FISCAL NOTE

Date Requested: February 07, 2019
Time Requested: 11:26 AM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2543 Introduced HB2891
CBD Subject:


FUND(S):

General Revenue Fund

Sources of Revenue:

General Fund

Legislation creates:

Decreases Existing Revenue, Increases Existing Expenses



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


The stated purpose of this bill is to create tax credits for new small businesses in order to assist and encourage the growth of small business owners in the State of West Virginia, as well as promoting job growth from within this state by hiring residents of the state, for those tax years beginning on or after January 1, 2019, through June 2028. The bill allows a credit of up to $2,500 for each new full-time employee to any taxpayer who is based in and operates entirely within West Virginia and has less than 100 employees. The amount of credit may not exceed 50 percent of the wages paid or $2,500, whichever is less. The tax credit would be allowed against the Business Franchise Tax, Corporation Net Income Tax and Personal Income Tax liabilities. The Business Franchise Tax terminated on January 1, 2015. We cannot estimate the revenue impact of this bill because we do not know how many small businesses would qualify for this credit. Additional administrative costs incurred by the State Tax Department would be $65,000 in FY2020 and $40,000 in subsequent fiscal years.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2019
Increase/Decrease
(use"-")
2020
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 65,000 40,000
Personal Services 0 40,000 40,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 25,000 0
2. Estimated Total Revenues 0 0 0


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


The bill allows a credit of up to $2,500 for each new full-time employee to any taxpayer who is based in and operates entirely within West Virginia and has less than 100 employees. The amount of credit may not exceed 50 percent of the wages paid or $2,500, whichever is less. The tax credit would be allowed against the Business Franchise Tax, Corporation Net Income Tax and Personal Income Tax liabilities. The Business Franchise Tax terminated on January 1, 2015. We cannot estimate the revenue impact of this bill because we do not know how many small businesses would qualify for this credit. Additional administrative costs incurred by the State Tax Department would be $65,000 in FY2020 and $40,000 in subsequent fiscal years.



Memorandum


The stated purpose of this bill is to create tax credits for new small businesses in order to assist and encourage the growth of small business owners in the State of West Virginia, as well as promoting job growth from within this state by hiring residents of the state, for those tax years beginning on or after January 1, 2019, through June 2028. The stated purpose of this bill seems to indicate that the tax credits are for new small businesses, but there is nothing in the bill that limits the tax credit to new businesses. The bill title states the credit is for new and/or existing small business in this State and operating entirely within West Virginia. Neither the stated purpose in the bill note nor the bill title discusses that the credit is based upon the wages of newly hired employees. It is unclear how the wages of any employee would qualify for the credit in the same tax year in which the employee was hired, absent being hired the first day of the year. It is unclear whether the bill intends for the Tax Department to recapture, eliminate or reduce the credit, if it later determined by the Tax Department that a taxpayer was not entitled to receive the credit, in whole or in part, in the tax year in which it was claimed by the eligible taxpayer, due to a failure to retain the employee. The bill titles states that the bill’s effective date is January 1, 2019. The bill does not make it clear that the tax credit would retroactively apply to the wages of individuals hired before the passage of this bill. This bill does not provide enough time for the Tax Department to make the necessary form changes and programming adjustments to administer this bill. As the bill provides a tax credit from small businesses based in and operating entirely in West Virginia and who hire West Virginia residents as full-time employees, there would likely be constitutional challenges based upon the dormant Commerce Clause if this bill were passed. It is also possible that a taxpayer may raise an equal protection argument under Section 10 of Article III of the West Virginia Constitution, as there must be some rationale for giving a tax credit to businesses with 100 employees, who are operating in this State and hire West Virginia residents, and not giving the credit to other businesses.



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