FISCAL NOTE
Date Requested: January 26, 2023
Time Requested: 02:48 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2739 |
Introduced |
HB3096 |
|
|---|
| 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 the Distribution Center Tax Credit. The bill provides a short title; states legislative findings and purpose; sets forth definitions; establishes the distribution center tax credit; provides for restrictions on investment; includes a penalty; provides for the disclosure of tax credit; allows for tax credit review and accountability; authorizes the promulgation of rules; and sets forth an effective date.
The provisions of this bill generally describe several possible tax incentives for qualified new distribution centers, including large warehouses of at least 501,000 square feet and “small distribution centers” located at least 10 miles from the nearest interstate or major highway in West Virginia. The bill suggests a distribution center tax credit equal to the difference between their annual real property taxes paid if the development site had been taxed as Class 2 property. The bill provides for an undefined salvage value tax credit for “machinery and equipment that have been fully depreciated and are no longer used as part of the production process.” A new distribution center is not likely to have fully depreciated equipment no longer used in the production process. The bill also provides for a permanent tax credit based on investment. The permanent tax credit would offset tax liabilities associated with the business franchise tax, the corporation net income tax and personal income tax. The provisions of this bill also state that no credit is allowed against any withholding tax. All projects must be preapproved by the Economic Development Authority who may approve no more than $1 million in tax credits each year. We are unable to evaluate the fiscal impact of this proposed bill as written.
Additional administrative costs incurred by the Tax Department would be $40,000 in FY2024 and $10,000 in subsequent years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2023
Increase/Decrease
(use"-") |
2024
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
40,000 |
5,000 |
| Personal Services |
0 |
5,000 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
35,000 |
5,000 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
The provisions of this bill generally describe several possible tax incentives for qualified new distribution centers, including large warehouses of at least 501,000 square feet and “small distribution centers” located at least 10 miles from the nearest interstate or major highway in West Virginia. The bill suggests a distribution center tax credit equal to the difference between their annual real property taxes paid if the development site had been taxed as Class 2 property. The bill provides for an undefined salvage value tax credit for “machinery and equipment that have been fully depreciated and are no longer used as part of the production process.” A new distribution center is not likely to have fully depreciated equipment no longer used in the production process. The bill also provides for a permanent tax credit based on investment. The permanent tax credit would offset tax liabilities associated with the business franchise tax, the corporation net income tax and personal income tax. The provisions of this bill also state that no credit is allowed against any withholding tax. All projects must be preapproved by the Economic Development Authority who may approve no more than $1 million in tax credits each year. We are unable to evaluate the fiscal impact of this proposed bill as written.
Additional administrative costs incurred by the Tax Department would be $40,000 in FY2024 and $10,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to establish the Distribution Center Tax Credit. The bill provides a short title; states legislative findings and purpose; sets forth definitions; establishes the distribution center tax credit; provides for restrictions on investment; includes a penalty; provides for the disclosure of tax credit; allows for tax credit review and accountability; authorizes the promulgation of rules; and sets forth an effective date.
The bill creates new article 13MM in Chapter 11. The new article establishes a “distribution center tax credit;” but at various points in the bill the credit is referred to as applying to both distribution centers and manufacturing centers.
The definition for “state tax rate” sets forth the four classes of property as identified in the West Virginia Constitution; but the term is not found in any other part of the proposed article and nothing in the Constitution sets a statewide rate.
The first credit created is mentioned in both the definition of “qualified investment” and in Section 4. As stated in the definition of qualified investment, the credit is for “[a]ny investment by a company into a distribution center to be developed or expanded, built, and maintained in West Virginia shall receive a tax credit equal to the difference between their annual real property taxes paid on the development site, and the amount they would have paid if the development site had been taxed as Class 2 property.” This particular credit is apparently available only with regard to distribution centers, and not with regard to manufacturing centers.
The bill allows “to every business that invests in a new distribution center in a development site of West Virginia a tax credit for the taxable year in which the investment was made.” Although this sentence appears to limit the credit to the year of investment, the next sentence states that “any investment in a distribution center at a development site shall be awarded this permanent tax credit,” giving the impression that the tax credit is ongoing over multiple years. The reference to “any” investment is broad.
The bill provides that the credit is first applied against the business franchise tax (which has had a rate of zero since tax year 2015), then against the corporation net income tax, then against personal income tax, with allocation of the credit among members of pass-through entities the same as for profits and losses.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov