FISCAL NOTE
Date Requested: January 12, 2023
Time Requested: 12:27 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2789 |
Introduced |
HB2526 |
|
|---|
| 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 reduce the personal income tax rates by 50% of the current rates over the course of three years.
Per our interpretation, the bill would reduce personal income tax rates by 50 percent of the current tax rates over the course of three years. The tax rate on nonresident composite and withholding obligations and the rate of withholding on gambling winnings would also be reduced by 50 percent of the current tax rate over the course of three years.
Beginning January 1, 2023, the following personal income tax rates will be effective: 2.1 percent on the first $10,000 of taxable income ($5,000 for married filing separate); 2.8 percent on taxable income ranging between $10,000 and $25,000 ($5,000 and $12,500 for married filing separate); 3.15 percent on taxable income ranging between $25,000 and $40,000 ($12,500 and $20,000); 4.2 percent on taxable income ranging between $40,000 and $60,000 ($20,000 and $30,000 for married filing separate); and 4.55 percent on taxable income in excess of $60,000 ($30,000 for married filing separate). In addition, effective January 1, 2023, the tax rate for nonresident composite and withholding obligations and withholding on gambling winnings will be 4.55 percent.
For all tax years beginning on and after January 1, 2024, the following personal income tax rates will be effective: 1.8 percent on the first $10,000 of taxable income ($5,000 for married filing separate); 2.4 percent on taxable income ranging between $10,000 and $25,000 ($5,000 and $12,500 for married filing separate); 2.7 percent on taxable income ranging between $25,000 and $40,000 ($12,500 and $20,000); 3.6 percent on taxable income ranging between $40,000 and $60,000 ($20,000 and $30,000 for married filing separate); and 3.9 percent on taxable income in excess of $60,000 ($30,000 for married filing separate). In addition, effective January 1, 2024, the tax rate for nonresident composite and withholding obligations and withholding on gambling winnings will be 3.9 percent.
For all tax years beginning on and after January 1, 2025, the following personal income tax rates will be effective: 1.5 percent on the first $10,000 of taxable income ($5,000 for married filing separate); 2.0 percent on taxable income ranging between $10,000 and $25,000 ($5,000 and $12,500 for married filing separate); 2.25 percent on taxable income ranging between $25,000 and $40,000 ($12,500 and $20,000); 3.0 percent on taxable income ranging between $40,000 and $60,000 ($20,000 and $30,000 for married filing separate); and 3.25 percent on taxable income in excess of $60,000 ($30,000 for married filing separate). In addition, effective January 1, 2025, the tax rate for nonresident composite and withholding obligations and withholding on gambling winnings will be 3.25 percent.
The changes for Tax Year 2023 will be retroactive to January 1, 2023. Due to the retroactive aspect of the bill, current higher tax rates would be used to calculate withholding and estimated taxes prior to enactment of the reduced rates. The delayed implementation of revised tax tables will move a significant portion of the impact which should have occurred in FY2023 into FY2024
According to our interpretation, the proposed legislation, if passed, would decrease General Revenue Fund collections by roughly $161.8 million in FY2023, $1,084.5 million in FY2024, $1,229.6 million in FY2025, and $1,492.6 million in FY2026. The decline in General Revenue Fund collections would continue to increase in subsequent fiscal years due to underlying tax base growth. The estimate for FY2024 is inclusive of $922.7 million in direct impact and $161.8 million due to the retroactive portion of the bill.
Additional administrative costs incurred by the State Tax Department would be $35,000 in FY2023, $10,000 in FY2024, and $10,000 in FY2025.
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 |
35,000 |
10,000 |
10,000 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
35,000 |
10,000 |
10,000 |
| 2. Estimated Total Revenues |
-161,800,000 |
-1,084,500,000 |
-1,492,600,000 |
Explanation of above estimates (including long-range effect):
Per our interpretation, the bill would reduce personal income tax rates by 50 percent of the current tax rates over the course of three years. The tax rate on nonresident composite and withholding obligations and the rate of withholding on gambling winnings would also be reduced by 50 percent of the current tax rate over the course of three years.
