FISCAL NOTE

Date Requested: January 18, 2020
Time Requested: 03:35 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2017 Introduced SB321
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 clarify conflicts within the code and create uniformity relating to the collection of taxes, the priority of distribution of an estate and to limit the liability of a fiduciary charged with distribution of the estate.
    
    This bill would allow banks or other entities with liens prior to tax liens to take sales taxes collected by the business from their customers and divert them to paying the taxpayers debt. The size of sales tax liabilities can be significant at times and could result in a significant loss of General Revenue funds. For example one of the recent cases involved over $700,000 in sales tax funds that the Tax Department was able to recover since the sales tax funds were not part of the business’ property but were property of the State and therefore received a priority lien. Therefore, the effect of removing trust fund taxes from priority lien on General Revenue would be significant. Trust fund taxes account for by far the greatest monetary share of accounts receivable for the State Tax Department.
    
    Additional administrative costs would be $5,000 per year beginning in FY2021.
    
    



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 5,000 5,000
Personal Services 0 5,000 5,000
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):


    This bill would allow banks or other entities with liens prior to tax liens to take sales taxes collected by the business from their customers and divert them to paying the taxpayers debt. The size of sales tax liabilities can be significant at times and could result in a significant loss of General Revenue funds. For example one of the recent cases involved over $700,000 in sales tax funds that the Tax Department was able to recover since the sales tax funds were not part of the business’ property but were property of the State and therefore received a priority lien. Therefore, the effect of removing trust fund taxes from priority lien on General Revenue would be significant. Trust fund taxes account for by far the greatest monetary share of accounts receivable for the State Tax Department.
    
    Additional administrative costs would be $5,000 per year beginning in FY2021.
    
    



Memorandum


    The stated purpose of this bill is to clarify conflicts within the code and create uniformity relating to the collection of taxes, the priority of distribution of an estate and to limit the liability of a fiduciary charged with distribution of the estate.
    
    The proposed changes to W.Va Code §11-15-18a would impact the enforcement of Sales Tax, commonly referred to as a “trust fund tax”. “Trust fund taxes” are those a person or entity withholds or collects from another and holds in trust for the State until paid over to the Tax Commissioner. Consumer sales tax, collected by the vendor, is the property of the State while in the possession of the vendor, and prior to remittance to the State. A trust fund tax is always the property of the State. Employer withholding tax, withheld by the employer, is also property of the State while in the possession of the employer, prior to remittance to the State.
    
    Under current law, if Sales Tax is part of a distribution of property or an estate, whether in bankruptcy, receivership or otherwise, the Sales Tax is the property of the State and is paid in priority to all other claims and liens (except Federal obligations).
    
    The proposed bill would allow a “prior” mortgage lien holder to receive a distribution of trust fund tax collected and held by the debtor, but not yet remitted to the State because the mortgage lien was recorded prior to the tax lien – not withstanding the fact that the money always belonged to the State and was never the property of the debtor.
    
    The proposed changes to W.Va. Code §§11-10-11 and 11-15 18a regarding personal liability would abrogate the authority of the Tax Commissioner to impose fiduciary liability for failure to remit trust fund taxes.
    
    There is no internal effective date. The bill would become effective 90 days after passage unless voted otherwise.
    
    
    



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