FISCAL NOTE

Date Requested: January 22, 2020
Time Requested: 01:40 PM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1432 Introduced HB4445
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 create the Economic Diversification Act of 2020 for the purpose of income tax relief, by state, county, and municipal government, to new or existing businesses whose product or service offered is not currently offered in the state. The bill requires the Secretary of Commerce to appoint a commission to determine eligibility. The bill provides that commission to be composed of government officials and private citizens. The bill limits the tax relief to a maximum period of eight years.
    
    According to our interpretation, passage of this bill would grant authority to a State commission to provide undefined tax relief to a select commission of businesses for a period of at least four years if the commission determines that the business activity is new to West Virginia and no one comes forth within 90 days of such determination to argue that the favored business activity is in competition with their business. Eligible tax relief recipients would include businesses that are offering new products or services in West Virginia. Tax relief could also be extended by counties and municipalities and include relief for property tax, municipal business & occupation tax and fees. The period of tax relief is normally four years; however, there is a trigger in the bill that allows an additional four-year tax relief period if no other business has entered the State offering the same product or service. Tax relief is undefined along with procedures separating business activity from pre-existing activities from business activity associated with the “new activity. It would be difficult to determine the loss to the General Revenue Fund in FY2021 and thereafter due to the wide range of state and local tax exemptions that the State commission would grant to any participating business.
    
    Additional administrative costs to the State Tax Department or local governments cannot be quantified, as there is no indication to the definition of tax relief or the complex rules necessary to separate “new” from existing.
    



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 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, passage of this bill would grant authority to a State commission to provide undefined tax relief to a select commission of businesses for a period of at least four years if the commission determines that the business activity is new to West Virginia and no one comes forth within 90 days of such determination to argue that the favored business activity is in competition with their business. Eligible tax relief recipients would include businesses that are offering new products or services in West Virginia. Tax relief could also be extended by counties and municipalities and include relief for property tax, municipal business & occupation tax and fees. The period of tax relief is normally four years; however, there is a trigger in the bill that allows an additional four-year tax relief period if no other business has entered the State offering the same product or service. Tax relief is undefined along with procedures separating business activity from pre-existing activities from business activity associated with the “new activity. It would be difficult to determine the loss to the General Revenue Fund in FY2021 and thereafter due to the wide range of state and local tax exemptions that the State commission would grant to any particular business.
    
    Additional administrative costs to the State Tax Department or local governments cannot be quantified, as there is no indication to the definition of tax relief or the complex rules necessary to separate “new” from existing.
    



Memorandum


    The stated purpose of this bill is to create the Economic Diversification Act of 2020 for the purpose of income tax relief, by state, county, and municipal government, to new or existing businesses whose product or service offered is not currently offered in the state. The bill requires the Secretary of Commerce to appoint a commission to determine eligibility. The bill provides that commission to be composed of government officials and private citizens. The bill limits the tax relief to a maximum period of eight years.
    
    The Secretary of Commerce is to appoint an Economic Diversification Commission consisting of three members of state government, including the State Tax Commissioner and one member from each congressional district of the State. Based upon the bill title, it appears that members from the congressional districts are meant to be private citizens, but it is not clear from the language of the bill. Having the Secretary of Commerce appoint the Commission may violate the governor’s constitutionally delineated powers of appointment.
    
    The bill provides that counties and municipalities may participate in this program and offer other tax relief, including relief on property taxes, business and occupation taxes, and fee exemptions, however, they are not mandated to participate in this bill. This proposed property tax relief conflicts with the State Constitution, primarily, since some counties may choose to provide tax relief while others may not.
    
    This bill is difficult to administer. There is no definition of what is meant by “tax relief”. It is often referenced in the bill as “state income tax relief”, “tax relief” and “tax credit”. The administration of this bill is further complicated with the inclusion of county and municipal tax and fee exemptions as part of the proposed tax relief. It is unclear from the language of this bill what specific State taxes and fees eligible businesses are exempt from.
    
    This bill refers to a “tax credit”, but it does not specify which taxes this credit may be applied against. If it is a tax credit, then the bill does not discuss how the proposed tax credit may be applied or how it may be recaptured, if it is determined that the business should not have been entitled to the credit.
    
    There are Constitutional concerns in providing tax relief to businesses in this State that provide new products and services. Choosing to tax existing businesses while providing tax relief to others may violate the State’s Equal Protection Clause. It is also unclear from the language of this bill what the appeal rights are of someone who is denied an application.
    
    



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