FISCAL NOTE

Date Requested: March 25, 2017
Time Requested: 10:23 AM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2864 Comm. Sub. HB2933
CBD Subject: Taxation


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 presumed purpose of this bill is to broaden the Consumer Sales and Service Tax and Use Tax base, reduce the rate of the sales tax to 5 percent, and alter the Personal Income Tax rate structure. According to our interpretation, the proposed bill would broaden the sales tax base in phases in FY2018 and reduce the sales tax rate to 5 percent effective July 1, 2018. Among the base-broadening enhancements, the following would be subject to the tax effective October 1, 2017: mobile homes (subject to full sales tax rate); food for home consumption (subject to a rate of 3 percent); telecommunications services; personal services (e.g., hair, skin, and nails); professional services (e.g., legal, accounting, architectural, engineering, real estate appraisers, and brokers); contractors (rate subject to first $40,000 of contract); and travel agency commissions. Effective January 1, 2018, the following would be subject to tax: electronic data processing; health and fitness organization memberships; primary opinion research services; music instruction services; artistic performances; and technical evaluations. Based on current projections and available information, we estimate the base-broadening enhancements could yield a revenue gain of roughly $172 million in FY2018. When including the rate reduction to 5 percent on July 1, 2018, the proposed changes could result in a net General Revenue Fund gain of approximately $29 million in FY2019 as the impact of the sales tax rate reduction to 5 percent largely offsets the impact of base broadening. By FY2020, the net change in revenues becomes just $11 million in comparison with current law. The proposed bill would alter the Personal Income Tax structure for tax years beginning on and after January 1, 2018. Notable changes include the imposition of a flat rate of 5.1 percent, removal of personal exemptions, creation of a standard deduction, and elimination of the Family Tax Credit. Simulations of these changes indicate a small decline in collections could occur beginning in FY2018 (reflecting altered withholding and estimated payments) as a result of the Personal Income Tax changes alone. We note that the proposed Personal Income Tax changes reduce the burden of liability on some but not all individuals with taxable incomes below $25,000 and above $100,000. Those with taxable incomes between these levels will largely experience increased liabilities relative to the current structure. In addition, the loss of the Family Tax Credit raises tax liability for most families of two or more with income in excess of $10,000 but less than $100,000. Overall, the analysis suggests an increase in revenues for one year due to the sales tax base broadening enhancements. Beyond FY2018, the proposed bill effectively removes this estimated revenue gain by way of the lower sales tax rate and other adjustments. Additional costs incurred by the State Tax Department as a result of this bill would be significant.



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 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0


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


According to our interpretation, the proposed bill would broaden the sales tax base in phases in FY2018 and reduce the sales tax rate to 5 percent effective July 1, 2018. Among the base-broadening enhancements, the following would be subject to the tax effective October 1, 2017: mobile homes (subject to full sales tax rate); food for home consumption (subject to a rate of 3 percent); telecommunications services; personal services (e.g., hair, skin, and nails); professional services (e.g., legal, accounting, architectural, engineering, real estate appraisers, and brokers); contractors (rate subject to first $40,000 of contract); and travel agency commissions. Effective January 1, 2018, the following would be subject to tax: electronic data processing; health and fitness organization memberships; primary opinion research services; music instruction services; artistic performances; and technical evaluations. Based on current projections and available information, we estimate the base-broadening enhancements could yield a revenue gain of roughly $172 million in FY2018. When including the rate reduction to 5 percent on July 1, 2018, the proposed changes could result in a net General Revenue Fund gain of approximately $29 million in FY2019 as the impact of the sales tax rate reduction to 5 percent largely offsets the impact of base broadening. By FY2020, the net change in revenues becomes just $11 million in comparison with current law. The proposed bill would alter the Personal Income Tax structure for tax years beginning on and after January 1, 2018. Notable changes include the imposition of a flat rate of 5.1 percent, removal of personal exemptions, creation of a standard deduction, and elimination of the Family Tax Credit. Simulations of these changes indicate a small decline in collections could occur beginning in FY2018 (reflecting altered withholding and estimated payments) as a result of the Personal Income Tax changes alone. We note that the proposed Personal Income Tax changes reduce the burden of liability on some but not all individuals with taxable incomes below $25,000 and above $100,000. Those with taxable incomes between these levels will largely experience increased liabilities relative to the current structure. In addition, the loss of the Family Tax Credit raises tax liability for most families of two or more with income in excess of $10,000 but less than $100,000. Overall, the analysis suggests an increase in revenues for one year due to the sales tax base broadening enhancements. Beyond FY2018, the proposed bill effectively removes this estimated revenue gain by way of the lower sales tax rate and other adjustments. Additional costs incurred by the State Tax Department as a result of this bill would be significant.



Memorandum


The presumed purpose of this bill is to broaden the Consumer Sales and Service Tax and Use Tax base, reduce the rate of the sales tax to 5 percent, and alter the Personal Income Tax rate structure. The proposed bill contains some inconsistent language regarding the tax treatment of married Taxpayers who choose to file separate income tax returns.



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