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 make technical and policy refinements to combined tax reporting requirements for West Virginia corporate net income tax and business franchise tax starting January 1, 2009.
    
    As written, the technical and policy refinements proposed by this bill include the following: reducing the amount of Severance Tax, Business Franchise Tax, and/or Corporation Net Income Tax liability that may be offset by the Manufacturing Investment Tax Credit (W. Va. Code §11-13S et al) in combination with any credit specified in W. Va. Code §11-13D et al from no more than 50 percent of the liability before application of the credit to no more than 40 percent of the liability; permitting West Virginia financial organizations taxed in another state to use a gross receipts factor to apportion the tax base to West Virginia and the other states in which the financial organization conducts business activity; continues the gross receipts apportionment methodology for other financial organizations; limiting, with certain exceptions, the application of economic development tax credits against the Business Franchise Tax to only the member of a combined group that earned the tax credit; phasing down the Corporation Net Income Tax rate from 8.75 percent to 6.5 percent for taxable periods beginning on or after January 1, 2014 (the phase down includes rates of 8.5 percent for 2009, 7.75 percent for 2012, 7.0 percent for 2013, and 6.5 percent for 2014).
    
    According to our interpretation, the revenue impact of the proposed Corporation Net Income Tax rates compared to the rates proposed in the Governor’s Executive Budget will result in an additional reduction in General Revenue Fund collections of roughly $5.0 million in Fiscal Year 2010. When the proposed rate becomes 6.5 percent, the additional annual revenue reduction will top out at roughly $70 million by FY2016. The provisions reducing the amount of tax that can be offset by the Manufacturing Investment Tax Credit will result in an undetermined increase in revenue.
    
    Additional administrative costs for the State Tax Department attributable to passage of this bill would be roughly $33,000 in Fiscal Year 2009 and roughly $22,000 in each year where the Corporation Net Income Tax rate changes.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2008
Increase/Decrease
(use"-")
2009
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 33,000 22,000
Personal Services 0 0 0
Current Expenses 0 33,000 22,000
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 -1,700,000 -14,000,000


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


    As written, the technical and policy refinements proposed by this bill include the following: reducing the amount of Severance Tax, Business Franchise Tax, and/or Corporation Net Income Tax liability that may be offset by the Manufacturing Investment Tax Credit (W. Va. Code §11-13S et al) in combination with any credit specified in W. Va. Code §11-13D et al from no more than 50 percent of the liability before application of the credit to no more than 40 percent of the liability; permitting West Virginia financial organizations taxed in another state to use a gross receipts factor to apportion the tax base to West Virginia and the other states in which the financial organization conducts business activity; continues the gross receipts apportionment methodology for other financial organizations; limiting, with certain exceptions, the application of economic development tax credits against the Business Franchise Tax to only the member of a combined group that earned the tax credit; phasing down the Corporation Net Income Tax rate from 8.75 percent to 6.5 percent for taxable periods beginning on or after January 1, 2014 (the phase down includes rates of 8.5 percent for 2009, 7.75 percent for 2012, 7.0 percent for 2013, and 6.5 percent for 2014).
    
    According to our interpretation, the revenue impact of the proposed Corporation Net Income Tax rates compared to the rates proposed in the Governor’s Executive Budget will result in an additional reduction in General Revenue Fund collections of roughly $5.0 million in Fiscal Year 2010. When the proposed rate becomes 6.5 percent, the additional annual revenue reduction will top out at roughly $70 million by FY2016. The provisions reducing the amount of tax that can be offset by the Manufacturing Investment Tax Credit will result in an undetermined increase in revenue.
    
    Additional administrative costs for the State Tax Department attributable to passage of this bill would be roughly $33,000 in Fiscal Year 2009 and roughly $22,000 in each year where the Corporation Net Income Tax rate changes. The additional costs in Fiscal Year 2009 would be for the development of an computer audit program and for printing and mailing notices of the change in the tax rate to taxpayers. The costs in other years in which a tax rate change occurs would be for printing and mailing notices of the change in the tax rate to taxpayers.
    



Memorandum


    



    Person submitting Fiscal Note: Mark Muchow
    Email Address: kpetry@tax.state.wv.us