FISCAL NOTE
Date Requested: January 10, 2020 Time Requested: 03:57 PM |
Agency: |
Tax & Revenue Department, WV State |
CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
1254 |
Introduced |
SB170 |
|
CBD Subject: |
Taxation |
---|
|
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 alleviate double taxation on foreign income at the state level. The bill sunsets the credit for income tax paid on foreign income in 2069.
According to our interpretation, the proposed bill would allow a tax credit against the Personal Income Tax for both state and national foreign income taxes paid. There is a similar tax credit allowed at the federal level. IRS data indicate that in Tax Year 2017 more than 22,000 West Virginia taxpayers claimed the federal credit at a total cost of roughly $4.2 million to the U.S. Treasury. At the federal level, taxpayers may choose between the tax credit option or the itemized deduction option for foreign income taxes paid. Under the provisions of this bill, it is possible for taxpayers to receive double credit for foreign taxes paid, once at the federal level and once at the State level. Passage of the bill would cause a loss to General Revenue Fund collections of roughly $2.0 million per year. As there is no internal effective date, this tax credit would first be allowable in the 2021 tax year and would affect revenues beginning in FY2022. Per the provisions of this bill, the tax credit would sunset on July 1, 2069.
Additional administrative costs incurred by the Tax Department would be $6,000 in FY2021 and $1,000 in subsequent fiscal years.
Fiscal Note Detail
Effect of Proposal |
Fiscal Year |
2020 Increase/Decrease (use"-") |
2021 Increase/Decrease (use"-") |
Fiscal Year (Upon Full Implementation) |
1. Estmated Total Cost |
0 |
6,000 |
1,000 |
Personal Services |
0 |
1,000 |
1,000 |
Current Expenses |
0 |
0 |
0 |
Repairs and Alterations |
0 |
0 |
0 |
Assets |
0 |
0 |
0 |
Other |
0 |
5,000 |
0 |
2. Estimated Total Revenues |
0 |
0 |
-2,000,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the proposed bill would allow a tax credit against the Personal Income Tax for both state and national foreign income taxes paid. There is a similar tax credit allowed at the federal level. IRS data indicate that in Tax Year 2017 more than 22,000 West Virginia taxpayers claimed the federal credit at a total cost of roughly $4.2 million to the U.S. Treasury. At the federal level, taxpayers may choose between the tax credit option or the itemized deduction option for foreign income taxes paid. Under the provisions of this bill, it is possible for taxpayers to receive double credit for foreign taxes paid, once at the federal level and once at the State level. Passage of the bill would cause a loss to General Revenue Fund collections of roughly $2.0 million per year. As there is no internal effective date, this tax credit would first be allowable in the 2021 tax year and would affect revenues beginning in FY2022. Per the provisions of this bill, the tax credit would sunset on July 1, 2069.
Additional administrative costs incurred by the Tax Department would be $6,000 in FY2021 and $1,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to alleviate double taxation on foreign income at the state level under the personal income tax. The section sunsets the credit for foreign income in 2069.
West Virginia has entered into Memorandums of Understanding with other state taxing jurisdictions in order to carry out the provisions of W.Va. Code §11-21-20. It is not possible for the Tax Department to enter into Memorandums of Understanding with every foreign jurisdiction to which a West Virginia resident might travel and earn income.
Foreign income is included in federal adjusted gross income which is the starting point to determine West Virginia taxable income. Although foreign income is generally subject to federal taxation, the federal Foreign Earned Income Exclusion establishes an amount of foreign earned income that is excluded from federal income taxation and thus West Virginia income taxation.
The bill provides a sunset provision so that the credit for taxes otherwise due under this article is available from the regular session of 2020 through July 1, 2069. Making the credit effective “from amendment and reenactment of this section during the 2020 regular session through July 1, 2069” will be problematic because the personal income tax against which the credit may be claimed is based on a calendar year, and the first and last years of the credit will be partial years.
The burden of providing proof of taxes paid to a foreign jurisdiction could be challenging and the time required to review the additional documentation would be significant.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov