FISCAL NOTE
Date Requested: January 10, 2018
Time Requested: 03:00 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1201 |
Introduced |
SB119 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to establish a West Virginia “business growth in low-income communities” tax credit.
According to our interpretation of the proposed bill, a tax credit is given to a qualified community development entity that makes a qualified equity investment or to a subsequent holder of the qualified equity investment. This credit is calculated annually by multiplying the purchase price paid to the qualified community development entity for the qualified equity investment by the applicable percentage for the credit allowance date, which is 0 percent for the first three credit allowance dates and 15 percent for the next four credit allowance dates. The annual credit allowance may be used to offset the entity’s state insurance premium tax liability for tax periods on or after the credit allowance date.
The federal New Markets Tax Credit (NMTC), authorized in the Community Renewal Tax Relief Act of 2000, is a comparable credit to the one proposed in this bill that is slated to expire on December 31, 2019. Over a 12-year period from 2003 to 2015, approximately $7 billion in NMTC allocation had been awarded nationwide. This figure includes an approximate $60 million to West Virginia communities. Recently enacted federal tax reform allows for an additional $3.5 billion of NMTC awards per calendar year from 2017 through 2019. In 2013, the Urban Institute reviewed NMTC projects started through 2007. Of those surveyed, 93 percent of projects obtained “advantageous financing” and 84 percent develop real estate, while only 53 percent started up or supported businesses and 9 percent attracted new investors to low-income communities.
Review of the NMTC suggests there exists an imbalance with the federal and other public funds provided to eligible entities compared to the amount of private-sector funding invested in qualifying projects. Further, the presence of other public funding for such projects duplicates the federal subsidy relative to private funding. According to the U.S. Government Accountability Office, of NMTC projects originating from 2010 to 2012, approximately 33 percent received other federal funding alone and 62 percent received public funding from federal, state, or local sources.
The tax against which this credit applies is administered by the Insurance Commission, not the State Tax Department. From a revenue perspective, the proposed bill would ultimately reduce General Revenue Fund collections by up to $36 million over a period of several years based on the $60 million qualified equity investment limits within the proposed legislation while insurance premium tax collections dedicated to volunteer fire departments and municipal pensions would be held harmless. The projected fiscal impact depends on the ability of the venture capital company to transfer available tax credits to insurance companies subject to the West Virginia Insurance Premium Tax.
No additional costs would be incurred by the State Tax Department.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2018
Increase/Decrease
(use"-") |
2019
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 of the proposed bill, a tax credit is given to a qualified community development entity that makes a qualified equity investment or to a subsequent holder of the qualified equity investment. This credit is calculated annually by multiplying the purchase price paid to the qualified community development entity for the qualified equity investment by the applicable percentage for the credit allowance date, which is 0 percent for the first three credit allowance dates and 15 percent for the next four credit allowance dates. The annual credit allowance may be used to offset the entity’s state insurance premium tax liability for tax periods on or after the credit allowance date.
The federal New Markets Tax Credit (NMTC), authorized in the Community Renewal Tax Relief Act of 2000, is a comparable credit to the one proposed in this bill that is slated to expire on December 31, 2019. Over a 12-year period from 2003 to 2015, approximately $7 billion in NMTC allocation had been awarded nationwide. This figure includes an approximate $60 million to West Virginia communities. Recently enacted federal tax reform allows for an additional $3.5 billion of NMTC awards per calendar year from 2017 through 2019. In 2013, the Urban Institute reviewed NMTC projects started through 2007. Of those surveyed, 93 percent of projects obtained “advantageous financing” and 84 percent develop real estate, while only 53 percent started up or supported businesses and 9 percent attracted new investors to low-income communities.
Review of the NMTC suggests there exists an imbalance with the federal and other public funds provided to eligible entities compared to the amount of private-sector funding invested in qualifying projects. Further, the presence of other public funding for such projects duplicates the federal subsidy relative to private funding. According to the U.S. Government Accountability Office, of NMTC projects originating from 2010 to 2012, approximately 33 percent received other federal funding alone and 62 percent received public funding from federal, state, or local sources.
The tax against which this credit applies is administered by the Insurance Commission, not the State Tax Department. From a revenue perspective, the proposed bill would ultimately reduce General Revenue Fund collections by up to $36 million over a period of several years based on the $60 million qualified equity investment limits within the proposed legislation while insurance premium tax collections dedicated to volunteer fire departments and municipal pensions would be held harmless. The projected fiscal impact depends on the ability of the venture capital company to transfer available tax credits to insurance companies subject to the West Virginia Insurance Premium Tax.
No additional costs would be incurred by the State Tax Department.
Memorandum
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov