FISCAL NOTE

Date Requested: January 27, 2016
Time Requested: 02:24 PM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
1225 Introduced HB4288
CBD Subject: Tax


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 create the Save the Hospitals Act; exempting nonprofit hospitals that provide a certain amount of uncompensated care from sales tax and requiring West Virginia Hospital Finance Authority to promulgate rules to effectuate this section. According to our interpretation, the bill provides a Consumers Sales Tax and Use Tax exemption for the next taxable year for nonprofit hospitals that incur uncompensated care costs equal to or greater than 4 percent of the hospital’s total net patient revenue. The following estimate of revenue loss was derived from 2014 cost reports filed with the West Virginia Health Care Authority. Passage of this bill would result in a decrease in revenue for the General Revenue Fund due to the blanket exemption for hospitals that provide 4 percent or more of uncompensated care costs. Due to the passage of the Affordable Care Act, uncompensated care costs for several hospitals have fallen significantly from prior years. Many hospitals experienced more than a 25 percent reduction in uncompensated care costs. This significantly affected the amount of tax revenue that would be foregone through this proposed exemption. Based on this limited information, the decrease in General Revenue if the bill had been active this year would be approximately $12.0 million. Further potential future decreases or increases in uncompensated care costs are unknown, but would potentially either decrease or increase future costs to the State General Revenue Fund. The administrative costs to the Tax Department would be $46,500 in FY2017 and each subsequent year.



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 46,500 46,500
Personal Services 0 40,000 40,000
Current Expenses 0 500 500
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 6,000 6,000
2. Estimated Total Revenues 0 0 0


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


According to our interpretation, the bill provides a Consumers Sales Tax and Use Tax exemption for the next taxable year for nonprofit hospitals that incur uncompensated care costs equal to or greater than 4 percent of the hospital’s total net patient revenue. The following estimate of revenue loss was derived from 2014 cost reports filed with the West Virginia Health Care Authority. Passage of this bill would result in a decrease in revenue for the General Revenue Fund due to the blanket exemption for hospitals that provide 4 percent or more of uncompensated care costs. Due to the passage of the Affordable Care Act, uncompensated care costs for several hospitals have fallen significantly from prior years. Many hospitals experienced more than a 25 percent reduction in uncompensated care costs. This significantly affected the amount of tax revenue that would be foregone through this proposed exemption. Based on this limited information, the decrease in General Revenue if the bill had been active this year would be approximately $12.0 million. Further potential future decreases or increases in uncompensated care costs are unknown, but would potentially either decrease or increase future costs to the State General Revenue Fund. The administrative costs to the Tax Department would be $46,500 in FY2017 and each subsequent year.



Memorandum


The stated purpose of this bill is to create the Save the Hospitals Act; exempting nonprofit hospitals that provide a certain amount of uncompensated care from sales tax and requiring West Virginia Hospital Finance Authority to promulgate rules to effectuate this section. By providing one hundred percent exemption from sales tax to certain non-profit hospitals, it could be argued that the sales tax is not equally and uniformly applied to hospitals contrary to the Constitution of West Virginia, Article X, section 1. Terms and definitions are unclear. A debate exists concerning whether charity care and bad debts should be included in uncompensated care costs. “Total net patient revenue” is an estimate, meaning that adjustments may be made that negatively affect revenue streams. The Tax Commissioner is to promptly issue a certificate of exemption before the end of the taxable year. The bill does not permit a reasonable amount of time to review records, especially where the records are not chronological and are complex. The bill requires the West Virginia Hospital Finance Authority to issue the form for a hospital to apply for the credit and to promulgate rules no later than July 1, 2016 “to effectuate and administer this section.” It is the Tax Commissioner who administers state and local taxes. Further, the Tax Commissioner has the duty to prescribe all forms and may make all rules and regulations as provided in the State Administrative Procedure Act under W. Va. Code 11-10-5. There is no other tax where the taxpayer has authority to set the rules or even to provide a form.



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