Beginning January 1, 2023, the following personal income tax rates will be effective: 2.1 percent on the first $10,000 of taxable income ($5,000 for married filing separate); 2.8 percent on taxable income ranging between $10,000 and $25,000 ($5,000 and $12,500 for married filing separate); 3.15 percent on taxable income ranging between $25,000 and $40,000 ($12,500 and $20,000); 4.2 percent on taxable income ranging between $40,000 and $60,000 ($20,000 and $30,000 for married filing separate); and 4.55 percent on taxable income in excess of $60,000 ($30,000 for married filing separate). In addition, effective January 1, 2023, the tax rate for nonresident composite and withholding obligations and withholding on gambling winnings will be 4.55 percent.
For all tax years beginning on and after January 1, 2024, the following personal income tax rates will be effective: 1.8 percent on the first $10,000 of taxable income ($5,000 for married filing separate); 2.4 percent on taxable income ranging between $10,000 and $25,000 ($5,000 and $12,500 for married filing separate); 2.7 percent on taxable income ranging between $25,000 and $40,000 ($12,500 and $20,000); 3.6 percent on taxable income ranging between $40,000 and $60,000 ($20,000 and $30,000 for married filing separate); and 3.9 percent on taxable income in excess of $60,000 ($30,000 for married filing separate). In addition, effective January 1, 2024, the tax rate for nonresident composite and withholding obligations and withholding on gambling winnings will be 3.9 percent.
For all tax years beginning on and after January 1, 2025, the following personal income tax rates will be effective: 1.5 percent on the first $10,000 of taxable income ($5,000 for married filing separate); 2.0 percent on taxable income ranging between $10,000 and $25,000 ($5,000 and $12,500 for married filing separate); 2.25 percent on taxable income ranging between $25,000 and $40,000 ($12,500 and $20,000); 3.0 percent on taxable income ranging between $40,000 and $60,000 ($20,000 and $30,000 for married filing separate); and 3.25 percent on taxable income in excess of $60,000 ($30,000 for married filing separate). In addition, effective January 1, 2025, the tax rate for nonresident composite and withholding obligations and withholding on gambling winnings will be 3.25 percent.
The changes for Tax Year 2023 will be retroactive to January 1, 2023. Due to the retroactive aspect of the bill, current higher tax rates would be used to calculate withholding and estimated taxes prior to enactment of the reduced rates. The delayed implementation of revised tax tables will move a significant portion of the impact which should have occurred in FY2023 into FY2024
According to our interpretation, the proposed legislation, if passed, would decrease General Revenue Fund collections by roughly $161.8 million in FY2023, $1,084.5 million in FY2024, $1,229.6 million in FY2025, and $1,492.6 million in FY2026. The decline in General Revenue Fund collections would continue to increase in subsequent fiscal years due to underlying tax base growth. The estimate for FY2024 is inclusive of $922.7 million in direct impact and $161.8 million due to the retroactive portion of the bill.
The Federal American Rescue Plan Act (ARPA) contains provisions providing for some potential claw back of federal ARPA funds if enacted State level tax cuts result in actual total State revenues (i.e., both tax and non-tax revenues from own sources) falling below an inflation adjusted Fiscal Year 2019 baseline. The guideline applies to actual revenues for both CY2023 and CY2024. There is some risk that the proposed income tax cuts could result in actual revenues falling below the ARPA target in CY2024. Governor Justice is proposing an allocation of $700 million of expected surplus funds for the current fiscal year to a general reserve fund to limit potential risk associated with budget needs over the next couple years. Such fund could also become a hedge against possible federal claw backs. The ARPA revenue target rule expires after CY2024.
Additional administrative costs incurred by the State Tax Department would be $35,000 in FY2023, $10,000 in FY2024, and $10,000 in FY2025.
Memorandum
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov