FISCAL NOTE

Date Requested: January 27, 2020
Time Requested: 11:40 AM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
2424 Introduced HB4547
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 establish a tax credit to facilitate the purchase of reliable and affordable vehicles to low-income working West Virginia men and women to expand access to employment opportunities. According to our interpretation of this bill, any individual or licensed automobile dealer subject to West Virginia taxes who donates an eligible vehicle certified by a qualified charitable organization is entitled to a refundable tax credit of 50 percent of the fair market value up to $2,000 per vehicle donated. An eligible vehicle cannot be reported as a junk or salvage vehicle and cannot have any unperformed safety recalls. The automobile dealer must also provide an express warranty covering the full cost of both parts and labor necessary to repair any defect that impairs the motor vehicle’s safety or use for a minimum period of 90 days or 3,000 miles after the sale. For tax years 2020 through 2021, the proposed credit cannot exceed $300,000 and in subsequent years it cannot exceed $1.0 million. It appears that an eligible taxpayer can claim more than one tax credit for a donated vehicle. Currently, donated vehicles are eligible for the Neighborhood Investment Tax Credit. This portion of the Neighborhood Investment Tax Credit is roughly $17,000 per year. Automobile dealers are more likely to have a competitive advantage over individuals in claiming this proposed tax credit, as they are likely to donate older cars that are difficult for them to sell. Passage of this bill would result in a General Revenue Fund loss of up to $300,000 in FY2021 and FY2022 and up to $1.0 million in subsequent fiscal years. Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2021 and $5,000 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 20,000 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 15,000 0
2. Estimated Total Revenues 0 -300,000 -1,000,000


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


According to our interpretation of this bill, any individual or licensed automobile dealer subject to West Virginia taxes who donates an eligible vehicle certified by a qualified charitable organization is entitled to a refundable tax credit of 50 percent of the fair market value up to $2,000 per vehicle donated. An eligible vehicle cannot be reported as a junk or salvage vehicle and cannot have any unperformed safety recalls. The automobile dealer must also provide an express warranty covering the full cost of both parts and labor necessary to repair any defect that impairs the motor vehicle’s safety or use for a minimum period of 90 days or 3,000 miles after the sale. For tax years 2020 through 2021, the proposed credit cannot exceed $300,000 and in subsequent years it cannot exceed $1.0 million. It appears that an eligible taxpayer can claim more than one tax credit for a donated vehicle. Currently, donated vehicles are eligible for the Neighborhood Investment Tax Credit. This portion of the Neighborhood Investment Tax Credit is roughly $17,000 per year. Automobile dealers are more likely to have a competitive advantage over individuals in claiming this proposed tax credit, as they are likely to donate older cars that are difficult for them to sell. Passage of this bill would result in a General Revenue Fund loss of up to $300,000 in FY2021 and FY2022 and up to $1.0 million in subsequent fiscal years. Additional administrative costs incurred by the State Tax Department would be $20,000 in FY2021 and $5,000 in subsequent fiscal years.



Memorandum


The stated purpose of this bill is to establish a tax credit to facilitate the purchase of reliable and affordable vehicles to low-income working West Virginia men and women to expand access to employment opportunities. This bill would be difficult to administer. The bill does not specify which taxes that the proposed credit may be taken against. Rather, it generally states that anyone subject State taxes may be eligible for this proposed credit. Theoretically this could include taxes not even administered by the Tax Commissioner, including taxes paid to the Division of Motor Vehicles or Insurance Commission or to municipalities. The proposed legislation is silent as to whether the tax credit is refundable or whether any unused amount of the credit may be carried forward to subsequent tax years. The bill is also silent as to whether the tax credit may be carried back to prior tax years or if any unused tax credit is forfeited. The bill does not discuss the recapture of tax credits. There are several issues with the bill’s definition of “eligible vehicle”. First, the bill does not define how the fair market value is to be determined or which “widely recognized methodology” should be used. It is unclear if a charitable organization will have access to the information required, like National Vehicle Title Information System searches or safety recalls, within fourteen days of the sale. Furthermore, this definition of “eligible vehicle” appears to deal with cars that are being donated by automobile dealerships. However, individual taxpayers may also donate “eligible vehicles”. It is unclear how the definition of “eligible vehicle” will work with an individual car donation where a dealership is not involved. This bill creates a confusing bureaucracy whereby a qualified charitable organization establishes the tax credit, but if more than one credit exists, places responsibility on the Tax Commissioner to administer the credit cap. The bill also allows the Tax Commissioner to track the number and the amount of tax credits provided through the charitable organizations and make that information available to the public. This information disclosure may violate the confidentiality provisions of W.Va. Code §11-10-5d. If a taxpayer exceeds the credit cap in this bill it is unclear what would happen. Also, if taxpayers are to receive a proportionate amount of the proposed tax credit, it is not certain whether the charitable organization has the authority to give a proportionate amount of the credit to keep under the cap. While there is no explicit reference to the effective date of this bill, the language in 11-14D-(c) seems to imply it begins on January 1, 2020.



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