, the phase out is tied into a provision in the bill that only allows the rates to be phased out “in the maximum amount of $20 million per fiscal year after the first $30 million of excess revenue is otherwise budgeted.” This provision would be administratively problematic for both the Department and taxpayers because of changing sales tax rates.
Also, the bill fails to define food. Therefore, it is questionable as to what sales will be exempt. Also, there is a concern as to whether the phase out is related to the sale of “food” by grocery stores or does it apply to sales at restaurants.
Person submitting Fiscal Note: Mark Muchow
Email Address: kpetry@tax.state.wv.us